Finance32: Dental School’s Missing Curriculum
Finance32: Dental School’s Missing Curriculum
Great clinical skills simply are not enough for dentists to achieve financial success. Let Buckingham Strategic Wealth's Practice Integration Advisors share what else you need to know to realize your lifetime goals and obtain financial peace of mind.
Buckingham Strategic Wealth

Should You Invest in Real Estate?

Should You Invest in Real Estate?

3/4/2020 9:00:00 AM   |   Comments: 0   |   Views: 182

Mike McAninch is a Practice Integration Advisor with Buckingham Strategic Wealth, where he specializes in helping dentists connect their money and their values to realize their most important financial goals.

Dentists frequently ask us whether they should invest in real estate. The simple answer is yes. The more difficult question to answer, though, is how much a dentist should invest in real estate.

By far the most common type of real estate investment that we’ve found dentists make is in individual residential and commercial properties. My colleague Katie Collins will tackle this type of real estate investment – often homes, rental properties and practice premises – in our next blog.

Absent the purchase of individual properties, let’s address the question of allocating a portion of your investment portfolio in a diversified real estate investment trust (REIT).

In my review of the literature, I found the following common beliefs about real estate and investing. Let’s look at each of them and see if they stand up to examination.

Real estate provides diversification to your overall portfolio. A common belief is that real estate has a low correlation with stocks and bonds. This means that an investment in real estate would provide a unique source of return. Unfortunately, academic evidence tells us that REIT returns are well explained by standard stock and bond market factors and fail to provide convincing diversification benefits.

Real estate provides a hedge against inflation. Some believe real estate values keep pace with inflation and thus provide returns sufficient to maintain the purchasing power of your investment. Academic evidence suggests that long-term real estate investment returns slightly exceed the rate of inflation. However, like with stocks and bonds, volatility in the real estate market may result in short-term losses.

Real estate investments are illiquid. Anyone who has attempted to sell or buy a home knows this is a true statement! All individual real estate holdings are to some degree illiquid. However, REIT investments typically offer a higher degree of liquidity.

Real estate offers competitive risk-adjusted returns. All investments can exhibit high returns in the short run. However, because most of our investments are targeted to fund our retirements, a better way to measure performance is over a long period, say 20 to 40 years. Academic evidence shows us that after considering risk, the long-term returns on REITs are not significantly different from generic stock and bond returns. For this reason, we generally recommend that investors hold no more real estate in their portfolios than a percentage representative of the overall market.

Still have questions? Please reach out to any of Buckingham’s Practice Integration Advisors. We are here to help! Stay tuned for our next post. Like I mentioned, my colleague Katie Collins will unpack some common mistakes dentists make with real estate.

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