REITs and Diversification

Real estate is an important asset class that every investor should consider owning as part of a well-diversified portfolio. REITs have historically provided investors an efficient way to diversify their investments to reduce risk and increase long-term returns.

Investors who diversify their portfolios have historically had a better chance of ending up with higher returns because diversification reduces portfolio volatility and mitigates losses from any one security or asset class. 

Listed REITs help to diversify a portfolio because, as real estate, they are a distinct asset class that has demonstrated low-to-moderate correlation with other sectors of the stock market, as well as bonds and other assets. In other words, REIT returns have tended to zig while returns of other assets have zagged, smoothing a diversified portfolio’s overall volatility.

This diversification may help an investor increase long-term portfolio returns without taking on additional risk. 

REITs historically:

  • Provide Low Correlation with Broader Market and Other Assets
  • Increase Return/Reduce Risk
  • Complete Asset Allocation