When thinking about investing for retirement, for many, stocks and bonds most immediately come to mind. But what about real estate — specifically, institutional-quality private real estate?
“Institutional-Quality" Real Estate includes properties that are of sufficient size, stature, and quality to attract investment from the world's largest pension funds, insurance companies, endowments, and foundations.
In fact, in comparison to defined contribution plans like 401k's, pension and similar portfolios have historically held up to nine times more exposure to private institutional-quality real estate.
Which raises an important question - Why? Because private institutional-quality real estate has historically offered several key benefits, such as:
✔ Attractive total returns with a durable income component
✔ Low volatility
✔ Greater overall portfolio diversification, with a low correlation to the performance of stocks and bonds, and
✔ Inflation hedging
These advantages can lead to better risk-adjusted returns and better plan participant outcomes. Defined contribution plans that focus solely on investing in public REITs may miss out on these benefits.
So how can individuals get access?
Instruments such as collective investment trusts (CITs) have been developed that can help DC plans shift their real estate allocations from public REITs to private real estate portfolios. And because private real estate makes up 90% of the institutional investable real estate universe in the U.S., CITs allow plan sponsors to access a much wider opportunity set.
So advisors and plan sponsors — consider adding real estate to your defined contribution plans today. It's an important way to introduce greater diversification for your clients and investors.
And if you're an investor, ask your financial advisor if institutional-quality real estate is available in your 401k or other retirement plans. It's a smart way to balance your portfolio and plan your financial future with more confidence.