Retirement Advisor Council Blog

The Importance of diversification--thoughts from Cohen & Steers

diversificationThe importance of diversification can't be overstated. Retirement plan sponsors, advisors, and consultants should be aware of a simple, effective addition they can make to their defined contribution (DC) plan lineups - the inclusion of real estate investment trusts (REITs). 
Some quick facts:
  • Real estate can enhance a portfolio's risk-adjusted returns because of low correlations with stocks and bonds, attractive total-return potential, and inflation-hedging ability.
  • While real estate typically makes up 5% - 15% of the asset allocation among institutional investors, according to Brightscope only 45% of DC plans with 100-plus participants offer real estate as an investment choice. And among those plans, allocations to real estate average just 2% of plan assets.
  • Just as real estate can help diversify overall portfolios, REITs themselves are diversified. They include a wide range of property sectors with varied business models, supply-and-demand cycles, geographies, and are affected by wide-ranging macroeconomic conditions and governed by varied interest-rate policies. All of this adds to diversification.
  • U.S. REITs outperformed the S&P 500 Index in 18 of the 26 calendar years through 2017, according to Morningstar. It's true that past performance is no guarantee of future results. But are you willing to ignore an asset class with such strong historical returns?
To learn more about REITs, their diversification potential, past performance, inflation protection, and how they can help your plan participants, click here to read "REITs: Answering the Call for DC Plan Diversification."
Cohen & Steers
Global Investment Manager