- Ralph Block, a lawyer and leading REIT investor for more than 40 years, suggests putting 15 to 20 percent of your portfolio into REITs, according to The Motley Fool. Block advises exposure of 15 to 20 percent of your portfolio because REITs have outperformed the stock market from 2000 to 2011 by about 3 percentage points. Also, small holdings -- 5 percent or less -- do not offer much possibility for big gains, especially for an already diverse portfolio, because REITs tend to follow the stock market.
- One school of thought suggests that many investors should not invest in REITs at all because much of their net worth is already in the home they own. Thus, putting more money into real estate just exposes you to huge risk in case the real estate sector experiences a huge dip in prices. Also, as of 2011, REITs have had such huge gains for so long that they are likely due for a downward price correction in the coming years.
- Putting all of your REIT investment into one company is extremely risky. Block suggests investing in at least six or eight REITs and mixing up the type REITs you own. For example, REITs that own mostly hotels are considered the riskiest but potentially with the highest yields, and REITs that own mostly apartment buildings are usually the least risky because tenants tend to sign long-term leases.
- Investing in a REIT mutual fund -- which is a professionally managed pool of REIT stocks -- is one of the best ways to start adding a diverse array of REITs to your portfolio without investing much. For instance, a REIT mutual fund usually invests in at least 30 different REITs and accepts investors with accounts of less than $10,000. Some of the most well-managed REIT mutual funds are run by Fidelity, Vanguard, Cohen & Steers, ING, John Hancock and Barclays, according to Robert Hershey of "The New York Times."
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