Stocks vs REITs: Adding Real Estate to Your Portfolio
REITs let you invest in real estate through the stock market. Understanding how they differ from regular stocks helps you decide whether to add them to your portfolio.
What Is Stocks?
Regular stocks represent ownership in companies across all industries. They offer growth potential, dividends, and capital appreciation based on company performance.
What Is REITs?
REITs (Real Estate Investment Trusts) are companies that own income-producing real estate. They must pay 90% of taxable income as dividends, making them popular for income investors.
Key Differences
| Feature | Stocks | REITs |
|---|---|---|
| Dividend yield | ~1.5% average | ~4-5% average |
| Dividend requirement | Optional | 90% of income |
| Inflation hedge | Varies | Generally good |
| Correlation to stocks | N/A | Moderate |
| Tax treatment | Qualified dividends | Ordinary income (usually) |
The Bottom Line
A 5-15% REIT allocation can improve portfolio diversification and income. REITs are best held in tax-advantaged accounts due to their ordinary income tax treatment on dividends.
Part of our Investing for Beginners