THE STEADY STAPLES OF A WELL-BALANCED PORTFOLIO
One major advantage to REITs is that they offer some protection from inflation. Inflation has a negative effect on equities. As inflation increases, the buying power of our dollar decreases; thus, the buying power of the value of our equity accounts is also less. However, as prices rise, real estate prices also tend to rise. This inflation effect provides a benefit to the REIT investor because it is reflected in the REIT price, and possibly, the corresponding dividends.
Bonds, cash, and REITs may not be as exciting or glamorous as stocks or mutual funds, but they play an essential part in a smart investor’s portfolio. Without them, your portfolio may not be ade- quately diversified.