Your Financial Advisor is Wrong!
Your financial advisor may tell you that with interest rates lower, you need to settle for less retirement income.
Well, your financial advisor is wrong!
The unfortunate truth is that many retirees are being told that they simply have to make do with less…
Because lower interest rates make it harder for you to collect reliable income from traditional places like savings accounts, treasury bonds, and even some blue-chip dividend stocks.
But what your “professional” Wall Street advisor may not be telling you, is that there are ways to get around this problem with traditional income sources, and actually use the low interest rates to your advantage!
Today, I want to show you one of my favorite areas for retirement income and show you how the Fed’s policies are actually adding to the amount of income you can pull from these plays.
But as you’ll see, you need to act fast before everyone else jumps in and spoils this situation.
A Legally-Mandated Income Source
In the world of investments, there are few places where the government actually helps individual investors like you and me.
But there is one area of the market, where policies have been put into place to guarantee that companies pay retirees a fair and generous amount of income.
Real Estate Investment Trusts (or REITs) are special entities that have been designed to give you income.
Regulations have been created to encourage companies to invest in real estate and develop new areas of growth and opportunity. These regulations actually allow companies that are set up as REITs to avoid paying income tax.
That’s quite the incentive, don’t you think?
In exchange for avoiding corporate tax, REITs are required to pay at least 90% of their income to shareholders each year.1
As you can see, this tips the scales heavily in favor of investors like you and me.
REITs are able to generate bigger profits than other companies because they don’t have to pay any corporate tax.
And once the larger profits are generated, the vast majority of those profits are handed to us as investors through dividend payments. It’s the perfect setup for retirees to generate reliable income quarter after quarter!
You may already know about REITs. And your traditional investment advisor may have even recommended some REITs to include in your retirement portfolio.
But today, I want to show you two hidden reasons why now is the time to buy REITs in your account. Because thanks to the Fed’s low target interest rate (which is expected to move even lower before year end), there are new advantages that makes REITs even better income plays.
Low Cost of Capital Will Lead to Future Income Growth
One of the primary reasons the Fed has been cutting interest rates is to encourage companies to borrow money for growth opportunities. The reasoning is that if companies can borrow money cheaply, they will build new manufacturing plants, invest in research and development, hire more workers, and grow the economy.
That inventive works especially well for real estate companies.
Today, thanks to low interest rates, REITs can borrow money and use that money to invest in new real estate plays.
These plays can cover opportunities like:
- Buying or building new apartment buildings. These buildings help meet the growing demand for housing and can be rented out at premium prices.
- Retail or office buildings. As business grows, the job market expands and consumers have more money to spend. This translates into plenty of demand for specialty retail and office space.
- Technology centers are in high demand with more streaming and social media content available every day. There are some REITs that exist exclusively to offer digital “space” on servers around the country.
Thanks to lower interest rates, REITs can borrow money at cheap prices to build or purchase additional facilities.
And then as these facilities come online and start generating extra income, you can expect to get bigger income checks in future quarters!
So in this case, the Fed’s lower interest rates are actually boosting your income, instead of making you cut back on your spending.
The Reach for Yield Continues
You’ve heard me talk about how investors “reach for yield” in the past.
This term simply means that investors who would typically invest in treasury bonds or put their money into savings accounts are now being forced to “reach” into other areas of the market.
The “reach for yield” effectively drives prices of other income plays higher. Because with more investors buying shares, the demand naturally causes prices to rise.
I’m still seeing attractive prices for many REIT opportunities. That is partly due to a fixation that investors have had on other areas of the market like technology and social media.
But as those areas of the market weaken, more investors are looking for safe, high-yielding investment opportunities. And that sets up a scenario where prices for REITs will rise thanks to big buy orders from many different investors.
That’s both good news and bad news for us.
The good news is that if you buy today, higher prices will help you as more investors move into this lucrative area of the market.
The bad news is that if you wait to put your capital to work, you’ll likely wind up paying much more for each REIT share you want to purchase.
Of course you’ll still continue to receive the lucrative income payments quarter after quarter. But if you are forced to pay much more for these shares, your effective yield (or the rate of return for your investment) will be lower.
That’s why I encourage you to start buying shares of these Real Estate Investment Trusts today.
By acting right away, you’ll ensure that you’re able to start collecting checks as soon as the next one is issued by these companies. And you’ll also put yourself in a great spot to profit as other investors follow your lead and drive the shares of your REIT investments higher.
Here’s to growing and protecting your wealth!