How to Invest in Real Estate Mutual Funds

Real estate has long been thought of as a solid investment and one generally separated from a potentially volatile stock market. With the inception of real estate mutual funds, it's now possible to invest in a professionally managed fund that follows general trends of the industry. These mutual funds have tended to perform well in some part because fund managers often have good appraisal skills and other helpful industry background.

Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

• Computer

1. Know the basics. Real estate mutual funds are comprised of REITs (real estate investment trusts), which can be bought and sold just like stocks. These trusts are used to purchase commercial and/or residential properties. Some REITs will focus exclusively on a particular type of property (office buildings, for example).
2. Decide how much risk you're willing to take. Fortunately, real estate mutual funds lie on the side of lower standard deviation and therefore have lower volatility than some other sectors.
3. Begin by following your local newspaper's "Home" or "Real Estate" section for fresh and unbiased information on the general direction of the market. Remember, keep an eye on commercial properties, too.
4. Head to Morningstar's website to check out risk ratings and find out which real estate mutual funds are currently performing best.
5. Request the prospectus for each fund in which you're interested.
6. Read each prospectus carefully. Compare fees as well as projected gains and losses.
7. Contact your broker to discuss your decision and to make your investment.

Tips & Warnings

• If possible, use a broker you've worked with before and preferably one who has some knowledge of real estate mutual funds.
• Keep an eye on the market to make adjustments in your real estate investments, if necessary.
• Don't expect unsurpassed performance just because these mutual funds are related to the real estate sector. The only long-range study to be done so far on real estate mutual funds showed that real estate mutual funds outperformed neither the real estate market index nor the real estate stock portfolio.
• Don't devote too much of your portfolio to the real estate sector. As always, diversity is important.
• Don't let your broker pressure you into a sale or purchase you aren't comfortable with. Remember, it's your money that's being invested.