NEW YORK ( TheStreet) -- When it comes to retirement and savings, REITs are well positioned to play an important role -- both as an investment to help build a retirement portfolio and also to provide income to meet living expenses. It's important to remember that REITs are forced, by law, to payout at least 90% of their taxable income to their shareholders in dividends -- a crucial differentiation that makes the income highly sustainable, in good times and bad.
Another key differentiator is that REITs are low to moderately correlated with non-REIT stocks and bonds; conversely, over the long term, REITs help to reduce overall portfolio volatility and cushion the "zigs and zags" caused by Mr. Market, prior to and during the retirement years. Also, REITs are a proven and effective hedge that can help shield portfolios against inflation. As you know, rising inflation can sap the sweetness out of a retirement portfolio faster than my daughter can spend $300 at Forever 21. (Sorry Lauren, but you know it's true).
Speaking of inflation, I really like the Health Care REITs. The growing sector -- fueled by The Affordable Care Act and the expected increase in utilization of health services -- will continue to be a durable and defensive REIT class. It's a fact that people don't tend to change their health care spending patterns, regardless of economic conditions. The demand for patience is expected to rise considerably as an additional 35 million to 45 million insured patients make their way into the buildings occupied by the health care operators. That trend will bring meaningful exposure to hospitals, medical office buildings, lab space and assisted living facilities.
Health Care OutperformsOver that last year, the Health Care REITs have outperformed all of the other REIT sectors. The prized performer -- the Health Care REITs -- returned a whopping 25.89% year over year, while the silver medal went to the Shopping Center sector (23.91%) and the bronze medal went to the Industrial sector (23.81%). The runner-up finalists were Malls (20.44%) and Self-Storage (19.54%). The S&P 500 trailed, with a year-over-year return of 15.74%.