October 25, 2013

What is a REIT? When investing, where should you go? Where should you not go? Why? How much?

5 thoughts on “October 25, 2013”

  1. Katherine Graham says:

    An REIT is a Real Estate Investment Trust. An REIT is a company that owns/operates income-producing real estate. You should go to Vanguard. You should not go to salesmen, because you will pay her/him commissions. You should let your REIT portion of your portfolio take 10-15% of your portfolio; no more.

  2. Mike Finley says:

    You are getting smarter by the minute, Katherine. Well done! Let’s recap.

    REIT’s come in different varieties, but the only one worth considering for the average investor is an index REIT that owns stock in commercial real estate (hotels, shopping malls, office buildings, etc.) and maybe even some residential real estate (homes owned by people like you and me). A REIT index fund offers the average investor a chance to invest in a part of the economy that usually would be unavailable to them.

    Katherine was spot on when she told us to go to Vanguard. To learn more about that index fund, go here: https://personal.vanguard.com/us/funds/snapshot?FundId=5123&FundIntExt=INT#tab=0. This fund is ultra cheap (admiral shares will cost you .10% of your account per year) and of course charge you no commissions (going to Vanguard eliminates commissions.

    Avoid the financial advisors, brokers, and life insurance agents who sell REITs. They are usually selling Private REITs which pay them big fat commissions, lock up your money for long periods of time, and basically tell you when you can have the money. Pass on this poor option.

    I agree with Katherine that 10-15% is a reasonable amount to own in relation to your entire stock portfolio. Different experts will have different opinions on how much so let’s look at it in a very broad way. Consider owning anywhere between 5% to 20% if you want exposure to this particular asset. Is it a must have? No. As a matter of fact, I recommend you generally don’t unless you can buy admiral shares ($10,000) and still keep your allocation at 20% or below for your portfolio (this would mean a portfolio that has at least $50,000 invested in stocks). That means you have plenty of money invested in the total stock market index fund and you want more exposure to the real estate industry and can afford it.

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