Constructing smart portfolios is the key goal of every investor regardless of the risk aversion. Accessible investments for investors are for instance stocks, bonds, treasury bills,
and real estate. According to Seiler, Webb, and Myer (1999, p. 163) “real estate asset management has been and will continue to be a topic of great interest”. In the year 1971 U.S. public real estate had a total market capitalization of US$1.4bn, while in 2006 public real estate had a market capitalization of US$438bn (National Association of Real Estate Investment Trusts [NAREIT], 2007, p. 1). The U.S. private real estate index has more than
tripled from US$84bn in market value in the first quarter of 2001 to US$266m in the first quarter of 2007 (National Council of Real Estate Investment Fiduciaries [NCREIF],2007, p. 1. It is obvious that the real estate market has been growing incredibly and real
estate has became more and more important as an investment opportunity. However, all available data on ownership of real estate show that pension funds hold 3.5% to 4.0% of
their total assets in real estate (Chiochetti, SA-AADU, & Shilling, 1999, p. 193). Optimal allocation seems to
be a problem. Another point is that some degree of diversification can be achieved without real estate. So why should investors hold real estate in their portfolios? Does real estate outperform stock and bond returns? What risks are linked with real estate investments? The aim of this paper is to provide the reader with a deep insight into the real estate investment discussion and to present the advantages and disadvantages of real estate in a mixed-asset portfolio. In a nutshell, at the end of this paper the reader should be able to decide, whether real estate investment is justifiable or not.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Problem Definition and Objectives
- Course of the Investigation
- Theoretical Fundamentals
- Portfolio Fundamentals
- Definition of Real Estate
- Real Estate Investment Discussion
- Risk and Return
- Direct Real Estate
- Real Estate Investment Trusts (REITs)
- Diversification in a Mixed-Asset Portfolio
- Direct Real Estate
- Real Estate Investment Trusts (REITs)
- Real Estate as Inflation Hedge
- Disadvantages of Real Estate Investment
- Risk and Return
- Optimal Allocation
- Summary and Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to provide a comprehensive analysis of real estate investment, exploring its advantages and disadvantages within the context of asset allocation. It delves into the complexities of real estate as a unique asset class and assesses its potential contribution to diversified portfolios.- The role of real estate within a mixed-asset portfolio
- The unique characteristics and challenges of real estate investment
- The impact of diversification on portfolio performance
- The advantages of real estate as an inflation hedge
- The determination of optimal asset allocation strategies
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter introduces the topic of real estate investment and its significance within asset allocation strategies. It highlights the increasing market capitalization of real estate and the debate surrounding its optimal allocation in portfolios.
- Theoretical Fundamentals: This chapter lays the foundation for the discussion by defining key concepts such as portfolio diversification and the characteristics of real estate as an asset class.
- Real Estate Investment Discussion: This section delves into the risk and return profiles of direct real estate and Real Estate Investment Trusts (REITs). It explores the role of diversification in mitigating risks and the potential of real estate as an inflation hedge.
- Optimal Allocation: This chapter focuses on the critical question of determining the optimal allocation of real estate within a portfolio, considering various factors such as risk tolerance, investment goals, and market conditions.
Schlüsselwörter (Keywords)
This paper focuses on real estate investment, asset allocation, portfolio diversification, risk and return, inflation hedge, and optimal allocation strategies. It explores the characteristics and complexities of real estate as a unique asset class and its role in maximizing portfolio returns while managing risk. Key concepts include the Capital Asset Pricing Model (CAPM), Arbitrage Pricing Theory (APT), and Real Estate Investment Trusts (REITs).- Quote paper
- BSc Waldemar Maurer (Author), 2007, Real Estate Within the Asset Allocation Mix, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/134888
