What is Reit and why might I want to own one?
[dropcap]A[/dropcap] Real Estate Investment Trusts (REITs) are passive investments. They usually provide consistent income, may provide long-term growth (capital gains), and can add true diversification to your portfolio. Like the stock market, which has various sectors (small cap, large cap, international, etc.), REITs also come in different flavors (health care, industrial, office, retail, etc.).
Some investors prefer to concentrate on smaller areas of the investment world instead of a broader index like the S&P 500. For example, over the past ten years, the index of all health care REITs has had an annual average return of +18.88 percent , with a volatility range between a high of +44 percent (2006) and a low of -12 percent (2008) as reported by the National Association of Real Estate Investment Trusts. While the past is not a guarantee for the future, during the past decade health care REITs on average have produced better returns with less volatility than the broader markets. Like stocks and bonds, there are both public and privately traded REITs, offering different levels of risk, reward, and liquidity. REITs are considered alternative investments and privately traded REITs are only available to accredited investors.
The main attraction for some investors is that REITs may provide a high level of consistent income. Many REITs pay an annual dividend rate of 3 to 6 percent, and distribute the payments monthly or quarterly. Though not guaranteed like certificates of deposits, this type of income is attractive for many retirees.
Many investors have moved part of their portfolio from growth (stocks) to income (REITs and master limited partnerships (MLPs)) as part of a
new overall investment strategy. A conversation with your advisor may help you decide if REITs are appropriate for your portfolio. Reading the prospectus and sufficient due diligence are necessary before investing.
BY: Bill and Cindi Porter
Aileron Investment Advisors
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