We study the diversification benefits of REIT preferred and common stocks. Taking the view of a long run investor, we conduct our analysis using data from 1992 to 2012. We examine optimal mean-variance portfolios of an investor given access to different classes of assets and establish five main results. First, preferred stock provides significant diversification benefits to all equity investors. Second, preferred stock appears to be a bond substitute. Third, preferred stock provides a venue for risk reduction for constrained investors who have access to bonds. Fourth, REITs provide an important value dimension to investors. Finally, REITs allow long only investors the ability to form higher total return portfolios than they otherwise would have been able to attain.