How REITs Have Performed vs. the S&P 500

Over long, multi-decade periods, REITs have historically delivered total returns that are broadly competitive with the S&P 500 — but whether REITs have 'outperformed' depends heavily on the specific period measured. In some stretches REITs have outperformed the broad stock market, while in others they have clearly lagged; there is no consistent rule that one always beats the other. REITs behave differently from the broad market because their returns are tied to real estate fundamentals and interest rates rather than to the same drivers as the rest of the equity market, so they can lead in certain economic and rate environments and trail in others. The honest summary is 'competitive over the long run, but period-dependent.' Importantly, past performance does not guarantee future results, and no specific historical comparison should be assumed to repeat. So REITs have been a competitive long-run total-return asset, but claiming they consistently beat the S&P 500 would overstate a record that varies by period.

Dividends matter enormously for REIT returns because the REIT structure requires distributing at least 90% of taxable income, so a large share of an investor's total return arrives as income rather than price appreciation. Over time, dividends have contributed a substantial — often majority — portion of REITs' total return, generally a larger share than for the broad stock market, where much of the long-run return has historically come from price gains. This has several implications: REITs can deliver returns even in periods when prices are flat, reinvesting dividends becomes a powerful compounding tool over long horizons, and REITs naturally appeal to income-oriented investors. But the income isn't guaranteed — distributions can be cut if property income falls, and an unusually high yield can reflect risk rather than reward. So the large, dividend-driven income component is a defining feature of REIT total return, and it rewards long-term holding and dividend reinvestment, but it should be evaluated for sustainability rather than treated as fixed.

REITs have historically shown moderate — that is, less-than-perfect — correlation with the broad stock market, including the S&P 500. They move with the market to some degree because they are exchange-traded equities, but not in lockstep, since their performance is also driven by real estate fundamentals (rents, occupancy, property values) and interest rates that don't perfectly track the broader market. This imperfect correlation is the basis for the REIT diversification case: adding an asset that doesn't move exactly in step with your existing holdings can improve a portfolio's diversification and provide an income stream tied to real estate. The benefit is partial, not complete — in severe market sell-offs, correlations across risk assets tend to rise, so REITs can fall alongside stocks just when diversification is most wanted. Still, over full market cycles, REITs' moderate correlation has supported their role as a diversifier. So REITs are correlated with stocks but imperfectly, which is precisely what makes them useful for diversification rather than redundant.

REITs are genuinely volatile, and their volatility is broadly in the range of equities — they are, after all, exchange-traded stocks. In sharp market downturns, REITs can fall as much as or more than the broad market, even when the underlying rents and properties are stable, because their share prices reflect market sentiment, interest-rate expectations, and broad risk appetite. Whether REITs are 'more' or 'less' volatile than the S&P 500 varies by period and by REIT type (mortgage REITs, for example, tend to be more volatile than many equity REITs). The key point is that REITs are not low-volatility, bond-like instruments; their competitive long-run returns have come along a bumpy path with real drawdowns. So you should expect meaningful price swings from a REIT allocation and size it accordingly. Lower reported long-run volatility figures can be misleading if they smooth over severe drawdowns. So treat REITs as volatile equities, and remember that past volatility patterns don't guarantee future ones.

Interest rates affect REIT performance in ways that can cause REITs to diverge from the broad stock market, which is part of why the REIT-versus-S&P 500 comparison varies by period. Rising rates increase REITs' borrowing costs and raise the discount rates investors apply to future cash flows, which can pressure REIT valuations and share prices; rising bond yields can also make REIT yields look relatively less attractive. Falling rates often have the opposite, supportive effect. Because of this pronounced rate sensitivity, REITs can underperform broad equities during periods of rapid rate increases and outperform when rates ease. Mortgage REITs are especially rate-sensitive, since their profit is an interest-rate spread. The S&P 500 is also affected by rates, but REITs' real-estate-and-leverage profile makes them particularly responsive. So interest rates are a major driver of the period-to-period swing in relative performance, and understanding this rate sensitivity helps explain why no single 'REITs vs. stocks' verdict holds across all environments.

REITs can improve portfolio diversification because they have historically shown moderate, less-than-perfect correlation with the broad stock market and bonds. Adding an asset that doesn't move exactly in step with your existing holdings can potentially smooth a portfolio's overall ride and add an income stream tied to real estate fundamentals rather than to the same drivers as the rest of your equities. REITs also give exposure to a distinct asset class — income-producing real estate — that responds to rents, occupancy, and property values. That said, the diversification benefit is partial, not complete: REITs are equities that move with the market to some degree, and in severe sell-offs correlations across risk assets tend to rise, so REITs can fall alongside stocks. The benefit is best measured over full cycles, not single crises. So REITs have historically been a useful diversifier within a broader portfolio, but the benefit is moderate and imperfect, and any REIT allocation should still be sized appropriately for your goals and risk tolerance.

The REIT-versus-S&P 500 comparison varies so much by period because REIT returns are driven by real estate fundamentals and interest rates, which don't move in step with the forces driving the broad stock market. In periods when growth-oriented stocks dominate the S&P 500, REITs may lag; in periods favoring income and real assets, or when rates are falling, REITs may lead. Rapid rate increases tend to pressure REITs, while rate declines often help them. Property cycles — construction booms and busts, shifts in demand across sectors like office, industrial, or data centers — also push REIT returns around independently of the broad market. As a result, the start and end dates chosen for any comparison can change the conclusion dramatically, which is why quoting a single 'REITs beat stocks' or 'stocks beat REITs' figure without the period attached is misleading. So the comparison is genuinely period-dependent, and the right takeaway is that REITs have been competitive over long horizons, not that either side consistently wins.

No — you should not expect REITs to match their historical returns, because past performance does not guarantee future results. The historical record — competitive long-run total returns, a large dividend contribution, and moderate correlation supporting diversification — describes what has happened, not what will happen. Future REIT returns will depend on real estate fundamentals, interest rates, valuations, and market conditions that change over time and can't be predicted. Quoting a historical average and assuming it will repeat is one of the most common mistakes investors make. The more reasonable approach is to use the historical record to understand the character of REITs as an asset class — income-oriented, rate-sensitive, volatile equities with diversification benefits — and then set modest, well-caveated expectations, diversify, and size the allocation appropriately. So treat historical REIT performance as informative context, not a forecast or a promise. No specific return should be expected or relied upon, and any REIT allocation should be made with that uncertainty firmly in mind.

REIT total returns have historically come from a combination of income (dividends) and growth (price appreciation), but with income playing an unusually large role compared with the broad stock market. Because REITs must distribute most of their taxable income, dividends have contributed a substantial — often majority — share of REIT total return over long periods, while the underlying real estate can also appreciate as rents and property values grow. This contrasts with the S&P 500, where a larger portion of the long-run return has historically come from price appreciation. The practical implications are that REITs can produce returns even when prices are flat, that reinvesting dividends compounds powerfully over time, and that REITs suit income-oriented strategies. But neither the income nor the appreciation is guaranteed — distributions can be cut and prices can fall. So REIT total returns blend a large income component with property appreciation, with income the more distinctive driver, and both should be understood as variable rather than fixed.

Yes — REITs can and do fall during market crashes, often significantly, because they are exchange-traded equities subject to the same swings in sentiment and risk appetite as other stocks. In severe sell-offs, correlations across risk assets tend to rise, so REITs frequently decline alongside the broad market even when the underlying rents and properties remain relatively stable. This is an important caveat to the diversification case: the diversification benefit of REITs' moderate correlation is partial and tends to be weakest precisely in crises, when investors most want protection. REITs can also be hit by crisis-specific factors, such as concerns about leverage, refinancing, or tenant defaults. The diversification benefit is better measured over full market cycles than in any single downturn. So while REITs have historically diversified a portfolio over time, you should not expect them to hold up when stocks crash — they typically fall too. Size and diversify any REIT allocation with that reality in mind, and remember that past behavior is not a guarantee of future results.

The S&P 500 is a common and reasonable benchmark for REITs because it represents the broad U.S. large-cap stock market that REITs compete with for investor capital, and comparing the two helps investors understand whether real estate has been a competitive total-return asset. However, it's not a perfect apples-to-apples comparison. REITs are a single sector tied to real estate fundamentals and interest rates, while the S&P 500 spans many industries, so they respond to different drivers and can diverge sharply over any given period. A REIT index (such as a broad REIT benchmark) is a more direct measure of REIT performance, and comparing that index to the S&P 500 is the typical approach. The comparison is most meaningful over long horizons and with the period clearly stated, since short-window comparisons can mislead. So the S&P 500 is a fair and useful benchmark for gauging REITs' competitiveness as an asset class, as long as you remember the two are structurally different and that the result varies by period.

Historical performance should inform your REIT allocation modestly — as context for understanding the asset class, not as a forecast. The record suggests REITs have been competitive long-run total-return investments with a large income component and moderate correlation that supports diversification, while also being volatile and rate-sensitive with results that vary by period. Used well, that record helps you set realistic expectations (competitive but bumpy returns, meaningful income, partial diversification), choose an appropriate role for REITs in your portfolio, and decide how much to allocate given your goals and risk tolerance. Used poorly, it tempts you to extrapolate a past average into the future or to over-allocate based on a strong recent stretch. Because past performance does not guarantee future results, the prudent approach is to size REITs as one diversified, appropriately weighted component of a broader portfolio, reinvest income if income isn't needed currently, and avoid concentration. So let history shape expectations and structure, not a specific return target, and revisit your allocation as conditions and your circumstances change.

Comparing non-traded REITs to the S&P 500 is tricky because of how non-traded REITs are valued. A non-traded REIT is priced periodically at net asset value (NAV) rather than continuously by the market, so its reported returns look smoother and less volatile than an exchange-listed index like the S&P 500 — but that smoothness is largely a function of infrequent valuation, not an absence of underlying risk. The real estate can still lose value between valuations, and the NAV is an estimate that may lag market conditions. As a result, headline volatility and return comparisons between non-traded REITs and the S&P 500 can be misleading, since they aren't measured the same way. Non-traded REITs also carry historically higher fees and illiquidity, which affect net returns and the comparison. So while both own real estate, comparing a non-traded REIT's smoothed NAV performance to the daily-marked S&P 500 isn't apples-to-apples. Judge non-traded REITs on their structure, fees, and underlying real estate, and remember past performance doesn't guarantee future results.

Adding REITs to a stock portfolio can modestly reduce overall portfolio risk because of REITs' moderate, less-than-perfect correlation with the broad stock market — combining assets that don't move exactly together can potentially smooth a portfolio's path and reduce its overall volatility relative to the return earned. REITs also add exposure to a distinct asset class driven by real estate fundamentals and an income stream that isn't tied to the same forces as the rest of your equities. However, the risk-reduction benefit is partial and not guaranteed: REITs are themselves volatile equities, and in severe sell-offs correlations rise so REITs tend to fall with stocks. REITs are also rate-sensitive, which adds a different kind of risk. So adding REITs can improve diversification and modestly temper portfolio risk over full cycles, but it doesn't make a portfolio safe and won't protect you in a broad crash. Size the REIT allocation appropriately, and treat the diversification benefit as a useful, partial one rather than a guarantee of lower risk.

We help investors understand REIT performance in balanced terms — the historically competitive long-run total returns versus broad equities, the large role dividends play, REITs' moderate correlation with the S&P 500 and the diversification it supports, and the essential context and caveats — so you can form realistic expectations rather than chase a forecast. REIT and non-traded-REIT interests are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review; non-traded and private REITs typically require accredited or otherwise suitable investors, while publicly traded REITs trade through ordinary brokerage. We interpret the record honestly: REITs have been historically competitive, but results vary by period, REITs are volatile and rate-sensitive, and past performance does not guarantee future results. We never promise yields or returns or project specific figures. Baker 1031 does not provide tax or legal advice — your CPA handles your situation. Our role is to help you understand what the record does and doesn't say, weigh REITs' income and diversification traits, and size any allocation appropriately, investing only when suitable.