REIT Portfolio – How to Pick a Growth Fund
REITs are investment trusts
Is Angel Investing Profitable? With carefully selected and fully managed portfolios of personal angel investments can produce an average annual return of over 25% since 1995 (excluding dividends).
This extraordinary return is possible for a short period of time when considered in the context of other investment opportunities. On the other hand, portfolios of personal angel investments are relatively low risk with a standard deviation below 2.3 for the past 20 years.
Penny Stock Investing
Penny stock investing is also a lucrative investment opportunity, however, because of the nature of its business, the profit potential is low. Some investors prefer to invest in penny stocks since they have a high volume, but a low price, and are therefore more difficult to control and sell than other stocks.
Investors can profit from penny stocks through appreciation versus capital appreciation. Appreciation occurs when the value of the stock increases in the short run, as a result of strong earnings. In the long run, dividends are paid to shareholders.
Penny stock investing requires close monitoring since investors have limited control over the trading process.
Investors should also keep in mind the increased volatility associated with penny stocks, as they are frequently subject to rapid price changes, and in extreme cases, sudden cessation of trading. Because of these risks, investors should be able to tolerate a loss in total investment in the order of
10% over the short-term
15% over the long-term
25% in the extreme case in the short-term
30% in the long-term
35% in the extreme case in the short-term
and should also be able to tolerate frequent trading volume of 50,000 shares or more per day.
REIT Portfolio – Real Estate Investment Trust
REITs are investment trusts, a type of REIT that is not classified as a mutual fund. REITs buy and manage real properties, often as-converted to cash assets.
The income that the REIT generates from its real properties is “dividends” paid to its investors.
The dividends, from a typical REIT, will be around 4% per year compounded annually.
For example, a typical REIT might pay $4 per share in dividends annually. The dividend is payable on the third Friday of the month, quarterly, and the payment date is on or before the third Friday of the month.
While generally, these are low-risk investments, investors should note that many REITs issue stock dividends, which are usually higher than the annual dividends.
For example, there might be a dividend of $2 per share on a REIT that owns 10,000 shares of stock.
REITs are considered to be growth-oriented funds. The objective of these funds is to generate cash flow by increasing the value of the property. A growth objective is generally aimed at maintaining the value of the property within a given period of time.
REITs are categorized as either income-producing or capital-producing funds.
While a REIT might be classified as an income-producing fund, it might also be classified as a capital-producing fund.
Publicly Traded REIT
For example, an income-producing fund might be an LLC that owns and operates office buildings, while a capital-producing fund might be a publicly-traded REIT that owns oil or gas properties and collects royalties from oil and gas production.
REITs are usually managed by an investment manager who uses market strategies to generate income.
While we see that it is not uncommon to see a publicly-traded REIT buy and manage oil and gas properties, it is not unheard of for a publicly-traded REIT to operate hotels and apartments.
We generally recommend that investors follow the fund's investment strategy, rather than the REIT Portfolio itself. That way, investors can easily understand the risk level of a particular fund and the amount of risk associated with the fund.
As a general guideline, the risk level of a REIT Portfolio should be no higher than 5% and the amount of risk should not be more than 20%.
Growth funds represent a different kind of fund. Growth funds are often open-ended funds that invest in different types of securities such as stocks, bonds, money markets, and commodities.
These funds invest in companies that are growing quickly, as a result of which they typically have a higher rate of return than other similar companies.
The benefit of these funds is that they are more diversified than income-producing funds, have a higher rate of return, and do not have a high rate of risk.
If you are looking to increase your rate of return, the growth funds may be a good option for you.
Blindsided By An Investment
While there are benefits to both types of funds, we generally recommend that investors choose the type they like more based on their needs. That way, investors are not blindsided by investment in one fund when there are still concerns about a related fund.
Rate Of Return
The decision to invest in the type of fund you want depends on your expected rate of return over the next 10-20 years.
Therefore, it is important that you understand the type of fund you want to be involved with, and how your interest rate of return will compare to that of other investors in that fund.