Day 363: REITs, aka My New Treats

So this week I bought my first ever REITs (rhymes with “treats,” hence the title šŸ˜‰ ).

First, let me do my best to explain what REITS are (If you happen to be an expert on this topic, please forgive me if I botch any of the facts! I am still new to them). REITs, short for Real Estate Investment Trusts, are groups of real estate investments pooled together, much like stock or bond index funds. Just like any other index fund, owning them gives you shares in a broad swatch of the real estate market. REITs focus mostly on commercial real estate–as opposed to private home mortgages–as well as apartment complexes. (For more info, check out this article from Investopedia.)

A little back story: I have generally been aware of, and somewhat interested, in the idea of real estate investing for a long time. So far, at least, the opportunity hadn’t arisen, and I had been focusing my investments in the stock market. I had repeatedly heard about REITs, and was probably interested in them as a possible future investment. However, the light bulb in my head hadn’t gone off, so I hadn’t pursued them.

Meanwhile, I have been thinking about how to bring a little more diversity to my portfolio, while also having growth opportunities. I wrote a little while ago about how I upped my bond allocation.

Last week, the REIT light bulb went off. I was studying the Callan Periodic Table of Investment Returns. If you are an investing enthusiast, you need to study this table! Every year since 1999, Callan, an investing company, has put out a table showing all the relative performances of different investment types in that year. The table clearly shows that every single year, different investments do better than others. So for example, one year, U.S. stocks win out. The next year, Emerging Markets wins. Some years, U.S. or foreign bonds win.

And some years, REITs win out. In fact, quite a lot (five times in the last twenty years). And they were only on the bottom once (2008, a bad year for real estate, if you recall). I accidentally stumbled upon REITs’ often-quite-stellar performance when I started to carefully analyse the table. I was not looking for a new investment! However, when I created my own comparison of each investment class, I saw how relatively well REITs did, and that light bulb went into my head. “I want to buy REITs!” I shouted (in my mind… I was at the cafe, and thought this might not go over well if I actually shouted out loud). Suddenly, the crystal clear sense of this choice hit me.

Being a Vanguard fan, I quickly determined the fund I wanted: VNQ, or Vanguard’s Real Estate Exchange-Traded Fund (or “ETF”). In fact, I hadn’t bought any Vanguard ETFs, so I figured this would be a great opportunity to accomplish two new things: buy my first REITs, and buy my first ETFs.

To be clear, it wasn’t just the Callan table that convinced me to buy REITs. Numerous other sources I found have praised them, including this amazing portfolio chart site.

If there is anything I am learning about investing, it is that it is personal. I believe that your own personal conviction, desires, and preferences should be a factor in your investing. When I had that “Aha!” moment last week, I immediately trusted that it was something worth listening to. Am I sure that REITs will prove a good investment? Who knows! (But then again, every investment carries risk).

But I know that I’m enthused. I feel joy just writing about it. I sense alignment in my choice.

I was excited when I bought me some REITs.

That has to be a good thing šŸ™‚

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