Royalty trusts are not risk-free

Money Digest, August, 1998

Many royalty and Real Estate Investment Trusts are good investments. But consider the risks before investing

Royalty trusts and REITs provide high yield to investors. That is why we have been regularly writing about these investments in Money Digest. However, it is good to remember that the returns are not guaranteed.

For instance, if the price of the underlying commodity (oil, coal or gas) price goes down, the payout to investors will decrease; if the commodity reserve is completely depleted, investors may receive no income at all. Similarly if the demand for office space decreases, REITs may also decrease.

This is not to say that royalty trusts and REITs are not good investments. Rather, they are like other investments and you should consider the quality of each investment on its own merit.

Chosen well for the income part of your portfolio, they can boost your total yield.