The U.S. property market has provided stellar returns to investors throughout history. Investors, analysts and economists keep a close eye on this industry to gauge a measure of the level of economic activity. While there are many ways to invest in this sector, including directly purchasing properties, real estate investment trusts (REITs) have gained in popularity over the last couple of decades as one of the most convenient ways of gaining exposure to real assets. In the first half of this analysis, I will discuss the performance of REITs in 2019 and the expectations for 2020, the reasons behind investing in this asset class and some of the REITs that gurus are bullish on.
Why investors should consider real estate investments
Not every asset class has the same characteristics, and understanding the intrinsic nature of different types of investments is important to build a portfolio that provides an acceptable return under various market conditions. One of the primary reasons to invest in real estate is the potential for generating a higher average return over any other asset class.
The inflation-adjusted average annual return of various asset classes in developed countries:
Diversification benefits provide another reason to consider this investment vehicle. In a study conducted by Dr. Jeffery Fisher of John Hopkins University, it was revealed that real estate investment returns have a low correlation with stock markets around the globe, which is proof that this sector has the potential to reduce the overall risk of an investment portfolio.
Among investment gurus, Ray Dalio (Trades, Portfolio) stands out as one of the most prominent investors who have remained bullish on real estate for decades. In an interview with CNBC, Dalio said:
“Keeping cash in a savings account is the worst thing you could do because it is the surest tax on your money. You will bleed slowly to death because the after-tax returns are lower than inflation by a little per year. It’s important to know how to diversify into non-cash assets like stocks, bonds, and real assets.”
For his book “Money: Master the Game,” Tony Robbins interviewed over 50 legendary investors, including Warren Buffett (Trades, Portfolio), Carl Icahn (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Steve Forbes, and based on the input from these successful investors, suggested that the below asset allocation strategy is what gurus believe would deliver attractive returns in all market conditions.