Retire Rich With REITs

I know what that title sounds like. It sounds like a get rich quick scheme. In which case, it sounds like a scam.

If that’s how you perceived it – and I’m guessing you probably did – let me disabuse you of that notion right here and now.

Retiring rich with REITs isn’t quick. And it’s not a scheme. It’s a proven possibility with a great shot at success when properly applied.

This is something I’ve talked about before. But considering the market’s volatility right now, I think it’s well worth another mention.

Take a look at a 4-day chart of the S&P 500 between Friday, August 30 and Thursday, September 5. (Remember that Monday was Labor Day.) When you do, you’ll see more than a few ups and downs.

The index, which includes many a real estate investment trust, opened at 2,937 that last trading day of last month. As the day progressed, it rose to 2,940, dropped to 2,913, and closed at 2,926.

Move past the holiday, and it was down even more to 2,906 before recovering to 2,937 on September 4… and gaining a whole lot more on September 5.

Why? That was when news broke that the trade war between the U.S. and China could be coming to an end. Possibly soon-ish.

That was all it took: a rumor. A possibility. And one that’s been circulating for over a year now.

If nothing else, that should show you how the markets aren’t dependable in the short-term. Because the S&P wasn’t the only one jumping up and down and back and forth. Charts for the Dow and Nasdaq indicate the same kind of untrustworthiness, as it were.

Yet that hasn’t been the case for certain individual stocks such as high-quality REITs. They just keep going up.

Long-Term Keepers

Real estate’s rise in 2019 is wonderful!

And believe you me, I’m liking what I’m seeing in the Forbes Real Estate Investor portfolios right now. We’ve got some amazing price-based gains to brag about.

That certainly doesn’t mean REITs are always reliable. They have their down days too. Even their down years. 2018, for instance, wasn’t a banner time for the grouping.

Yet, considering everything, they still paid off. And, in fact, they paid off well since they paid out in dividends no matter whether the markets were going up or down. (More about that in a moment.)

These stocks also have a great long-term track record worth talking about.

Take “The Role of REITs and Listed Real Estate Equities in Target Date Fund Asset Allocations,” which was published in the “2016 Wilshire Report.” It found that when investors have a well-diversified portfolio with a 17% allocation to real estate investment trusts, they can expect to see both less risk and more return.

That long-term study is backed by looking at the compound annual total return on the FTSE-Nareit All-Equity REITs index. In a 25-year period ending in January 2019, REITs returned 10.3%… a full percentage point higher than the larger S&P 500.

That’s because of the solid, substantial dividend payments they offer. As opposed to every other dividend-paying company – which the larger S&P 500 has plenty of – they have to give up 90% of their taxable income to shareholders (many are really stingy and pay no dividends at all).

That’s not a resource to take lightly.

Retire Rich With Reinvested REITs

While I’m the first person to preach about how retirees should own REITs, I’m also the first person to preach that pre-retirees should buy them up. And the sooner, the better.

While retirees can use that additional income for unexpected expenses and spoiling the grandkids, younger generations should reinvest it. Every single time their real estate investment trusts pay out a dividend, they should put it right back into the stock.

I talked about this in my July article, “If You Didn’t Start Investing at Age 19…,” which cited financial expert David Bach’s interview with CNBC earlier in the month. In it, he mentioned listening to a presentation in his 20s, where the speaker presented the class with a chart.

It contained information in it that he says changed his life. To quote my subsequent article:

“… the chart pitted two sets of investment decisions against each other to see which came out ahead. The first centered around someone putting $2,000 into a portfolio every year between the ages of 19 and 27. After that, from 27 all the way to 65, this hypothetical individual contributed nothing.”

The second did the same thing, only from age 27 to 65. Yet the first person came out with $805,185… over $200,000 more than his competitor. That’s all due to compound rates and the market’s long-term stability.

The longer it has to run, the more money you’re going to make.

Add in the power of reinvested dividends to that get-rich-slow “scheme,” and you’re going to see even better results. As you reinvest the dividends, you purchase more shares. Which pay out more dividends. Which allow you to purchase more shares. Which pay out more dividends.

The results from that routine can be rich, to say the least.

How to Act on This Information

I just published the September edition of the Forbes Real Estate Investor and inside this jam-packed 47-page edition I have highlighted a number Strong Buys including Tanger Outlets (SKT), Simon Property Group (SPG), Iron Mountain (IRM), Plymouth Industrial (PLYM), Monmouth Real Estate (MNR), and CorCivic (CXW).

As the editor of the monthly subscription-based newsletter, I am thrilled to provide valuable REIT research to thousands of customers, many of which are retirees and pre-retirees (that includes millennials).

So, the next time you start thinking about retirement, just remember to include Real Estate Investment Trusts in your portfolio. Of course, I can’t guarantee you that you will become stinking rich, but I can assure you that you can generate considerable wealth by focusing on the time-tested principle of value investing or buying high-quality dividend growth stocks when they are on sale.

I own shares in SKT, SPG, IRM, PLYM, MNR, and CXW.

This post first appeared on Forbes.com. To see the original, click here.