What are the pros and cons of investing in private REITs?

Apr 17 21:04 2019 Print This Article

Q. Over the years I have done well investing in a private Real Estate Income Trust (REIT) and I wonder why they are not recommended more often by advisors. Am I missing something? And where can I find more information on REITs?– Jeff

A. This is a great question, Jeff. For those who aren’t familiar, a REIT is a fund or company that earns income through its investment in real estate. Investors may choose a public REIT ETF or mutual fund REIT, which can be bought and sold daily; or a private REIT, which is not traded on an exchange.

So why would anyone invest in a private REIT?  There are two main reasons: the first is diversification from traditional equities; and the second is to reduce portfolio volatility—or, at least, try. Here’s how those two objectives break down:

1. Diversification. Most investment portfolios traditionally consist of stocks and bonds—stocks to generate returns and bonds for stabilization. Then the two are combined into a portfolio to match a financial plan and risk tolerance. A private REIT provides a possible third investment option for your portfolio. Historically, private REITs have had similar returns to stocks but with a very low correlation. In other words, you may get equity-like returns but without the same up-and-down pattern of an equity index; when stocks go down, chances are private REITs will be up.

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Money Sense

MoneySense is a Canadian personal finance and lifestyle magazine published by Rogers Publishing Limited, a division of Rogers Communications.Written for Canadians who want to take financial control of their lives, MoneySense is Canada's best-selling investment and lifestyle magazine, helping readers make smart, informed decisions about how to get the most from their money. The magazine has received many awards, including multiple National Magazine Awards and CFA Society Toronto Awards.

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