To meet your long-term financial goals, you need an investment approach that will help you weather the ups and downs of the markets. One key strategy for achieving that goal is diversification—holding an array of investments that respond differently to various market conditions.
For many investors, diversification involves splitting their assets among stocks, bonds and cash. To take diversification a step further, experts often recommend real estate investment trusts, or REITs.
A REIT is a corporation that pools shareholders’ money and uses it to invest in commercial real estate, such as office buildings, shopping malls, apartment buildings or medical facilities. Most REITs generate income by renting the space. REITs distribute at least 90 percent of their profits to shareholders in the form of dividends.
“Exposure to real estate is fundamental to a strong portfolio,” says Brad Case, senior vice president of research and industry information at the National Association of Real Estate Investment Trusts. “Its market cycle is different from the stock or bond market cycle, so it helps you diversify.”
If you’re interested in REITs, consider the following:
Why invest in REITs
REITs have three major advantages:
REITs have two main risks:
You can combat both risks by investing in highly rated REITs that are well diversified geographically and by property type. Another Risk to Consider; distributions are not guaranteed and are subject to changes in market conditions.
How to invest in REITs
You can buy shares of individual REITs the same way you would buy shares of a stock—through a broker on one of the major stock exchanges. Alternatively, you can buy shares in mutual funds or exchange-traded funds (ETFs) that invest in REITs. For most investors, a small allocation to REITs—perhaps 5 to 10 percent of your portfolio—may be adequate.
A SunTrust advisor can help you decide whether REITs are appropriate for your portfolio.
Diversification does not ensure against loss and does not assure a profit. Past performance does not guarantee future results.
Exchange-Traded-Funds (ETFs) and mutual fund values will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. ETFs trade like stocks on the open market, which in most cases involves a commission.
Investors should consider the investment objectives, risks, and charges and expenses of an ETF and mutual funds carefully before investing. A prospectus which contains this and other information can be obtained from your financial professional. Please read the prospectus carefully prior to investing.
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