Many investors looking to diversify their portfolios have gravitated to alternative investments such as real estate to do so. I do believe that real estate should indeed find a place in most long-term investor portfolios. This is an asset class that not only provides diversification, but also much-needed income to investors looking at achieving retirement cash flow goals.
Real estate investment vehicles such as Real Estate Investment Trusts (REITs) are one of the most commonly used methods for investors to gain exposure to this sector. These REITs vary in quality, however, I would suggest investors reference some of the previous commentary on Baystreet.ca for great picks in this area.
Now is the time to be more vigilant with ever in terms of picking REITs in this environment. While many of these investments have rebounded substantially from pandemic-driven lows in March, there remains a disparity among REITs in terms of quality and portfolio composition.
I would encourage investors to stay away from office and retail-dominated REITs, as I do think headwinds related to e-commerce and shifting preferences to work from home will fundamentally alter the growth trajectories of these two sectors.
That being said, being ultra-selective and picking REITs with an industrial or residential focus is, in my opinion, the best way to be exposed to this asset class right now. Reaching for yield or trying to pick up those REITs that continue to be depressed could result in long-term portfolio underperformance, as I think the secular trends that are driving this sector now are here to stay.
Invest wisely, my friends.
