Think your portfolio is diversified because you own a REIT ETF? Not so fast.
Let's break down the differences between publicly-traded and private REITs and how each can impact your investment portfolio.
Public REITs are traded on stock exchanges. They're easy to buy and sell, highly liquid, and regulated by the SEC.
But here's the catch — they generally behave like small- and mid-cap stocks.
That means they're exposed to market swings that often have little to do with the actual performance of the underlying real estate assets.
Private REITs, on the other hand, aren't traded on public markets.
Private REITs' values are based on regularly scheduled third-party appraisals of actual real estate holdings. That means less daily volatility and potentially more stable, income-driven returns.
Public REITs are often operating businesses which are focused on one property type in a specific region.
Conversely, private REITs are often diversified across property types and regions, as managers create a curated portfolio of diversified assets selected to meet a portfolio's goal.
This means that when considering investing in private real estate, having a professional real estate investment firm with deep experience and expertise across sectors and markets is vital.
Public REITs offer potentially greater levels of convenience and transparency.
Private real estate can offer greater portfolio diversification and wide exposure to both debt and equity investments, but tend to be less liquid and often require a longer investment horizon.
Here's the bottom line: While public REITs can be easy to access, private REITs can add greater levels of diversification and can behave differently from the rest of your portfolio.
Both have a place in a well-rounded strategy, but knowing the difference helps you invest smarter.
Talk to your financial advisor today about the benefits of adding private real estate to your investment and retirement portfolios.