Why Real Estate?
Potential For Decreased Portfolio Risk
Real estate investments also have the potential to lower risk of an overall investment portfolio. According to Morningstar, a leading provider of independent investment research, adding real estate to stock-and-bond-only portfolios can decrease overall portfolio risk.
Potential for Decreased Risk1
January 1990 - December 2009
1 Source: © 2010 Morningstar. All rights reserved. Used with permission. Past performance is not a guarantee of future results. This material is for illustrative purposes only and is not indicative of any investment. Stocks are represented by the S&P 500; Bonds are represented by the five-year U.S. Government Bond; Cash is represented by a U.S. 30-day T-Bill; Direct real estate is represented by the MIT transaction-based index (TBI), a statistical methodology that produces estimates of price movements and total returns based on transactions of properties sold from the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index (NPI). The NPI is an index of quarterly returns reported by institutional investors on investment grade commercial properties owned by those investors and is presented without leverage or fees. The NPI is used as an industry benchmark to compare an investor’s own returns against the industry average. Although not a measure of non-traded REIT performance, the NPI is an accepted index for the purpose of evaluating the relative volatility of an investment in non-traded REITs. Risk is represented by standard deviation, which is a statistical measurement that depicts how widely returns varied over time. The measurement is generally used to predict and understand the range of returns that are most likely for a given investment. Investors cannot invest directly into any index. Investing in real estate entails certain 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. Some real estate investments offer limited liquidity options.