A problem with diversifying assets

I was thinking about how financial people are always telling us to make sure we don't have all of our eggs in one basket and that we should diversify our investments.

Example: if I have $100k in the stock market, I should aim to put a similar amount of money into property.

The problem I have relates to a specific scenario which is that if I purchased a small property about 10 years ago and the value of it has gone up about $50k in that time with me originally putting in $50k of my own money in to purchase, so I'd have a combined equity of $100k tied up in 'property'.

Now, the conventional wisdom of financial investing is that I should aim to invest an equivalent amount of money in the stock market to ensure that, if the price of the property were to collapse, I would be hopefully protected.

The problem I have with that is that the average person would take quite a while to find $100k to invest in order to provide the necessary diversity.

Another point is that I could find that, in the time it takes for me to invest said $100k, the value of the property would have kept rising, which isn't a bad problem to have.

The alternative way to look at it is that I'd be better off aiming to buy a 2nd property (in a different area, for a small bit of diversity) for many reasons, the main one being that I'd be chasing my tail for many years to catch up with the returns that my first property delivered.

To compound that, once I'd 'balanced my diversity' and decided to buy my next property, I'd either have to start saving a separate amount of money to buy a 2nd property, taking many years to enable, or I'd just liquidate a large chunk of shares to buy the 2nd property, thereby reintroducing the imbalance again.

There is always the possibility of borrowing against the 1st property to either buy the 2nd property or even invest in shares, but unless the shares are returning an above interest rate dividend, I'd be going into debt to maintain a false investment portfolio that I'd still have to pay back, even if the share prices collapse.

Overall, I think a balance of the two is good, however at the current growth rates of property prices in Australia, I think I'd be hard pressed to find an equivalent return in stock market without as much risk.  The one advantage the stock market has is the low entry and exit costs and the far quick time to liquidate the assets.

The main difference is that there are only a finite number of companies on the stock exchange and, whilst some are overrated and others are underrated, all are under regular scrutiny by many different groups of investors.

Property sees millions of houses being assessed by far fewer potential investors as a percentage of the whole, which means there's a far greater chance of finding a bargain.