February 11, 2020
The key to an effective investment strategy is to diversify your portfolio. Investing in funds, rather than individual stocks or properties, allows for diversity at an affordable investment level. Allocating your assets among different types of funds further increases diversification. A REIT fund differs from a mutual fund. Likewise, a growth fund also differs from an income fund.
A mutual fund is one in which money is invested in stocks, bonds, and short-term debt. Investors buy shares in them and receive the income generated based on their shares. Several types of mutual funds exist:
Investors often can enter mutual funds with a small initial investment. Strong mutual fund performance is dependent upon good management.
REIT funds have some things in common with stock, index, and sector stock funds, but they also have some differences. The primary difference is the type of investment. A real estate investment trust, or REIT, is a company that owns and operates income-producing real estate, such as apartment buildings, shopping centers, hospitals, and hotels.
Just as mutual funds allow individual investors to own stocks and/or bonds from a variety of sources without having to make multiple individual investments, REIT funds hold multiple real estate investments and allow individual investors to receive income from these investments without having to actually buy those properties themselves. By adding a REIT fund to a portfolio, an investor can easily diversify into real estate, which traditionally has performed well as a wealth creation tool. This makes REIT funds an excellent complement to mutual funds.
REIT funds are of different types as well. REIT funds can be publicly traded, non-publicly traded or private. They can hold properties from one sector or a variety of sectors. Income is generated in various ways, such as from rents collected, the sale of the property, and interest payments.
REIT funds also can be either growth or income, depending upon the investment mix. Investors can enter some funds with a small investment. The funds may be SEC qualified or not, however, the SEC warns against investing in those that lack SEC qualification. Professional management also is key to the successful performance of REIT funds.
The Growth REIT Fund is an SEC-qualified fund comprised of apartment buildings throughout targeted U.S. markets. This fund is designed to produce long-term capital appreciation as there is a 5-year investment term. The minimum investment is $500. REIT investors build wealth two ways–they will receive monthly dividends from cash flow (rents collected) that are reinvested back into the fund. Growth REIT investors also benefit from the final sale of the properties in the fund.