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, email@example.com
Tom Snee | Newswise Science News
Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik
RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung
There are currently great hopes for solid-state batteries. They contain no liquid parts that could leak or catch fire. For this reason, they do not require cooling and are considered to be much safer, more reliable, and longer lasting than traditional lithium-ion batteries. Jülich scientists have now introduced a new concept that allows currents up to ten times greater during charging and discharging than previously described in the literature. The improvement was achieved by a “clever” choice of materials with a focus on consistently good compatibility. All components were made from phosphate compounds, which are well matched both chemically and mechanically.
The low current is considered one of the biggest hurdles in the development of solid-state batteries. It is the reason why the batteries take a relatively long...
New design tool automatically creates nanostructure 3D-print templates for user-given colors
Scientists present work at prestigious SIGGRAPH conference
Most of the objects we see are colored by pigments, but using pigments has disadvantages: such colors can fade, industrial pigments are often toxic, and...
Scientists at the University of California, Los Angeles present new research on a curious cosmic phenomenon known as "whistlers" -- very low frequency packets...
Scientists develop first tool to use machine learning methods to compute flow around interactively designable 3D objects. Tool will be presented at this year’s prestigious SIGGRAPH conference.
When engineers or designers want to test the aerodynamic properties of the newly designed shape of a car, airplane, or other object, they would normally model...
Researchers from TU Graz and their industry partners have unveiled a world first: the prototype of a robot-controlled, high-speed combined charging system (CCS) for electric vehicles that enables series charging of cars in various parking positions.
Global demand for electric vehicles is forecast to rise sharply: by 2025, the number of new vehicle registrations is expected to reach 25 million per year....
17.08.2018 | Event News
08.08.2018 | Event News
27.07.2018 | Event News
21.08.2018 | Ecology, The Environment and Conservation
21.08.2018 | Life Sciences
21.08.2018 | Power and Electrical Engineering