Typed REIT into the screener, got funds and companies, still don't know which

Question

I'm stuck on the front end of this. I opened the screener, typed REIT, and got both single companies and funds that hold dozens of them. Someone told me the ETF is the only sensible thing for a first purchase because you can't research forty balance sheets. Someone else said ETFs mean you're forced to own office exposure you'd never buy on purpose.

Also the ETF page listed something called an expense ratio and I want to understand whether that's a fee I pay separately or something already taken out. Small numbers, 0.12 percent, but I want to know where it goes.

Rena Guide · Accepted Answer

An expense ratio is the fund's annual cost, taken out of the fund's own assets, so you never see a charge on your statement. At 0.12 percent, a $5,000 holding costs about $6 a year. It goes to the fund manager for running the thing.

On the bigger choice. A REIT is a single company that owns income-producing property and must distribute most of its taxable income to shareholders. A REIT ETF is a fund holding many of those companies at once. Buying the ETF gets you one ticker, one decision, and exposure to whatever mix the index uses. Buying individual REITs means you decide the mix yourself, and you take on the job of reading a company's balance sheet and understanding its sector.

Both people who advised you are describing something real. The ETF does include office exposure, and office is the most bifurcated part of the sector right now. It also includes apartments, industrial, self-storage, data centers and senior housing, and the sectors behave so differently that calling REITs a single asclass would be wrong.

The part that tends to surprise people at this stage is the tax treatment. REIT dividends are largely nonqualified, meaning they're generally taxed as ordinary income rather than at the lower qualified-dividend rate. That's why REITs are often held in tax-advantaged accounts. Your own situation depends on your bracket and account types, so confirm the specifics with a tax professional before you decide where to park them.

ehernandez74 · Answer

The expense ratio comes out of the fund's assets before the price you see, so nothing gets billed to you. On 0.12 percent you're paying about a dollar twenty a year per thousand dollars held. I looked at the same choice and went slow on it because I wanted to understand what the fund actually held first.

mitchell_ray4 · Answer

Sector weights are on the fund's own fact sheet, usually a pie chart on page one. Worth looking at before you buy so the office slice isn't a surprise later.

Typed REIT into the screener, got funds and companies, still don't know which

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