Want to earn a dividend of over 6% while diversifying your portfolio? Here are two ideas.

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Even great stocks hit cycles that diminish their value and erode returns. This explains the importance of diversification. Unfortunately, this is not as easy as it sounds, as investors have so many offers to choose from, and tracking an entire portfolio of different stocks is tiring. Read on to learn how to diversify your portfolio and earn a 6% dividend with just one investment.

One of the major strengths of real estate investment trusts (REITs) is that they consist of a wide range of assets, which helps minimize investor risk. However, one risk that many REITs have is that many focus on one sector of the real estate market. This means that portfolio diversification is limited to similar assets in the same sector. This leaves many REITs vulnerable to sector-wide disruptions or downturns.

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Enter the diversified REIT. A diversified REIT provides income to investors through rental income or property appreciation, just like a single-sector REIT. However, diversified REITs hold assets in multiple sectors of the real estate market. A diversified REIT might have a national portfolio of assets in the multifamily, commercial, industrial, storage or medical sectors, or a mixed portfolio of assets in the same geographic market.

In theory, this diverse allocation of assets across various markets limits investors’ exposure to sector-specific downturns that threaten traditional REITs. It also allows diversified REITs to increase investor returns by featuring triple net lease assets and other investor-friendly properties in the portfolio. This means that some diversified REITs pay dividends comparable to the best-performing single-sector REITs in the business.

One such diversified REIT is WP Carey (NYSE: WPC ). This diversified REIT operates in several different sectors and has an operation divided into several segments. The real estate division has long-term, single-tenant commercial leases at office and industrial properties around the world. The other segment of their operation is the Investment Management Unit, which provides advisory and asset charge management for other REITs.

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Make money with WP Carey

Benzinga estimates WP Carey’s market cap at $12.45 billion, and its stock currently trades at $56.88. This while offering a solid dividend of 6.11%. You can earn $1,000 in passive income by investing in WP Carey. At a share price of $56.88 and a dividend yield of 6.11%, WP Carey is paying investors $3.47 per share. This means you would need to purchase 289 shares of WP Carey for $16,438.32 to earn $1,000 in annual dividends.

Increasing the investment amount would theoretically lead to more passive income. This is where it’s important to understand the risks of diversified REITs. Although they present diversified portfolios or multiple streams of income, it would not be advisable to overexpose your portfolio to a diversified REIT (or any other offering). So don’t just assume you’ve “diversified” your portfolio by allocating a large amount to a diversified REIT. That would defeat your purpose.

Beyond public REITs

High-yield REITs aren’t your only diversification option in this current market. Another way to get high returns in this current market is to take advantage of the private credit boom. One option is the Arrived Homes Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target net annual return of 7% to 9% paid to investors monthly. It paid 8.1% in July. The best part? Unlike other private credit funds, this one has a minimum investment of just $100.

Both options have their advantages and disadvantages. The individual assets of diversified REITs are subject to market forces such as oversaturation, rising interest rates and lower-than-expected occupancy rates. Diversified REITs’ strong focus on paying high dividends to investors is a double-edged sword. Dividends are high, but they can also be reduced (or suspended) if several assets in the portfolio experience difficulties.

With private credit funds like the Arrived Homes offer, the risk is a matter of trusting that the loans from the fund are safe. Arrived Private Credit Fund is a mortgage REIT that buys loans and the investors are shareholders in the REIT. When you invest in real estate debt, you are lending money to an owner. The risk is that the property owner will not be able to repay the loan. The Arrived Homes private credit fund offers a diversified portfolio of loans to help mitigate this risk.

Both diversified REITs and private credit funds are not “low risk” or “no risk” investments. They are investments that offer comparatively less risk than simply buying a REIT or stocks. The risk is always present, but this is also where the advantage comes from. A diversified REIT of a private credit fund might be a good fit if you’re comfortable with both sides of that equation.

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This Article Want to earn a dividend of over 6% while diversifying your portfolio? Here are two ideas. originally appeared on Benzinga.com