Investors aiming for passive income through real estate investment trusts (REITs) may consider a REIT-heavy portfolio to achieve financial goals. While a portfolio of REITs can potentially yield a significant annual income, such as $40,000 from a $1 million investment, there are risks involved. Market fluctuations can affect dividend reliability, particularly in the event of a real estate downturn. Diversification across different asset types is recommended to mitigate risks and ensure a balanced approach to investing.
REITs tend to outperform other stocks on the basis of dividends alone. However, concentrating investments solely in REITs introduces significant risks, such as vulnerability to real estate market downturns.
It's not uncommon for REITs to generate 4% dividend yields since they're required to pay out at least 90% of their taxable income as dividends.
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