REIT index fund

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REIT index fund

Overview: Real estate investment trusts, or REITs, are one of the most attractive ways to invest in real estate. REITs pay dividends in exchange for not being taxed at the corporate level, and REIT index funds pass those dividends on to investors. Publicly traded REITs can include dozens of stocks and allow you to buy into multiple subsectors (motels, apartments, offices, etc.) within a single fund. They are a good way for investors to gain diversified exposure to real estate without having to worry about the headaches of property management. After some tough years for REITs amid rising interest rates, it may be their time to shine in 2024.

Who are they good for? REIT index funds pay substantial dividends, making them attractive to income-focused investors, such as retirees. But REITs also tend to grow over time, so there is also the potential for capital appreciation. The prices of publicly traded REITs can fluctuate markedly, so investors need to focus on the long term and be prepared to deal with volatility.

Risks: Owning a REIT index fund can be as risky as owning individual REITs because it offers diversification, allowing you to own multiple REITs in one fund. But fund prices will fluctuate, especially when interest rates rise. However, pay attention to REITs or REIT funds that are not publicly traded.

Reward: Investors can win in two ways, with a growing dividend stream and capital appreciation. Over time, a good REIT can earn annual returns of 10 to 12%, some of which are cash dividends.

Where to get them: You can buy REITs at any broker that lets you trade ETFs or mutual funds. ETFs typically have no commission, while mutual funds may charge commissions and require you to make minimum purchases.