How does investing in real estate generally affect an investor's portfolio?

Investing in real estate generally provides diversification within an investor's portfolio. Real estate often behaves differently than stocks or bonds because its value is influenced by different factors, such as local economic conditions, property demand, and interest rates. By adding real estate to a portfolio, an investor can spread risk across various asset classes, reducing the overall volatility and potential impact of a downturn in any single market sector.

When an investor includes real estate in their portfolio, they may benefit from additional sources of income through rental properties and potential appreciation of property value over time. This diversification can help stabilize returns, as real estate might perform well during periods when other asset classes are underperforming.

While real estate can indeed increase risk or decrease liquidity, those factors do not contribute to the overall positive impact of diversification. Instead, the key benefit of real estate investing lies in its ability to provide a hedge against inflation and expand the investor’s opportunities for growth and income, making it an effective means of portfolio diversification.