Diversification plays a critical role in creating a successful investment portfolio. By picking the right group of investments, investors may be able to limit losses and reduce the fluctuations of investment returns without sacrificing too much potential gain*. While stocks, bonds, and cash are the most common asset categories, many investors are also considering alternative investment options, such as real estate.
Today, access to investing in real estate has increased significantly into a mainstream opportunity through the availability of investment vehicles such as real estate investment trusts (REITs).
For investors, including a real estate allocation within an investment portfolio may offer a number of key advantages such as1:
- Diversification2
- Capital Preservation
- Inflation Protection
- Stable Cash Flows
- Attractive Risk-Adjusted Returns
- Passive Management
Real estate's historically low correlation to other asset classes may help diversify an investment portfolio, lower risk and increase overall return.
1 There can be no assurance that these objectives will be met.
2 Diversification does not ensure a profit or guarantee against a loss.
The direct or indirect purchase of real property involves significant risks, including changes in: the economy, supply and demand, laws, tenant turnover, interest rates (including periods of high interest rates), availability of mortgage funds, operating expenses and cost of insurance. Investors should consult their own tax advisors and legal counsel. Always remember that each property is unique and past performance is no guarantee of future result; investors should be able to bear the complete loss of their investment.
* Source: Beginners' Guide to Asset Allocation, Diversification, and Rebalancing; http://www.sec.gov/investor/pubs/assetallocation.htm
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