Risk Adjusted Returns by Asset Class Compared

The highest-returning asset class is not automatically the strongest investment. A 10% return earned through large price swings or steep losses carries different implications than the same return produced with greater stability.

That is where risk-adjusted returns by asset class become useful. Rather than looking at performance alone, investors can compare what different investments have historically delivered relative to the risks required to earn those returns.

This article compares public equities, fixed income, public REITs, and private real estate using long-term returns, volatility, downside performance, Sharpe ratios, and income characteristics. Because multifamily is a sector within private real estate, we also look at multifamily-specific data where available and consider where professionally managed multifamily may fit within a risk-conscious portfolio.

How Have Long-Term Returns Compared?

Historical returns provide a starting point for comparing asset classes. The latest data show meaningful differences in performance across both asset classes and measurement periods. Public equities produced the highest annualized returns over the 5-, 10-, and 20-year periods, while public REITs led over the most recent year and Q1 2026.

Source: Crow Holdings Capital Research & Strategy* using NCREIF and Bloomberg data as of Q1 2026. Private real estate is represented by the NCREIF Property Index, public REITs by the FTSE Nareit All Equity REITs Index, public equities by the S&P 500, and fixed income by the Bloomberg U.S. Aggregate Bond Index. It is not possible to invest in an index, and index performance does not reflect the deduction of fees, expenses, or taxes. Returns shown are annualized for the periods indicated. Past performance does not guarantee future results.

Public equities generated the strongest long-term performance. Equity investors participate directly in corporate earnings growth and rising company valuations, which can support higher returns over time but also expose investors to short-term swings as economic expectations, company performance, and valuations change.

Public REITs and private real estate produced much closer long-term results. Both derive returns from property income and changes in property values, but they reflect those returns differently. REIT shares trade continuously on public exchanges, allowing market conditions and investor sentiment to affect prices quickly. Private real estate is valued periodically, so changes in property values tend to appear more gradually in reported returns.

Fixed income produced the lowest long-term returns in the comparison. Bonds derive much of their return from contractual interest payments rather than earnings growth or property appreciation, although interest rates and credit conditions can still affect performance.

These differences illustrate why returns alone provide only part of the comparison. Investors also need to consider how much those returns fluctuated along the way.

How Much Did Returns Fluctuate?

Volatility measures how widely returns move around their average. A higher percentage generally indicates larger fluctuations and less consistency over time.

Data through September 2025 show that public REITs and public equities experienced considerably greater measured volatility than private real estate and fixed income over both 10- and 25-year periods.

Source: 2026 capital market assumptions report* using data through September 2025. Private real estate is represented by the NCREIF Property Index, public equities by the S&P 500, fixed income by the Bloomberg U.S. Aggregate Bond Index, and public REITs by the FTSE/Nareit All Equity REITs Index. It is not possible to invest in an index, and index performance does not reflect the deduction of fees, expenses, or taxes. Returns shown are annualized for the periods indicated. Past performance does not guarantee future results.

Public REITs displayed the highest measured volatility, followed by public equities. Both trade continuously on public markets, where prices can respond quickly to changes in interest rates, economic expectations, capital market conditions, and investor sentiment.

Private real estate experienced substantially lower measured volatility. Part of that difference reflects how properties are valued. Unlike publicly traded assets, private real estate is valued periodically, which can cause changing market conditions to appear more gradually in reported returns and smooth measured volatility. Fixed income also showed relatively low volatility, reflecting a return profile driven largely by contractual interest payments, although bond prices remain sensitive to interest rates and credit conditions.

Lower measured volatility does not necessarily mean lower overall investment risk. Standard deviation does not capture risks such as limited liquidity, leverage, financing conditions, or property-level operations. Volatility is therefore one part of the comparison. Investors can also examine how much return each asset class generated relative to that measured volatility.

How Do Risk-Adjusted Returns by Asset Class Compare?

The Sharpe ratio provides another way to compare risk-adjusted returns by asset class by measuring an investment's excess return above the risk-free rate relative to the volatility experienced to generate it. A higher Sharpe ratio generally indicates more excess return per unit of measured volatility.

Source: PGIM Investments*. Data as of 2025. Private real estate is represented by the NCREIF Property Index, public equities by the S&P 500, fixed income by the Bloomberg U.S. Aggregate Bond Index, and public REITs by the FTSE Nareit All Equity REITs Index. It is not possible to invest in an index, and index performance does not reflect the deduction of fees, expenses, or taxes. Returns shown are annualized for the periods indicated. Past performance does not guarantee future results.

The comparison changes when returns are considered alongside measured volatility. Public equities generated the highest absolute return, while private real estate had the highest Sharpe ratio, indicating more excess return per unit of reported volatility over the period measured.

The contrast with public REITs is particularly useful because the two real estate asset classes generated the same annualized return in this dataset but had substantially different Sharpe ratios. As discussed above, part of that difference reflects how private real estate is valued, so interpret the higher ratio in the context of its periodically reported valuations.

The comparison illustrates why absolute returns and risk-adjusted returns can tell different stories. The Sharpe ratio adds another perspective by showing how much excess return an asset class historically generated relative to its measured volatility.

How Have Asset Classes Handled Downside Risk?

Volatility measures movement in both directions, but downside risk focuses on what happens when market conditions deteriorate. The periods below capture two different stresses: the Global Financial Crisis and its aftermath in 2008-2009, and the interest-rate-driven repricing of 2022-2023.

Public equities represented by the S&P 500; public REITs by the FTSE Nareit All Equity REITs Index; private real estate by the NCREIF Property Index; fixed income by the Bloomberg U.S. Aggregate Bond Index. It is not possible to invest in an index, and index performance does not reflect the deduction of fees, expenses, or taxes. Returns shown are annualized for the periods indicated. Past performance does not guarantee future results.

The results show that losses did not occur simultaneously across asset classes. Public equities and REITs experienced their sharpest declines during the initial stress periods, while private real estate declines appeared later. That pattern occurred after both the 2008 market decline and the 2022 interest-rate shock.

Timing matters when interpreting private real estate's historical risk-adjusted performance. Periodic valuations can make changing market conditions appear more gradual than in publicly traded assets. A smaller decline in a given calendar year therefore does not necessarily mean private real estate was less affected by the underlying market stress.

For multifamily investors, downside risk also depends on property- and investment-level factors that asset-class returns cannot capture. Leverage, debt structure and maturities, debt-service coverage, occupancy, reserves, and property income can all influence how an investment responds when values decline, or financing becomes more expensive.

How Does Income Affect Risk-Adjusted Performance?

Understanding risk-adjusted performance also requires looking at what generates returns during the holding period. Bonds primarily generate interest, equities may pay dividends, and private real estate can generate property-level income alongside appreciation.

Recent NCREIF data illustrate income's role in private real estate. In Q1 2026, the NCREIF Property Index generated a 1.23% total return, including a 1.15% income return and 0.08% appreciation return. Over the trailing year, 4.7 percentage points of its 4.9% return came from income.

Looking specifically at multifamily operations, NCREIF data* show that apartment net operating income grew 4.3% year over year in Q4 2025, compared with a 5.2% annual average over the prior 20 years. Apartment occupancy of 93.1% was also close to its 20-year average of 93.6%. These operating fundamentals provide context for how multifamily properties can generate income during the holding period.

The source of returns is important when evaluating risk. When income contributes to returns, performance is not dependent solely on property appreciation and the eventual sale price. However, income does not make an investment inherently lower risk. Multifamily income depends on occupancy, rents, operating expenses, capital requirements, and debt service, all of which investors can evaluate separately from assumptions about future property values.

What Risk-Adjusted Metrics Don't Capture

Risk-adjusted metrics can make asset classes easier to compare, but they do not measure every type of risk an investor takes.

Liquidity is one example. Stocks, bonds, and public REITs generally trade in public markets, while private real estate may require investors to commit capital for years. Standard deviation and the Sharpe ratio do not directly account for that difference.

Leverage can also change the risk profile. The NCREIF Property Index used above measures unleveraged property performance, while individual private real estate investments may use debt. Financing can increase potential returns but also magnify losses and introduce interest-rate and refinancing risk.

Asset-class averages also say little about individual investments. Two multifamily properties can carry very different risks based on acquisition price, leverage, occupancy, local supply and demand, operating costs, capital needs, and the business plan.

These limitations are important when interpreting private real estate's historically lower measured volatility and higher Sharpe ratio. Those metrics describe asset-class performance over the periods measured, not the full risk of an individual investment. Investors should therefore consider liquidity, financing, property fundamentals, and execution alongside historical return and volatility data.

Where Multifamily May Fit in a Risk-Conscious Portfolio

Comparing risk-adjusted returns by asset class provides useful historical context, but selecting a multifamily investment also requires looking at the underlying property and manager.

Professionally managed multifamily provides exposure to private real estate and property-level income without requiring investors to acquire or operate properties themselves. In exchange, investors accept limited liquidity, real estate and financing risks, and dependence on the manager's ability to execute the investment strategy.

Investors can evaluate a multifamily opportunity based on the manager's track record, leverage and debt structure, property fundamentals, fees, liquidity terms, and how much of the projected return depends on operating income versus future appreciation.

Bonaventure brings more than 26 years of multifamily experience to this process, with approximately $2.9 billion in assets under management and more than $615 million of principal capital invested alongside investors. The firm's experience spans multifamily investment, development, construction, and asset management, giving it direct involvement in many property-level factors that can affect investment performance. Bonaventure also offers multiple ways to invest in multifamily real estate, allowing investors and their advisors to evaluate opportunities based on their objectives, time horizon, liquidity needs, and tax considerations.

Speak With the Bonaventure Team About Multifamily Investment Options

This article is for educational and informational purposes only and does not constitute tax, legal, or financial advice. Bonaventure does not provide tax, legal, or accounting services. Tax laws and regulations are subject to change, and individual circumstances vary. Investors should consult their own tax advisor, attorney, or qualified intermediary regarding their specific situation before pursuing any of the strategies discussed.

*These articles were produced by an independent third party. These articles should not be considered a solicitation or recommendation. Any such recommendation or solicitation would be made under separate cover. We do not endorse or accept responsibility for the content of any third-party website.

THE RISKS ASSOCIATED WITH INVESTING IN A REAL ESTATE PRIVATE EQUITY FUND GENERALLY INCLUDE:

Limited Regulatory Oversight - Since private equity funds are typically private investments, they do not face the same oversight and scrutiny from financial regulatory entities such as the Securities and Exchange Commission ("SEC") and are not subject to the same regulatory requirements as regulated investment companies, including requirements for such entities to provide certain periodic pricing and valuation information to investors. Private equity offering documents are not reviewed or approved by the SEC or any US state securities administrator or any other regulatory body. Also, managers may not be required by law or regulation to supply investors with their portfolio holdings, pricing, or valuation information.

Strategy Risk - Many private equity funds employ a single investment strategy. Thus, a private equity fund may be subject to strategy risk, associated with the failure or deterioration of an entire strategy.

Use of Leverage and Other Speculative Investment Practices - Since many private equity fund managers use leverage and speculative investment strategies such as options, investors should be aware of the potential risks. When used prudently and for the purpose of risk reduction, these instruments can add value to a portfolio. However, when leverage is used excessively and the market goes down, a portfolio can suffer tremendously. When options are used to speculate (i.e., buy calls, short puts), a portfolio's returns can suffer and the risk of the portfolio can increase.

Past Performance - Past performance is not necessarily indicative and is not a guarantee of a private equity fund's future results or performance. Some private equity funds may have little or no operating history or performance and may use hypothetical or pro forma performance that may not reflect actual trading done by the manager or advisor and should be reviewed carefully. Investors should not place undue reliance on hypothetical or pro forma performance.

Limited Liquidity - Investors in private equity funds have limited rights to transfer their investments. In addition, since private equity funds are not listed on any exchange, it is not expected that there will be a secondary market for them. A private equity fund's manager may deny a request to transfer if it determines that the transfer may result in adverse legal or tax consequences for the offering.

Tax Risks - Investors in certain jurisdictions and in private equity funds generally may be subject to pass -through tax treatment on their investment. This may result in an investor incurring tax liabilities during a year in which the investor does not receive a distribution of any cash from the Fund. In addition, an investor may not receive any or only limited tax information from private equity funds may not receive tax information from underlying investments in a sufficiently timely manner to enable an investor to file its return without requesting an extension of time to file.

Reliance on Fund Manager; Lack of Transparency - A private equity offering's manager or general partner has total investment authority over the private fund. There is often a lack of transparency as to a private equity offering's underlying investment. Because of this lack of transparency, an investor may be unable to monitor the specific investments made by the offering or to know whether the investments are consistent with the sponsor's historic investment philosophy or risk levels.

Due to the risks mentioned above, it is important to perform proper due diligence in evaluating and choosing private equity managers to place your money with. There have been occasions when private equity fund managers took on too much risk in their portfolio and lost a substantial amount of their investors' money.