Crafting a balanced retirement portfolio can help alleviate some of those financial fears. Ideally, your retirement portfolio deftly balances two primary objectives: capital preservation and growth. Adding real estate to your retirement portfolio may help achieve both goals, but since real estate comes with a slew of unique risk factors, investors must be able to handle this additional exposure to risk during retirement, which is often the time investors shift their investing focus to more conservative asset allocation strategies.
In this article we’ll discuss some of the potential benefits and drawbacks of investing in real estate to help investors better understand the pros and cons of this asset class. After careful consideration of these factors, investors can decide for themselves if this asset class meets their investment goals and fits within their retirement investment strategies.
There’s no guarantee investors will realize any of these potential benefits, but a few of the reasons investors add real estate to their portfolios include:
Investing in real estate can take many forms, including direct property ownership, publicly traded real estate investment trusts, Delaware Statutory Trusts, and tenants in common or joint tenancy arrangements. Some of these forms allow for direct involvement in the asset, while others are completely passive investments.
Real estate investments can bring a host of potential drawbacks that may outweigh any benefits. These can include:
Only you can decide whether or not you should add real estate to your retirement portfolio. It could prove beneficial to allocate a percentage of your investment capital to real estate as a means to diversify your retirement portfolio, but doing so could potentially increase your exposure to risk at a time when you might want to consider more conservative investment approaches.
Investing in real estate, especially direct property ownership, can be time-consuming, complicated, and usually requires extensive due diligence and market research. Although you might find yourself with more free time in retirement, you also might not want to spend that time scouring markets for suitable investment options or managing a rental property and its tenants.
Perhaps the best approach when considering the merits or pitfalls of adding real estate to your retirement portfolio is to discuss your investment goals with a certified financial planner. That conversation could go a long way to help you determine if real estate should become part of your retirement investment strategy.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
All investments have an inherent level of risk. The value of your investment will fluctuate with the value of the underlying investments. You could receive back less than you initially invested and there is no guarantee that you will receive any income.
Programs that depend on tenants for their revenue may suffer adverse consequences as a result of any financial difficulties, bankruptcy or insolvency of their tenants.