You REIT what you sow: real estate investment trusts provide a hedge against stock market downturn. (One For Your Money).

In 1994, after 24 years of working mostly in the marketing department of Ameritech, Frances H. Clark retired. At the time, she had a serious decision to make. What to do with the money from her pension and 401(k)? Clark, who is 61, and was ordained as a Baptist minister four years ago, called on financial advisor Larry E. Folmar of the Folmar Group in Southfield, Michigan. Together, they created a diversified portfolio of mutual funds, high-yield bonds, and annuities.

In 1996, Clark took an interest in real estate properties. "But I didn't want the headaches of dealing with tenants," she says. On the advice of Folmar, she invested $7,500 in CNL, a limited partnership that was converted to a real estate investment trust (REIT). Initially, it invested in properties that were leased to regional and national restaurant chains. But, more recently, it has added rental properties to its holdings.

"This proved to be a good investment for me because it is consistent [average dividend yield of 9%]," says Clark. "It is not as affected by market fluctuations or day-to-day changes in interest rates. What I like is that it is a vehicle whose primary objectives are to preserve capital and produce steady income." Clark has opted to invest the distributions from the trust into a separate bond fund and money market account--from which she withdraws funds to pay monthly living expenses [of around $2,000].

As with company stocks, investors buy and sell shares of REITs through a broker. Anyone with at least $40,000 to $50,000 in investable assets should be in REITs, or real estate mutual funds, advises Folmar. "Real estate tends to move opposite to the stock market. It protects the valuation of a dollar during times of inflation," he explains.

REITs returned an average of 26% in 2000, while the stock market, as measured by the S&P 500 index, sank 9%. "REITs and publicly traded real estate moved into positive territory last March and never looked back," says Steven A. Wechsler, president and CEO of the National Association of Real Estate Investment Trusts in Washington, D.C.

Although REITs have not been immune to the market's overall decline in the aftermath of the terrorist attacks, their performance is still ahead of most benchmarks. Through the close of September 26, 2001, REITs were up 7.3% vs. declines of 20.6%, 23.7%, and 40.7% for the Dow Jones industrial average, S&P 500, and Nasdaq composite index, respectively. The average dividend yield for REIT stocks is 7.75%, which is compelling for investors looking for a safe haven and steady income in these turbulent times.

There are about 188 REITs publicly traded on the market, making for investments in an array of properties from shopping centers and office buildings to apartment complexes and hotels. Some REITs take equity positions, whereby shareholders receive income from the rents of these properties and capital gains as buildings are sold at a profit. Others, such as mortgage REITs, specialize in lending money to developers. Investors who want the benefits of REIT investing but don't want the pressure of picking the right mix of REITs, should look to real estate mutual funds. Such funds generally invest in a portfolio of 30 or more REITs.

When choosing a real estate mutual fund, you want one that has a low expense ratio--1% or less; has a proven track record; has been in operation for at least five years; and has low management turnover, advises Martin Cohen, president of Cohen & Steers Capital Management in New York, one of the largest real estate securities management firms in the nation.

Folmar gives other considerations for REIT investing:

* A greater percentage of assets should be going toward buying properties, not management fees.

* The portfolio should be diversified. A good mix of properties, for example, would be shopping malls in one region, office buildings in another, and apartment complexes in a different market.

Much of this information can be found in the annual report and prospectus. To find out more about REITs and real estate mutual funds, check out the National Association of Real Estate Investment Trusts at www.nareit.com, RealtyStocks at www.inrealty.com, and Morningstar Mutual Funds at www .morningstar.com.

Most financial gurus advise that depending on your risk tolerance, you should have 5% (conservative) to 10% (moderately aggressive) of your portfolio invested in real estate through REITs, real estate mutual funds, or direct property ownership.

Top 10 Equity and Mortgages REITs

                                            Year-to-Date
Name                              Ticker   Total Return *

Novastar Financial Inc.            NFI         235.02%
ElderTrust                         ETT         227.60
Impac Mortgage Holdings Inc.       IMH         157.83
Anworth Mortgage Asset Corp.       ANH         155.41
Dynex Capital Inc.                  DX         140.00
Ventas Inc.                        VTR         136.43
Income Opportunity Realty Trust    IOT         121.40
National Health Realty             NHR         115.98
Thornburg Mortgage Inc.            TMA         115.95
La Quinta Properties Inc.          LQI         108.78

SOURCE: NATIONAL ASSOCIATION OF REAL ESTATE
INVESTMENT TRUSTS * AS OF OCTOBER 31, 2001