I've got one word for you, and it ain't "plastics." It's "REITs."

The market is down. Paradigms are shifting. And there's a lot of stock being cashed in. This is definitely a time to get liquid, evaluate your portfolio and make tax-exempt investments before the end of the year. Now is the time, and real estate investment trusts (REITs) are an excellent way to diversify your portfolio with solid, stable choices.

Most real estate equities are a steal right now. The industry as a whole is undervalued, with many bargains to be had.

What's more, despite the fact they are currently under-priced, REITs and other real estate equity issues have proven to be some of the hottest and most reliable investments of the year. Just check the numbers.

On the year, the REIT index compiled by the National Association of Real Estate Investment Trusts (NAREIT) has gained an astonishing 16.7 percent – even after taking into account the negative 4 percent pounding they have undergone this month.

NAREIT's Public Equity 100 index has fared even better, with an 18 percent gain on the year despite a loss of more than 4 percent this quarter. Equity REITs are up 17 percent this year (-4 percent this month), mortgage REITs are up 8.2 percent (-1.3 percent this month) and hybrid REITs are up 9.9 percent on the year (-6.9 percent this month).

Compare those numbers with the dismal performance of other indices. The Dow Jones Industrial Average is down almost 5 percent on the year, the Nasdaq Composite has dropped an astonishing 18.4 percent and the Standard & Poor's 500 in down more than 3 percent.

One of the only winners standing out among well-known indices is the Russell 2000, which has climbed and clawed 15.9 percent for the year. And here's a sign for you: the REIT indices most closely track the Russell 2000.

So why buy now? I'll give you a few good reasons. First, more and more cash is flowing toward real estate and other income-producing investments in a time of market volatility. People heavily invested in technology and other previously high-flying stocks are looking for steady-as-she-goes choices instead. This should result in upward pricing pressure for REITs.

Next, the dip in REITs may be some of the only bargain prices available in a steadily climbing sector.

Also, the market may be freaking out a bit right now. But a likely Republican victory in the campaign for the White House may calm things. After Election Day, most stocks likely will see a positive bump.

And finally, we're nearing the magical month of December, which for the last several years has created the Santa Claus effect. This means a bounce of anywhere from 4 to 7 percent for most issues on the market as folks pour in cash before year-end.

Now is the time. Don't miss your chance for a deal.

Published: October 19, 2000

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Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net