It is important for you to diversify your investments because this is an effective way for you to control your risk. One way is to invest in real estate. Real estate investors are able to enhance the ratio of reward and risk, helping to provide strong returns that have been leveraged against the reduced risk of real estate. As a rule, the real estate market is not as volatile as markets that contain stocks and bonds. In addition, real estate is attractive when compared to traditional sources of income. The real estate market trades at a premium when compared to United States Treasuries. This makes the real estate market even better if the rates of Treasuries are low.
The Diversification of Real Estate
One of the major benefits of investing in real estate is its potential to diversify. First, there is a chance that real estate might have a negative correlation to other major classes of assets. For example, if other assets (such as stocks) are down, real estate often goes up. This means that adding real estate to your portfolio can reduce its volatility and increase its return per unit of risk. In essence, the more direct the investment you make in the real estate, the better your hedge against the stock market.
An Inflation Hedge
Speaking of hedges, investing in real estate also serves as an effective hedge against inflation. Over time, the cost of goods will increase. As economies continue to expand, the demand for real estate is going to grow. Therefore, real estate has a better chance of holding its purchasing power over the long term when compared to paper money. In this sense, real estate provides capital appreciation.
These are a few of the most important reasons why you should think about investing in real estate. It helps you diversify your portfolio and helps you hedge against inflation.