Real estate investment trusts, or REITs, can be an excellent investment for both income and growth. REITs are required to pay out most of their income as dividends, and can create tremendous shareholder value from development, management, acquisitions, or from simple price appreciation of their underlying properties. And what most investors don’t realize is that over long periods of time, real estate has a solid track record of better total returns than the S&P 500 and with lower volatility.
If you don’t have exposure to REITs in your portfolio, now could be a great time to consider adding some. For investors who aren’t quite sure where to get started, here are some great beginner-friendly ideas for your first $1,000.
How I’d put $1,000 to work in REITs
I’ve been investing in REITs for some time — in fact, the stock I’ve owned the longest in my personal portfolio is Realty Income (O 0.62%), a REIT that specializes in freestanding retail properties. But if I were getting started with REIT investing from scratch today and had $1,000 to put to work, I’d divide it among these four starter positions.
1. Vanguard Real Estate ETF
If you were to add only one real estate stock to your portfolio, it’s tough to make the case against the Vanguard Real Estate ETF (VNQ 0.85%). In a nutshell, this is an exchange-traded fund, or ETF, that owns about 160 different REITs in a variety of real estate subsectors. With a rock-bottom 0.12% expense ratio (investment fee), you’ll get to keep most of the fund’s long-term returns to yourself.
This is a weighted ETF, so the fund’s top holdings include large REITs like Prologis (PLD -0.15%), American Tower (AMT 0.17%), and Public Storage (PSA -0.93%), just to name a few. The idea is that this ETF will give you a well-diversified portfolio of REITs, with a concentration in larger companies, in a single investment, making it a perfect choice for investors just getting started with REITs.
2. Realty Income
As mentioned, I’ve owned Realty Income for a long time, and I’ve never sold a single share. The company has been a fantastic long-term compounding machine, with a business that is designed for steady growth no matter what the economy is doing.
The basic idea is that Realty Income acquires single-tenant …….