REIT returns have been spectacular in the past five years. Real estate mutual funds, which invest mainly in REITs, have soared an average 139%, compared with 21% for the average stock fund and 10% for the Standard & Poor's 500-stock index.
All of which means that five years ago was a swell time to invest in real estate funds. But is it too late now?
Well, yes and no. If you're counting on booking a 139% gain in the next five years, REITs and real estate funds are likely to disappoint you. "Nothing is cheap," says Samuel Lieber, manager of the Alpine U.S. Real Estate fund.
But, why let data get in the way of a "good" investment:
"There's not a lot of upside here," says Alpine's Lieber. But there's not a lot of downside, either. REITs will probably raise their dividends in the next few years, making them slightly more attractive. Should the stock market turn down, those dividends will ease the pain.
Unless you plan to pick your own REITs, it's probably best to invest in a real estate fund. The top-performing real estate funds the past five years are in the chart. Right now, a $1,000 investment in a real estate fund will cost you less than a few days in a major city hotel.
Why not toss a mint on your pillow and invest the savings in a real estate fund? You'll get some decent income and save on aftershave, too.
If you had followed this advice and bought one of the funds listed in the article, you would have lost 50-70% on your investment to date. Oops.