In investing, the ups and downs of the stock market can feel like rough seas — exciting one moment, stomach-churning the next. One way to steady the ride is by adding real estate to your portfolio. Because real estate often moves independently from stocks and bonds, it can help reduce volatility and keep your overall returns more consistent over time.
Low Correlation: A Different Course from Stocks and Bonds
Stocks respond to earnings reports, investor sentiment, and global headlines. Bonds react to interest rates, inflation, and monetary policy. Real estate, however, is driven more by local market factors — supply and demand, population trends, and rental income.
This difference in drivers means real estate’s performance often doesn’t mirror what’s happening in the broader markets. When equities drop or bonds underperform, your real estate investments can continue generating stable returns, acting as a counterbalance.
Reducing Portfolio Risk
Diversification works best when you combine assets that don’t all move together. By blending real estate with stocks and bonds, you create a portfolio where weakness in one area can be offset by strength in another.
Benefits include:
- Lower overall volatility
- Reduced impact of market downturns
- More predictable long-term performance
Smoothing Returns in Tough Markets
One of real estate’s greatest strengths is its ability to keep producing income during market stress. Even in recessions, tenants still need homes, and businesses still need places to operate. Rental income often continues flowing when stock dividends are cut, helping offset declines elsewhere in your portfolio.
This steady cash flow can make the difference between staying the course confidently and feeling pressured to sell during a downturn.
A Steadier Path for Passive Investors
For passive investors, the goal isn’t to avoid market swings entirely — it’s to navigate them without capsizing. Real estate’s low correlation with stocks and bonds makes it a valuable stabilizer, keeping your portfolio on a more even keel through all kinds of market conditions.
Doug Kline, PhD, has held income properties in North Carolina for more than 20 years. He holds a North Carolina broker’s license, and is a member of the National Association of Realtors and the Triangle Real Estate Investors Association. He holds an MBA and a PhD in business. In addition to his real estate activities, Doug enjoyed a successful career in academia, achieving the rank of Full Professor in the Cameron School of Business at UNC Wilmington. He was honored with research and teaching awards, served as Director of the MS Computer Science and Information Systems program, and was awarded the endowed position Distinguished Professor of Information Systems.