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What is a REIT and should it be a part of my retirement portfolio?


A REIT is a real estate investment trust, an entity that holds a portfolio of properties – they can be retail, commercial, industrial, hospitals, retirement complexes – and trades on a stock exchange just like a conventional corporation. REITs can be a sensible investment for someone in retirement because portfolio diversification – a broad mix of assets – is usually a good idea, and REITs are neither stocks nor bonds. They often pay higher income than stocks or high-grade bonds, and they also offer the potential for price appreciation.

But REITs can undergo more volatility than stocks or bonds, rising more in good times and losing more in bad. Make sure, therefore, that you only put a small portion of your wealth into them, just a few percentage points – financial advisers generally recommend no more than 5 percent – and to be certain that you’re getting a sufficiently broad mix of REITs, consider an exchange-traded fund that owns them. You could start your search with the Vanguard REIT Index ETF (the ticker symbol is VNQ), which recently had an annual yield of 3.4 percent and very low annual management expenses of 0.1 percent.

-Conrad de Aenlle