Real Estate Investment and Diversification

Adding real estate to your portfolio is a common way to diversify your investments and add stability. Those two results, which obviously go hand-in-hand, are why real estate investment is often suggested to those looking to mature and grow their portfolio. Let’s examine some ways that real estate investment can accomplish those goals.

Diversification

Anthony S Casey

Why is real estate investment healthy for your portfolio?

The most common reason for interest in real estate investment is diversification, which in turn will maintain the purchasing power of capital. There are well documented studies indicating that there is a low correlation between the real estate industry and stock and bond investments. Take this to mean, empirically, that real estate investment is an effective method of portfolio diversification. Also, consider how many different sectors of real estate investment there are. Coupled with consistent introduction of new products, and buyers end up with many different options. This flexibility allows investors to further mitigate risk.

Safeguard Against Inflation

Real estate has a great method of guarding against inflation. This stems from the owner’s ability to raise rental rates based on inflation and market value. Dissimilar to manufacturing or service based investments, real estate does not need to battle demand elasticity to increase prices. Granted, prices are subjected to competing properties in the same marketplace, but it stands to reason that those shifts would be effected by inflation equally. The hedging effect of real estate investment also maintains the purchasing power of capital because it passes a portion of the inflationary volatility to the tenants.

Portfolio Organization

Keep in mind that home ownership is, for most investors, the biggest single slice of their portfolio-pie. If you are considering moving a portion of your portfolio in real estate, you should incorporate your own home into the overarching strategy. It can be odd to consider your personal home as an important part of your portfolio, but keeping your eye on your long term goals will help give investors perspective.


 

These are just a few of reasons why real estate investment is an important part of one’s portfolio. As always, it is important to discuss your financial goals with a professional, such as Anthony S Casey.

from Anthony S Casey and Real Estate http://ift.tt/1Cpl1qq

Advertisements