First, let's clarify that this is not advice and that any case should be analyzed individually as this may not apply to everyone.
What is a recession?
A recession is an economic contraction that lasts for at least six months. In the United States, the last recession lasted from December 2007 to June 2009. During that time, real estate prices fell by 26.4%. As a result, many people lost money on their investments.
For those who kept their investment portfolio diversified, however, the story was in many cases different. While it's true that no asset class is immune to market downturns, some perform better than others during periods of economic recession. And of those asset classes, real estate funds have historically been one of the best performers.
Why investing in a real estate fund can be a good option during periods of economic recession
Let's take a look at why investing in a real estate fund can be a good option during periods of economic recession.
The first reason has to do with the fact that income from rental properties is relatively stable when compared to other types of investments. This is because people will always need a place to live—regardless of whether there's an economic recession or not. As long as there are people who need somewhere to live, there will always be demand for rental properties.
1 - Stability
This stability is reflected in historical data. For example, between 2007 and 2009—during the last recession—the value of the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index (which tracks the performance of institutional quality real estate) fell by only 4%. That's significantly better than most other asset classes performed during that time period.
2 - Portfolio diversification
Investing in a real estate fund can also provide investors with another key benefit: portfolio diversification. Diversification is important because it helps protect your portfolio from losses if one particular asset class underperforms. By including a real estate fund in your investment portfolio, you'll be less exposed to losses should the stock market take a nosedive during an economic recession.
3 - Keep making money even if property values fall
And finally, investing in a real estate fund can often provide you with the opportunity to make money even if property values are falling. That's because—unlike individual investors who own physical properties—real estate funds are able to take advantage of something called "short selling." This is when an investor sells a security they do not own and hopes to buy the same security back at a lower price so they can pocket the difference. Short selling allows investors to profit even when markets are going down.
Real Estate Funds & Recession
In conclusion, a recession is an economic contraction that lasts for at least six months. In the United States, the last recession lasted from December 2007 to June 2009. Many people lost money on their investments during this time; however, those who kept their investment portfolios diversified did not fare as badly. In fact, some even made money despite the market downturn.
Real estate funds have historically been one of the best-performing asset classes during periods of economic recession—and for good reason. Income from rental properties is relatively stable when compared to other types of investments; historical data shows that real estate funds have held up relatively well during past recessions, and investing in these types of funds can provide you with portfolio diversification and the opportunity to make money even if property values are falling thanks to short selling. So if you're thinking about making some changes to your investment portfolio in light of recent economic volatility, investing in a real estate fund may be worth considering.
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