Real Estate – Improves Stability, Reduces the Risk of Loss and Increases Returns Potential

Real_Estate_Investment REIT

Your investment portfolio will experience volatility over time and will have periods of loss, even the most well-allocated portfolio. 

  1. The key is to diversify your portfolio with low or non-correlated assets.
  2. Asset correlation is a measure of how investments move relative to one another.
  3. Assets that move in the same direction at the same time are positively correlated.
  4. Assets that move in the opposite direction of each other are negatively correlated.
  5. Assets that don’t respond to the movement of the other assets are non-correlated.
  6. Investors spend a lot of time searching for non-correlated assets. 

Real Estate is highly non-correlated to the stock markets either when held directly or via a REIT. By including Real Estate in your portfolio you lower the risk and increase the possibility of more stable returns. 

Other assets not correlated to the stock markets are gold, precious metals, collectibles, government bonds, art, and wine there are countless other options out there depending on your investment strategy. 

Investors understand not to put their eggs in one basket i.e. not investing in a single stock, industry, or asset type. 

Most investors are diversified across sectors, asset classes, industries, and geographically but all via the stock markets which is the public market. 

Public traded investments have been becoming increasingly correlated and make it difficult to achieve meaningful diversification in the stock markets alone.

Having access to private market investments offers investor’s options to diversify their portfolio beyond the stock markets. 

Real Estate investments are more available today than it has ever been either through REITS, crowdfunding, syndicated deals, shared appreciation mortgages and direct purchase. 

With little performance correlation with the stock markets and a historic long-term capital appreciation makes Real Estate a very strong diversification asset to hold within your investment portfolio.

Author: Mark Purai, Wealth Management, Wealth Advisor, Real Estate Advisor.

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