Investing During a Recession: Can Real Estate Help Reduce Overall Portfolio Risk? | Schwab - Millennium Trust Company

Investing During a Recession: Can Real Estate Help Reduce Overall Portfolio Risk?

July 14, 2020
By Millennium Trust

Imagine, we’re just over six months into 2020 and – already – we’ve experienced a pandemic, an economic lock down, a recession and a bear market (after a record-long bull market).  

Share prices have trended higher since March, but many investors have wondered how companies can be worth so much when the economy is contracting, corporate profits are declining and a record number of Americans are unemployed.  

While it may be tempting to move to cash and wait until the crisis passes, that decision may impair your ability to reach long-term financial and retirement planning goals. A better option is to adhere to long-standing investment principles and maintain a well-balanced and diversified portfolio.  

A well-balanced portfolio can include real estate. 

If the end of the bull market in stocks has you reassessing your relationship with risk, you may want to talk with your financial advisor about expanding your asset allocation to include real estate, particularly in a tax-advantaged vehicle like a self-directed IRA.  

Historically, real estate has had a low correlation with other asset classes, so it has potential to reduce overall portfolio risk and improve long-term return potential. Plus, real estate investments often generate income streams that can be reinvested for growth or distributed for income. 

When you add real estate to your allocation, it’s possible to deepen portfolio diversification by investing in different types of real estate opportunities. For example, an investor could invest in: 

  • Residential real estate (e.g. houses, condominiums, multifamily housing units),
  • Commercial real estate (e.g. medical and office buildings, data centers, warehouses, cell towers) or
  • Raw land (e.g. undeveloped property, pre-construction investments, real estate developers). 

When real estate assets are held in a self-directed IRA, it can be beneficial to work with a team of experts that may include your financial advisor, accountant, attorney, specialty custodian and others.

The current economic disruption is reshaping economies and industries at an accelerated pace. No one can predict the future with certainty, but the decisions you make about how to invest today will influence your ability to reach your financial and retirement planning goals.  

Building and maintaining a diversified portfolio is a sound place to start.

You can learn more by reading Millennium Trust’s Guide to Holding Real Estate in Your Retirement Account and Real Estate Frequently Asked Questions

The material in this blog is presented for general informational purposes only. The information presented is not investment, legal, tax or compliance advice. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal or tax advice.

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