Are REITs a unique asset class?

Real estate investment trusts (REITs) are often considered to be a distinct asset class. While exact definitions for asset class vary, a number of statistical methods can provide strong evidence either for or against the suitability of the designation.

Are REITs an alternative asset?

The term “alternative investments” refers to a wide range of investments, from hedge funds to private equities, real estate investment trusts (REITs), managed futures, insurance, venture capital, oil and gas programs and commodities. These asset classes can usually only be bought based on a contractual subscription.

Are REITs good for diversification?

The stocks of real estate investment trusts (REITs) can provide diversification benefits to a portfolio, yet many investors have remained underexposed to this asset class despite its low correlation and commendable track record of performance relative to other assets (see Exhibit 10, page 7).

Why REITs are considered to be alternative investments?

A REIT allocation serves to diversify a stock and bond portfolio while providing competitive rates of return. The income component of REIT returns and the relative con-sistency of earnings based on a highly visible revenue stream make REITs an alternative worth considering in the face of broad equity market volatility.

Do REITs follow the stock market?

To the extent that Real Estate Investment Trusts (REITs) trade on major exchanges in the public markets, they are correlated to the stock market. They are subject to the same conditions that can cause stock prices to gain and lose value.

Should REITs be part of portfolio?

Because stocks, bonds, cash, and REITs generally do not react identically to the same economic or market stimuli, combining these assets may produce a more appealing risk-and-return trade-off. This makes REITs a potentially good candidate for investors looking to build a diversified portfolio.

Are REITs good during a recession?

While no recession is identical to the last, there are certain sectors of real estate that are more resilient during a recession. REITs can be a much more cost-effective and attainable way for investors to get started in real estate while gaining access to institutional-quality investments in a diversified portfolio.

How do REIT investments work?

REITs either purchase property or are involved in property development. They make money in two ways: capital appreciation and rental income, which is then passed on to investors as dividends. After the IPO, the shares of the REIT are listed on the stock exchange, where they can be bought and sold freely.

Can REITs invest in government securities?

Real estate investment trust (REIT) companies must focus their business operations on one or more sectors of the real estate industry. So if a government-issued bond is related to real estate, the bond would be eligible to be a REIT holding.

Are REITs riskier than stocks?

Risks of Publicly Traded REITs Publicly traded REITs are a safer play than their non-exchange counterparts, but there are still risks.

Are REITs a good hedge against stock market?

REITs provide stock market–like returns, but they usually don’t move in sync with the market. Thus, holding REITs can add stability to your portfolio without reducing returns. Better yet, REITs are a good hedge against inflation because rents and real estate values tend to climb with rising prices.

What percentage of my investments should be in REITs?

So, as a way to diversify your exposure and/or to boost your portfolio’s dividend income, it’s a good rule of thumb to allocate 5% to 10% of your assets to REITs.