A recent column on MarketWatch.com points out that adding uncorrelated assets like real estate, commodities and energy to a portfolio composed of stocks and bonds reduces overall volatility. Using data from Ibbotson Associates, they point out that a portfolio mix of 50% stocks, 35% bonds, 10% REITs and 5% commodities outperformed the traditional 60% stocks, 40% bonds allocation with slightly less volatility.

The Sleepy Portfolio, which I track, already has 5% allocated to REITs and by virtue of 20-26% allocated to Canadian equities, energy and basic materials are well represented. REITs have outperformed most other asset classes over the past five years and it is difficult to see how it can be sustained in the future.