Tag: portfolio diversification

Real estate as portfolio diversifier and inflation hedge


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Although real estate is one of the world’s riskiest and most lucrative industries, it remains to be the best way for investors to expand, diversify, and protect their portfolio. This sector of the economy is specially used as part of a long-term core strategy to stabilize income flow. It is noted for its high market efficiency and the role it plays in the variability of stock and bond returns.

Diversification
The traditional notion on real estate is anchored on its capacity to encourage assets diversification and increase the purchasing power of capital. The National Council of Real Estate Investment Fiduciaries (NCREIF) reports that the market indexes for the real estate industry have consistently displayed low correlation with the returns of both stock and bond investments. This means that portfolio diversification can potentially be put to its maximum. New opportunities offered by real estate allow venture capitalists to customize their assets allocation and heighten their investment’s risk mitigation potential.


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Hedging Inflation
During periods of inflation, property owners can increase their rental rates. This gives way to an increased inflation hedging capacity, allowing investors to manage demand elasticity more conveniently. However, real estate professionals, including Melissa Yardy of Florida and Jack Friedman of Texas, point out that although this strategy is very plausible, property owners may still have to face steep competition in the marketplace.

Real estate has the potential to produce investments that can be readily diversified and increase the purchasing power of capital. However, the ability of the industry to act as an inflationary hedge is only possible when leasing opportunities are made available.


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