Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
REITs, or Real Estate Investment Trusts, are a special group of stocks offered by companies involved in real estate properties. These properties could be a collection of rental, lease, or development properties and all earnings are derived from them. For most investors, REIT stocks work pretty much the same as common stocks. You buy and sell them just like regular stocks and their prices move up and down just like regular stocks. The difference is that the REIT shareholders are part owners in the properties operated by a trust company. They have a different tax status than regular shares, and most of their earnings are paid back to the shareholders in the form of dividends. As more earnings are derived from these properties, the share prices can rise as demand for them escalates. As you can imagine, as the real estate values increase, many REITs shares may also increase in value. But ultimately the success of a REIT comes down the efficiency and savvy of the operating trust company. Those who can manage consistent growth in earnings (just like quality public companies) would emerge as quality stocks. REITs are considered by many as safer investments than stocks and are used by many investors to diversify their portfolios. Starwood and Town and Country trusts are examples of REITs.
Many investors who do not feel safe investing in one or two stocks turn to mutual funds (covered later) as a means to diversify their investments.However, a less known method of investing in a diversified basket of stocks is the index (or index-following or index-tracking) stocks. Index stocks, operated by a trust, are a combination of all stocks within an index rolled into one stock symbol. Investing in index stocks works the same way as regular stocks, so investors who are used to trading regular stocks can also participate in index stocks with ease. …
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