As an asset class, real estate provides benefits aside from the 5.68% return over an extended period of time.
Many talk diversification. But as an investor you must ask, How diversified? Just because you own ten stocks instead of three doesn’t mean you’re diversified. If you invest in Ford and Ford auto-part makers you have little or no diversification. A drop in the auto sales hits both the auto and auto-part industry.
Standard & Poor’s 500 is the standard proxy used for measuring the performance of stocks. When you look at the correlation with residential real estate and the S&P 500 over the past 31 years, you find the correlation is 0.14. This is a low correlation (1 is perfect) and shows adding real estate to your portfolio does diversify your investments. Over the long run, it might not beef your retirement as much as the S&P 500’s 10.84% return, but it’ll help you sleep at night.