For those of you who struggle with deciding upon which funds to choose for your 401K, I will be reviewing all of the different categories of funds available to 401K investors. Today, I will be focusing on another 401k investing option - Real Estate funds or REITs.
Many, but not all 401K plans offer REITs as an investment option.
Real Estate Investment Trusts (REITs) offer a unique way to invest in real estate without directly owning property..
REITs are companies that own, operate, or finance income-producing real estate across a range of property sectors. These include residential, commercial, retail, and industrial properties. By investing in REITs, individuals can gain exposure to the real estate market without the need to buy and manage properties themselves.
REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. In addition to dividend yields, REITs also offer the potential for capital appreciation. As the value of the underlying real estate properties increases, so too can the value of the REITs.
It's important to note that, like any investment, REITs come with risks. These include economic downturns, fluctuations in real estate values, and changes in interest rates.
The chart below shows why I am not a big fan of REITs. Their performance over the last 20 years is well below the performance of large cap index funds like the S&P 500 and the Nasdaq.
REITs can also be just as volatile as the stock market. They have had some periods in the past where they have performed almost as well as the stock market, but they are more likely to drag down your results than to increase your investment returns.
Happy Investing,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
Most of the people we help are "above average" 401K/IRA investors. They generate returns that are better than the 5% per year that the average 401K investor. Most of the portfolios we see are positioned to generate about 6.5% to 7.0% per year - about what a Target Date fund investor produces. This is not bad, but we can immediately get them to be able to generate 9% to 10% per year just by changing their fund selections.
Very rarely do we get to work with more advanced investors who have the fund picking part of the equation solved. But, even these sophisticated investors struggle with the challenge of protecting their portfolios in bear market crashes. Let me tell you about Tom.
Tom is a very successful Do-It-Yourself investor. When he came to us his fund picking was so good that he was positioned to achieve almost 10% per year on his investments. It took him a long time and a lot of work to get to this point. He says he made a lot of mistakes along the way and he has the scars to prove it.
Tom had tried all the various methods being pitched including following the big names on CNBC. He had read tons of books on investing and paid for many investing services. He is definitely the most sophisticated and experienced investor we have ever helped. He even uses some of the more sophisticated analytical and trending tools used by the big Wall Street firms - industry tools like MACD and RSI indicators. He was using these tools to make adjustments to his portfolio in volatile markets.
We were not able to help him much with his investment choices because he was doing pretty much everything we teach already. We were able to simplify his investments because he had a lot of overlap in his portfolio and some investments that just did not fit. So he will earn a little more as a result but he came to us because he wanted a better system to protect his portfolio during bear markets.
He was using a service that relies on the trending tools previously mentioned, but he lost a lot of money in 2023 using that service. He never really trusted it to begin with but now he knew he needed something better.
For the sophisticated investors in our group, we do not use the standard industry statistics like moving averages and relative strength indicators because, like Tom found out, they don’t work. Most of these tools are lagging indicators. They do a good job of telling you what has happened in the market but they are not great predictive tools. And because they rely on moving averages, they are too slow to react.
We use our own proprietary algorithms for our Market Signals indicator. It was developed and refined over many years and has the sole purpose of moving our customer’s money to cash when the probability of a market meltdown is high. It is not perfect, but our “secret sauce” that makes it so successful is our rapid self correction mechanism when the Signal is wrong. There is no other tool like this available anywhere to protect your life savings.
Tom is new to the service but he was able to get an in depth understanding of our model and he is very comfortable with our approach. Since our service is so simple and easy to use, our next goal for Tom is to get him to spend less time analyzing the stock market and spending more time doing the things he loves. We do the work so you don’t have to.
Happy Investing,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
SUMMARY:
Both the S&P 500 and the Nasdaq have emerged from the bear market of 2022. Both indices have reached all-time highs recently.
The Russell 2000 (small cap stocks) is still 20% below its all-time high.
This does not mean that we are out of danger.
Markets will likely remain volatile until there is clear evidence that inflation is under control and that a recession will be avoided.
The trend has been positive for the market since the end of October 2022.
The markets are off to a strong start in 2024, continuing the positive trend that began in October of last year.
Looking at the graph below, we see the strong steady move off the lows reached in October of 2022. There were a couple of small reversals in early 2023 and a sharp reversal in October of 2023. Since early November of last year, the S&P 500 and the Nasdaq (top two lines) have moved sharply higher. The small cap stocks (Russell 2000) have continued to lag as this index still is down 20% from it’s high reached at the end of 2021.
Let’s take a look at bond pricing going back to 2020. The top or blue line below represents the price of intermediate term bonds and the orange line represents to price of long term bonds. Bond prices started falling 2021 and fell off a cliff in mid 2022.
Unlike stocks, bonds have not rebounded in 2023 and 2024 because of the continued inflation and interest rate concerns.
I hope you have been paying attention to my ongoing recommendations to avoid bonds and anything other than large cap US index funds for your stock investments. The previous two charts clearly show the cost of holding small cap stocks and bonds. Target date fund investors and people who follow the asset allocation strategy that advisors pitch have gotten crushed over the last couple of years by that bad investment strategy.
It is not just the last few years that have been bad for the target date/financial advisor strategy. If you have been paying attention to my blog posts, you know that this investing strategy significantly underperforms over the last 30, 40, and 50 years.
If you continue to stick with this bad strategy, you will be costing yourself and your family over $1 million in your retirement account. Stop waiting and let us help you fix your investment issues. We can do it in 30 minutes. It is easy and painless. And we do it for free. There is no commitment or obligation. Click the link below to schedule your “401K Instant Fix”.
Happy Investing,
Phil
Disclaimers *The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
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