Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:


Research Finds That Even After the Bubble, Real Estate Remains Part of a Strong Portfolio

Home prices have been in a funk since 2006, but a new study by University of Iowa researchers shows that real estate is still an important part of a diversified and stable long-term investment portfolio, even after the bubble burst.

Jay Sa-Aadu and Ashish Tiwari, finance professors in the Tippie College of Business, and Jim Shilling, a finance professor at DePaul University, analyzed the performance of diversified investment portfolios that included domestic and international stocks, real estate, commodities and precious metals between 1972 and December 2008. That period, they note, includes the 2006 real estate meltdown and the first year of the recession that began in 2007.

Yet, despite the poor performance of real estate recently, those portfolios that included investments in real estate investment trusts (REIT) performed better than those that did not.

"In a long-term investment strategy, our research suggests that real estate provides stability to a portfolio during bad times," said Sa-Aadu.

In their study, Sa-Aadu and Tiwari started with a portfolio that was made up of large and medium cap stocks and Treasury bonds, then added various other asset classes to see how they affected performance over time from 1972 through December 2008. They found that the addition of REITs, corporate bonds, small cap stocks, international stocks and commodities and precious metals resulted in significant diversification gains. However, the various asset classes differed in important respects in terms of the timeliness of the gains.

A key result of the research is that the benefit of real estate and commodities and precious metals is most pronounced during a poor economy. Even when real estate does poorly, they said, it does less poorly than other asset classes, providing the portfolio stability.

"We found that real estate and commodities and precious metals are the two asset classes the deliver portfolio gains when consumption growth is low or volatile, when investors really care for such benefits," said Sa-Aadu and Tiwari in their paper, "On the Portfolio Properties of Real Estate in Good Times and Bad Times." The paper is forthcoming in the journal Real Estate Economics.

They said their findings on the performance of real estate in good economic times and bad suggest that the typical institutional allocation to real estate may be underweighted.

Their research suggests that during their study period, the optimal portfolio during good economic times would hold mostly domestic stocks (34 percent), with international stocks (25 percent), government bonds (22 percent) and real estate (15 percent) also included.

In contrast, an optimal portfolio during poor economic times would be mostly government bonds (53 percent), and also include precious metals (28 percent) and real estate (19 percent).

Sa-Aadu and Tiwari note that most institutional investors hold only 4 to 7 percent of their portfolios in real estate. Since a significant investment in real estate appeared in both of their optimal portfolios, they suggest that institutional investors consider increasing their real estate allocation for more stable portfolios long-term in both good and bad times.

They also said their study pertains to a long-term investment horizon in portfolios holding REITs, which invest mostly in multi-family housing and commercial property. It does not apply to a speculative investment strategy of purchasing single-family homes and selling them quickly.

Ashish Tiwari, 319-353-2185,

Tom Snee | Newswise Science News
Further information:

More articles from Business and Finance:

nachricht Blockchain Set to Transform the Financial Services Market
28.09.2016 | HHL Leipzig Graduate School of Management

nachricht Paper or plastic?
08.07.2016 | University of Toronto

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Novel light sources made of 2D materials

Physicists from the University of Würzburg have designed a light source that emits photon pairs. Two-photon sources are particularly well suited for tap-proof data encryption. The experiment's key ingredients: a semiconductor crystal and some sticky tape.

So-called monolayers are at the heart of the research activities. These "super materials" (as the prestigious science magazine "Nature" puts it) have been...

Im Focus: Etching Microstructures with Lasers

Ultrafast lasers have introduced new possibilities in engraving ultrafine structures, and scientists are now also investigating how to use them to etch microstructures into thin glass. There are possible applications in analytics (lab on a chip) and especially in electronics and the consumer sector, where great interest has been shown.

This new method was born of a surprising phenomenon: irradiating glass in a particular way with an ultrafast laser has the effect of making the glass up to a...

Im Focus: Light-driven atomic rotations excite magnetic waves

Terahertz excitation of selected crystal vibrations leads to an effective magnetic field that drives coherent spin motion

Controlling functional properties by light is one of the grand goals in modern condensed matter physics and materials science. A new study now demonstrates how...

Im Focus: New 3-D wiring technique brings scalable quantum computers closer to reality

Researchers from the Institute for Quantum Computing (IQC) at the University of Waterloo led the development of a new extensible wiring technique capable of controlling superconducting quantum bits, representing a significant step towards to the realization of a scalable quantum computer.

"The quantum socket is a wiring method that uses three-dimensional wires based on spring-loaded pins to address individual qubits," said Jeremy Béjanin, a PhD...

Im Focus: Scientists develop a semiconductor nanocomposite material that moves in response to light

In a paper in Scientific Reports, a research team at Worcester Polytechnic Institute describes a novel light-activated phenomenon that could become the basis for applications as diverse as microscopic robotic grippers and more efficient solar cells.

A research team at Worcester Polytechnic Institute (WPI) has developed a revolutionary, light-activated semiconductor nanocomposite material that can be used...

All Focus news of the innovation-report >>>



Event News

#IC2S2: When Social Science meets Computer Science - GESIS will host the IC2S2 conference 2017

14.10.2016 | Event News

Agricultural Trade Developments and Potentials in Central Asia and the South Caucasus

14.10.2016 | Event News

World Health Summit – Day Three: A Call to Action

12.10.2016 | Event News

Latest News

Steering a fusion plasma toward stability

28.10.2016 | Power and Electrical Engineering

Bioluminescent sensor causes brain cells to glow in the dark

28.10.2016 | Life Sciences

Activation of 2 genes linked to development of atherosclerosis

28.10.2016 | Life Sciences

More VideoLinks >>>