REITs, or Real Estate Investment Trusts, are companies that own or finance income-producing real estate across a range of property sectors. These real estate companies have to meet a number of requirements to qualify as a REIT. Most REITs trade on major stock exchanges and they offer a number of benefits to investors.
REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries – through the purchase of individual company stock, through a mutual fund, or through an Exchange-Traded Fund (ETF). The stockholders of a REIT earn a share of the income produced through the real estate investment – without actually having to go out and buy, manage, or finance property.
Why buy a REIT?
Historically, REITs have delivered competitive total returns, based on high, steady dividend income, and long-term capital appreciation. Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier that can help reduce overall portfolio risk and increase returns. If you are considering a REIT, look at the sectors of the real estate market that are hot.
REITs are traded in the stock market, which means they have increased risks that would be typical of riskier equity investments. They are also adversely affected by weakness in real estate prices. Although REITs’ long-term returns are quite impressive, there have been periods in which they have under-performed significantly.
REITs also have the potential to produce negative total returns during times when interest rates are elevated or rising. When rates are low, investors typically move out of safer assets to seek income in other areas of the market. Conversely, when rates are high or in uncertain times, investors often gravitate back to U.S. Treasuries or other fixed-income investments. While sometimes miscategorized as “bond substitutes,” REITs are not bonds; they are equities. Like all equities, they carry a measure of risk significantly greater than that of government bonds.
Association Financial, LLC, and Association Financial Services, LLC, can provide you with a wide range of advisory services (whether fixed or variable investments), including:
- Annuity selection (fixed or fixed-indexed)
- Assistance in deciding when to buy and sell your investments
- Review of insurance and investment portfolios, as well as transferring assets or qualified plan rollovers
- Individual bond, commodity, equities (stocks), ESG stocks, Exchange Traded Product (ETP), investment trust, and REIT selection
- Strategic asset allocation strategies including re-balancing
- Attorney and CPA services
- and much more.
Contact us here for more information.
Investing in securities involves risk of loss that clients should be prepared to bear.