Baby boomers looking for a smoother investment ride may want to consider real estate investment trusts as one set of shock absorbers when the jaunt down Wall Street gets bumpy.
Financial advisors say that when REITs are used properly, they can reduce volatility and increase diversification in a portfolio.
REITs are “an excellent diversifier in a portfolio” because they move countercyclical to U.S. stocks, says Christopher Cordaro, chief investment officer with RegentAtlantic Capital, Chatham, N.J.
REITs offer boomers access to institutional quality real estate with a very low initial investment and low management fees, he adds.
Unless a boomer has more than $100,000 to invest in individual REITs, suggesting a total portfolio in excess of $1 million, then it is better to invest in REIT mutual funds, according to Cordaro.
REITs work well within an IRA, says Cordaro, because dividends paid by a REIT are tax-deferred.
And, in these times of uncertain corporate governance, he continues, dividends can be a comfort because “you cant fake a dividend.”
A REIT can be a viable part of an investment portfolio, says Elizabeth Greak of Comer & Greak Financial Consultants, New Haven, Conn.
But, boomers need to invest cautiously, she adds. Greak says she usually recommends REIT mutual funds rather than individual REITs to ensure diversification and liquidity.