Investing in Real Estate: An Asset Class Worth Considering


Ipad and graphsYou are likely familiar with the potential benefits and risks of investing in stocks and bonds, but are you aware of real estate as an asset class? Today, many investors look to real estate products that invest in the domestic and/or international real estate market (e.g., office, retail, industrial, multifamily properties). Typically, they select investment products that either own real estate directly or invest in real estate investment trusts (REITs).1

Three leading reasons why you should consider adding real estate to your portfolio:

  1. Diversification. Historically, prices for direct investments in real estate have not moved in tandem with stock and bond markets. As a result, including this asset class in a portfolio of stocks and bonds can enhance diversification — thus helping to strengthen the stability of the portfolio. REITs tend to follow — or correlate — more closely with stock and bond markets and, as result, provide fewer diversification benefits. Direct real estate and REITs can also be combined in a portfolio and diversify each other.
  3. Inflation protection. According to Martha S. Peyton, TIAA-CREF’s Head of Global Real Estate Strategy & Research, “Over five-year holding periods historically, commercial real estate returns have outpaced inflation. Over short-term periods, commercial real estate returns have been modestly correlated with inflation, demonstrating their 'inflation hedging' capacity.”2 REITs also generally outpace inflation due to income from underlying products and their dividend-yielding structure.
  5. Income potential. Historically, real estate investments have been reliable generators of income. They typically yield returns derived from a variety of stable income streams, such as rent, property appreciation, loan payments, and inflation. Please note that REITs — as part of their structure — are required to pay at least 90% of their taxable income in dividends, which tends to generate a stable and consistent income stream for investors.

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