When your portfolio is loaded with stocks and not much else, many experts will tell you that real estate is one of the best ways to diversify. With the housing sector currently in slump in most places, this could be a good time to bottom fishing some undervalued properties.

But for those that do not wish to buy physical real estate, the use of Real Estate Investment Trusts is still a valid diversification strategy especially for investors who have a long term view.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

What Is a REIT?
A REIT trust company that accumulates a pool of money, through an initial public offering (IPO), which is then used to buy, develop, manage and sell assets in real estate. The IPO is identical to any other security offering with many of the same rules regarding prospectuses, reporting requirements and regulations; however, instead of purchasing stock in a single company, the owner of one REIT unit is buying a portion of a managed pool of real estate. This pool of real estate then generates income through renting, leasing and selling of property and distributes it directly to the REIT holder on a regular basis. (For further explanation, read our article: What Are REITs?)

One of the most important advantage that REITs provide is their requirement to distribute nearly 90% of their yearly taxable income, created by income producing real estate, to their shareholders.

This following four REIT ETFs may be the answer to finding some value in a sector in crisis. (To learn more about ETFs, and how they work, read An Inside Look At ETF Construction.)


Company 2012 %Return
iShares Cohen & Steers Realty Majors ETF (NYSE:ICF) +8.40%
Vanguard REIT Index ETF (NYSE:VNQ) +8.80%
DJ Wilshire REIT ETF (NYSE:RWR) +8.20%
Wilshire US REIT ETF Inc. (NYSE:WREI) +8.90%

Bottom Line
Investors considering adding real estate to their portfolio must search beyond the fleeting promise of short term gains and choose investments with a long term goal of diversification in mind, such as REIT ETFs. (To see if REITs are the investment for you, read The REIT Way.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  2. Mutual Funds & ETFs

    ETF Analysis: Market Vectors EM High Yield Bd

    Learn more about the Market Vectors Emerging Markets High Yield Bond ETF, a fund dedicated to subinvestment grade foreign debt issues.
  3. Mutual Funds & ETFs

    ETF Analysis: First Trust Tactical High Yield

    Find out more about the First Trust Tactical High Yield fund, a debt security-focused ETF designed to produce high income.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI South Africa

    Learn more about the iShares MSCI South Africa fund, which is an NYSE-listed exchange-traded fund offered and managed by BlackRock.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P 600 Small Cap Growth

    Learn more about the SPDR S&P 600 Small Cap Growth ETF, a highly efficient fund that tracks small-cap equities in the United States.
  6. Mutual Funds & ETFs

    ETF Analysis: WisdomTree International Hdgd Div Gr

    Review an analysis of the WisdomTree International Hedged Dividend Growth Fund ETF, which offers investors broad international exposure.
  7. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraShort Yen

    Learn about the ProShares UltraShort Yen, an inverse-leveraged exchange-traded fund based on the value of Japanese yen in U.S. dollars.
  8. Mutual Funds & ETFs

    ETF Analysis: Market Vectors Semiconductor

    Discover how the Market Vectors Semiconductor ETF chooses its securities, and learn the types of investors for whom this fund is most appropriate.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  10. Mutual Funds & ETFs

    ETF Analysis: PowerShares Global Listed Private Eq

    Learn more about the PowerShares Global Listed Private Equity Portfolio, a private equity-based exchange-traded fund, or ETF.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  3. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. Commercial Real Estate Loan

    definition of a commercial real estate loan
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!