I disagree with your point (I’ll explain why below) but it shouldn’t have been dead so I vouched for it.
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There’s diversification across asset classes and within asset classes. If you add a large non-diversified asset even in a different class, to a diversified portfolio your average diversification goes down, not up.
Or in other words—REIT sure, but a significant fraction of your wealth in a single, idiosyncratic, illiquid, high carrying and transfer cost asset is not diversification.
An REIT (and other traded equities) have agency risk that you can avoid with something you directly own and control, but also, you can diversify your places of shelter by having somewhere to physically escape to if need be. So it’s less diverse in the financial return aspect, but might solve other diversification needs.
Stock market gains over the last 10 years may be impressive, but they're nothing compared to housing in certain key cities.