REITS and Inflation Protection (2024)

FAQs

REITS and Inflation Protection? ›

REITs have been an attractive haven for investors seeking protection against inflation. During historical periods of medium-to-high inflation and rising interest rates, REITs have generated positive total returns and outperformed equities, as compared to the S&P 500 and the MSCI AC World Index.

As interest rates rise, they can depress the price of these REITs. So while dividends may climb with interest rates, the price of publicly-traded REITs may decline. Historically, REITs are one of the better-performing sectors during inflationary periods.

REITs provide natural protection against inflation. Real estate rents and values tend to increase when prices do. This supports REIT dividend growth and provides a reliable stream of income even during inflationary periods.

During inflationary periods, experts suggest making the most of your returns by investing in assets that have historically delivered returns that outpace the rate of inflation. Examples include diversified index funds, as well as carefully investing in things like gold, real estate, Series I savings bonds and TIPS.

Factors that Make Real Estate a Strong Inflation Hedge:

Real estate stands as a robust inflation hedge due to several key factors. Its limited supply and consistent demand drive property values higher during inflationary periods. Rental income, which can increase with inflation, provides a steady cash flow.

REITs historically perform well during and after recessions | Pensions & Investments.

By law, a REIT must pay at least 90% of its income to its shareholders, providing investors with a passive income option that can be helpful during recessions. Typically, the upfront costs of investing in a REIT are low, while their risk-adjusted returns tend to be high.

How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

With rate cuts on the horizon, dividend yields for REITs may look more favorable than yields on fixed-income securities and money market accounts. However, REIT stocks are only as good as the properties they own — and some real estate sectors may be better positioned than others.

April 2, 2024, at 2:50 p.m. Real estate investment trusts, or REITs, are a great way to invest in the real estate sector while diversifying your options. Real estate investments can be an excellent way to earn returns, generate cash flow, hedge against inflation and diversify an investment portfolio.

Where to put money during high inflation? ›

Several asset classes perform well in inflationary environments. Tangible assets, like real estate and commodities, have historically been seen as inflation hedges. Some specialized securities can maintain a portfolio's buying power, including certain sector stocks, inflation-indexed bonds, and securitized debt.

The S&P 500, through index funds from the likes of Vanguard and SPDR, provides long-term returns that have historically outpaced inflation.

How does it affect real estate? Probable positives during times of high inflation are rising prices for rental property rates. During high inflationary times, it can be difficult to get a mortgage. High-cost mortgage rates mean buyers have less purchasing power, so many continue to rent.

During periods of economic growth, REIT prices tend to rise along with interest rates. The reason is that a growing economy increases the value of REITs because the value of their underlying real estate assets increases.

Real Estate. Real estate is a popular choice because it becomes a more useful and popular store of value amid inflation while generating increased rental income. Investors can buy real estate directly or invest in it by purchasing shares of a real estate investment trust (REIT) or specialized fund.

All else being equal, higher interest rates tend to decrease the value of properties and increase REIT borrowing costs.