The Intelligent REIT Investor Guide

CHAPTER 15Building a REIT Portfolio

“Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety.”

—Benjamin Graham

Before you place any buy orders, let's take a step back and seek some perspective. For instance, how much of a good thing do you want? And how much should you have?

Almost every book on financial planning and investing discusses asset allocation: how much of one's portfolio should be in stocks (domestic and international, large‐cap and small‐cap, growth and value, and so on), bonds, real estate, and cash. And let's not forget commodities and other “alternative investments” out there for you to consider.

Some experts say that, as we get older, we should shift more into bonds over stocks in order to reduce risk. Others recommend that our asset allocation be adjusted as needed according to economic, interest rate, and investment environments – or even one's tolerance for risk and volatility.

Personally, I don't know if there's a universally right answer. The way I see it, your proper asset mix should depend on your objectives, financial ability to absorb losses, and emotional tolerance for risk. And while this isn't a book about financial planning, here are a few thoughts about REITs' role in a diversified investment portfolio for starters.

If you have substantial spending needs over the next year or two, keeping enough cash to meet them is highly important. That's true even when bank savings and ...