Skip to Content
US Videos

5 Real Estate Funds to Diversify Your Portfolio

Real estate stocks don't correlate strongly with returns from the broader stock market or bonds, providing portfolio diversity.

Mentioned: , , , ,

David Kathman: Real estate funds can be useful in just about any portfolio, especially as a diversifier. That’s because the returns of real estate stocks tend not to be too strongly correlated with the returns of either the broader stock market or with bonds. 

Just to give a couple of examples, in 2013 the S&P 500 gained 32%, while the Barclays US Aggregate Bond Index was down 2% and the MSCI US REIT Index of real estate stocks was similarly flat, up just 1%. But then in 2014, the MSCI US REIT Index gained 29%, while the S&P 500 and Barclays Agg had much smaller gains, of 14% and 6%. So having a modest real estate position in your portfolio, say 5% or 10%, can help smooth out returns and ultimately lead to better results over the long term. 

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.