After a booming 2019 for most investment markets, one would have predicted that 2020 would turn out the same, but oh well…
Recently, the stock market moved from being bullish to bearish within a few days and this reminds investors of the 2008 Global Financial Crisis.
Real estate is a very broad asset class, consisting of various sub classes such as Single-Family House (i.e. Residential) small and large multifamily, commercial (office and retail), industrial (light and heavy), and land. My focus today is on the Single-Family House in Nigeria which is very much uncorrelated with the stock market and this has been proven by experts in real estate and to also show this I did a quick study to compare the returns of stocks, bonds and single family housing units. Employing the S&P 500 return data and the 10-year treasury bills data from 2010 to 2019, I can drew some insights to show that single-family houses are uncorrelated to the stock markets.
During this 10 year span, the S&P 500 returns went as high as 28%, with an average of 10.52%, but also had three bad years excluding 2020. Taking a look at bonds, over the same duration of years Federal Government bonds returns went as high as 16%, with an average of 13.09%, but had two bad years excluding 2020.
Alternatively, during this period real estate recorded returns as high as 31%, with an average of about 10%, but with no bad year i.e. no bearish trend in housing prices.
In summary, investors who add real estate (in this case Single Family House (SFH)) to their investment portfolios reduce their exposure to risk since SFH’s are proven to be highly uncorrelated with the stock market. So, investors can strengthen their portfolios by investing in SFH, as this asset class has being less volatile than stocks and bonds and can generate consistent monthly income.
It will be awesome to know that a portion of your portfolio consists of tangible assets that are uncorrelated with the stock market.
References; Northcourt, https://tradingeconomics.com/nigeria/government-bond-yield, https://www.macrotrends.net/2526/sp-500-historical-annual-returns
