Q – I am looking for yield and have heard about REITs. How risky is this asset class? – Eileen T., Waterdown, Ontario
A – Real Estate Investment Trusts, or REITs, are specially-structured trust securities that trade on stock exchanges like any other stock. REITs acquire full or part ownership of commercial or residential real estate properties that produce a steady revenue stream. These include properties like shopping centres, office buildings, hotels, apartments, and retirement residences. REITs generally are liquid investments, meaning you can buy and sell units without difficulty.
REITs must distribute their income to unitholders, so they pay a regular dividend. Compared with other high-yield income-producing securities, REITs can be quite attractive. However, in Canada the REIT market is small and choices are limited choices. Recently, most have also underperformed the overall market. And because REITs are so closely tied to the real estate market, they’ll be subject to the same ups and downs as the market.
I do like REITs, because they can provide income, liquidity, and growth potential. You can trade REITs individually or invest in a mutual fund that holds a variety of REITs in its portfolio – many funds in the Canadian Dividend and Income Equity category hold REITs. In addition, for a pure REIT fund, you might consider the iShares S&P/TSX Capped REIT Index Fund (TSX: XRE) or BMO Equal Weight REITs Index ETF (TSX: ZRE). With a proper allocation, REITs can be a valuable addition to the income component of your portfolio. As always, your risk tolerance and investment objectives should give you some indication REITs might be a suitable investment for you. – R.T.
Robyn Thompson, CFP, is the founder of Castlemark Wealth Management, a boutique financial advisory firm, specializing in customized financial, investment, insurance, and retirement planning. Phone 416-828-7159 or email today to firstname.lastname@example.org for a no-obligation, no-charge Castlemark Integrity Financial Planning consultation.
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The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.