An updated analysis conducted by Ibbotson Associates found that allocating 20 percent of a balanced stock and bond portfolio to REITs each year from 1972 to 2004 would have boosted the average annual return by 70 basis points, increasing from 10.9 percent to 11.6 percent. REITs also reduced portfolio risk by 50 basis points (from 10.6 percent to 10.1 percent).

Additionally, Ibbotson's analysis shows that the correlation of REIT returns to the returns of other stocks and bonds has declined significantly over the last 12 years. From 1992 to 2004, the correlation of monthly REIT returns to large-cap stock returns declined to 0.26, the correlation with small-cap stock returns declined to 0.23, and the correlation with bond returns declined to 0.01.

Ibbotson's analysis also computed the correlation of monthly REIT returns to alternative measures of small-cap stocks like the Dow Jones Wilshire 4500, Russell 2000 and the Russell 2000 Value. The correlation of REIT returns to the Dow Jones Wilshire 4500 declined from 0.71 (1985 to 1994) to 0.34 (1995 to 2004); the correlation to the Russell 2000 steadily decreased from 0.72 (between 1985 and 1994) to 0.44 (1995 to 2004); and the correlation to the Russell 2000 Value declined from 0.75 (1985 to 1994) to 0.63 (1995 to 2004).

Ibbotson's most recent findings further demonstrate that REITs are a significant source of portfolio diversification, both raising returns and lowering risk in a wide range of investment portfolios.