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The Short Answer

Correlation Building Between REITs and Other Stocks

Real estate investment trusts, once seen as a key diversifying asset class, have recently moved more like other equities.

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Question: I've been advised to add REITs to my retirement portfolio to provide some diversification. Can you explain what they are and how they do this?

Answer: REITs, or real estate investment trusts, are a type of stock made up of portfolios of commercial properties. These properties generate income from rent and capital appreciation in the form of rising property values. REITs typically invest in office buildings, shopping centers, hotels, and other properties. Some focus on specific types of real estate, such as health-care REITs that own hospitals, skilled-nursing facilities, and so forth. There also are mutual funds and exchange-traded funds made up of REITs as well as those that track REIT indexes.

Adam Zoll does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.