REITs: real estate in your portfolio

A Real Estate Investment Trust (REIT) is a company that owns and operates income-producing real estate. By law, REITs must distribute 90% of their taxable income as dividends to shareholders, which makes them a high-yield asset class. You buy them like stocks through any brokerage.

Why they belong in a portfolio

• Diversification: real estate historically has low correlation with stocks, reducing overall portfolio volatility.
• Inflation protection: rents and property values tend to rise with inflation over long periods.
• Income: yields are typically higher than the broader stock market.
• Liquidity: unlike physical real estate, you can buy or sell a REIT in seconds.

What to watch out for

• Interest rate sensitivity: REITs often drop when rates rise.
• Tax inefficiency: REIT dividends are usually taxed as ordinary income, not at the lower qualified-dividend rate. Hold REITs in tax-advantaged accounts when possible.
• Sector concentration: the REIT index is heavily weighted toward specific sectors.
• Non-traded REITs: avoid. They have high fees, lockup periods, and questionable pricing. Only invest in publicly traded REITs or REIT index funds.