Your goal as an investor may be to grow as much wealth as you can over time with as little stress as possible. And while stocks can certainly generate some pretty solid returns, let's face it -- they can also make for a pretty bumpy ride.
That's why you may want to consider putting some REITs into your portfolio. Short for real estate investment trusts, REITs are companies that make money through their real estate portfolios. And they're a great way to dabble in the world of real estate investing without actually going out and buying physical properties to maintain.
Here are just a few reasons it pays to look at investing in REITs.
1. They can be an ongoing source of steady income
Dividends are a great source of passive income. And there are plenty of REITs that have not only paid dividends for years, but increased their dividends over time.
Furthermore, REITS are required to pay at least 90% of their taxable income to shareholders as dividends each year. And many end up paying more. If you're interested in collecting a steady stream of dividends, it pays to turn to REITs, which often pay higher dividends than regular stocks.
2. They can gain value over time
Just as stocks have the potential to gain value over time, the value of REIT shares can also grow. That gives you another opportunity to make money -- that is, if you're willing to hold your REITs for many years (which you should be).
Sometimes, you'll see substantial growth from individual REITs. Take Prologis (PLD -0.61%), which is an industrial REIT that's enjoyed a significant boom thanks to the ever-growing popularity of e-commerce. Over the past five years, Prologis shares have soared almost 193%. And that's just one example.
3. Their performance doesn't always follow that of the broad market
When the stock market on the whole underperforms, publicly traded REITs can follow suit. But that doesn't always happen.
REITs are often able to continue generating income even during periods when sales are sluggish across other companies or investors are just plain skittish. And often, you'll find that REITs don't tend to tank, or tank as quickly, during stock market downturns. That buys you a bit of security and peace of mind as an investor.
Are REITs right for you?
Just as there's risk in owning stocks, risk also exists when you buy REITs. If a given REIT loses tenants, for example, then its revenue and value could drop. But it still pays to consider putting money into REITs, especially if doing so allows you to diversify your portfolio nicely.
It's especially worth looking at REITs if you've been eager to branch out into real estate but don't think you can stomach the risk that comes with owning actual properties. Investing directly in commercial spaces can be especially tricky, so you may find that it's much easier to sit back and let REITs do that hefty lifting for you.
