Real Estate Investment Trusts, also known as REITs, are companies that own and operate income-producing real estate.  To qualify as a REIT, a company must pay out at least 90% of its profit each year as dividends to shareholders.  In return, the company is not required to pay income taxes.

REITs exhibit characteristics similar to both bonds and stocks.  They provide a consistent stream of income (like bonds) and hold the potential for long-term appreciation (like stocks).  On a risk scale, REITs fall between the two.

In addition to consistent income and potential growth, REITs offer investors diversification benefits.  Historically, the ups and downs in REIT returns have not moved in lockstep with those of stocks or bonds.  Due to this low correlation, adding REITs to a portfolio lowers overall risk.