Why REITs May Be Good For Your Investment Portfolio
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Real Estate Investments Trusts, REITs, have been around for a fair few years now, and they have not lost their luster. They are a way to invest in the commercial real estate market without needing to participate in the ownership of a specific property.
They also can be a solid hedge for an investment portfolio as this article from the New York Daily News discusses.
A new study by the National Association of Real Estate Investment Trusts shows that the addition of REITs improves returns and reduces volatility in a portfolio when calculated longer term. The association tested the performance of all possible portfolio combinations that could be built using a trio of indexes chosen from the 474 U.S. benchmarks of stocks, bonds, real estate, commodities and cash equivalents. In all, there were about 17 million portfolios.
REITs improved the 15-year performance of all portfolios except the top finishers, which had the greatest volatility. But most people couldn’t tolerate the price swings in a long-term investment portfolio consisting of only small-cap stocks, technology issues and biotech shares. via the NY Daily News
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Comment by Robert Coté on 7 January 2008:
A new study by the National Association of Real Estate Investment Trusts shows…
Surgeons recommend surgery.
Comment by Real Estate Investment Trusts on 8 January 2008:
As the real estate market has lot of boom, plenty of newcomers are willing to buy a property and the real estate investment trusts are a way to make property investments easy.
Comment by LC on 8 January 2008:
If don’t normally own REITs as I am heavily loaded with my own real estate, but I do buy them on occasion.
Knowing the structure of them, some of the eyewash in the annual reports is either written by felony stupid optimists or just plain laughable. They are totally loaded with fees; that’s about the only way a REIT makes money.
Keep in mind that REITs will buy product that is first popular with small investors, and secondly makes good economic sense. Beautiful office buildings are a lot easier to sell to a $25,000 investor than our strip malls, but in most cases our strips make much more money psf. They just don’t have eye appeal and they’re not populated with big names.
I will only buy a REIT if 1) the asset base is below replacement cost, or 2)–and this can happen–and we will see it this year in some funds when everyone truly hates real estate–the net cash per share is 80% or better of the share price.