Back in the “old days,” which in this case refers to the period before the 2008 financial crisis, it was widely believed that real estate was an alternative asset class, or a category of investments whose performance was uncorrelated to that of stocks and bonds.
The crisis taught us that pretty much everything is correlated at times of stress and that real estate – particularly the liquid kind embodied in publicly traded real estate investment trusts – is no exception. Since then, the positive correlation has held, although REITs have done better than the market as a whole in some years and worse in others, as you can see in comparisons between the iShares Core U.S. REIT ETF (USRT), which tracks the FTSE-NAREIT All Equity REITs Index, and the S&P 500 Index. Here are REIT vs. market performance comparisons for recent years: 8.6% vs. just under 12% in 2016, 2.8% vs. 1.38% in 2015, 28% vs.13.5% in 2014, 2.9% vs. 32.15% in 2013, and 19.7% vs. 15.9% in 2012.
So if REIT stocks move with the market a lot of the time, do they offer something that dividend investors can’t get elsewhere and, if so, is this a good time to buy them?
First answer first.