3 Reasons Why Real Estate Needs To Be In Your Investment Portfolio

3 Reasons Why Real Estate Needs To Be In Your Investment Portfolio

In the latest Issue of NREI, David Lynn, managing director and head of investment strategies for Clarion Partners in New York, wrote a great article showing how private real estate holdings are important in diversifying one’s investment portfolio.

He writes, “Private real estate can provide significant and important benefits for a mixed asset investment portfolio.” In the article he cites three reasons for this.

  1. Over the past 10 and 15 years, private real estate returns have outperformed the major stock averages. Private real estate has delivered 6.9% average annual income returns between 2000 and 2010, and 7.7% for the period 1978-2010.
  2. Private real estate has shown relatively low volatility and has achieved among the highest risk adjusted returns among the major asset classes since 1978.
  3. The low or negative correlation of private real estate returns with returns of bonds, equities, and public REIT’s suggest that it can be an effective diversifier.

In the article, Mr. Lynn explains why private real estate does not move in tandem with other asset classes, and therefore is a valuable tool in balancing out volatility of an investment portfolio, especially in this unpredictable global economy. He cites quarterly or annual appraisal based valuations versus the daily market valuations of equities as a big part of this.

I highly recommend reading this article. It is informative and well researched. Mr. Lynn has done a great job writing it. If you need a copy, send me an email, at jbox@arthaassociates.com and I’ll forward a copy on to you.


Leave a Reply