April 6, 2013 Admin | April 6, 2013 What are REITs? Why invest in them? Where do you go at the lowest cost?
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REITs are real estate investment trusts. These allow you to invest in corporations that own real estate properties. The benefit of this type of investment is that it helps you diversify while also being liquid. For the lowest cost REIT, you can go to Vanguard, who offers REITs at an expense ratio of 0.24% whereas the average for similar funds is 1.36%.
A Real Estate Investment Trust (REIT) is a company that owns and usually operates income-producing real estate. REITs are true total-return investments. They provide high dividend yields along with moderate long-term capital appreciation. Excellent long-term performance and strong diversification attributes make REITs a natural component of a well-balanced, efficiently performing portfolio. Adding REITs to the typical investment portfolio can have a dramatic impact on its long-term stability and returns. They provide greater diversification, potentially higher total returns and/or lower overall risk. In short, their ability to generate dividend income along with capital appreciation make them an excellent counterbalance to stocks, bonds and cash. Unlike traditional real estate, many REITs are traded on stock exchanges. You get the diversification real estate provides without being locked in long term. Liquidity matters! You can invest in the companies individually or through an exchange-traded fund or mutual fund. You can find REITs through Vanguard. According to the site, the expense ratio of these sector-specific stocks is 0.24%, which is 82% LOWER than the average expense ratio of funds with similar holdings.
Those were wonderful answers Thomas and Katie. Well done! Let me recap. REITs can be a nice addition to a portfolio as they add a real estate component when there may not be one. They also add plenty of dividends as they are required to distribute 95% or more of their dividends yearly. They also do quite well in counter balancing the stocks and bonds in one’s portfolio. When stocks or bonds are going up or down, REITs may be doing the opposite which can help to balance a return over long periods of time.
You both hit it on the nail with the where. Vanguard has a great index fund for REITs and there really is no other place to go. Let me pause though and tell you where not to go. Stay away from private REITs sold by brokers. They provide high commissions to these salesmen and can tie your money up for long periods of time. REITs can be a nice investment, BUT you must do your due diligence and buy them at the right place. Vanguard is that place. Final point: Keep most of your investments in diversified stocks and bonds outside of REITs. Let your REIT portion of the portfolio take up no more than 10% to maybe 15% of your stock portion in allocation terms. Nice job you two!
AKAIK you’ve got the aswner in one!
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