The State of Real Estate Investment Trusts (REITs)

“The average investor has no idea what’s going on, but this is a big shift.”1

That’s what Robert Gordon, the head of New York brokerage firm Twenty-First Securities, said about the reclassification of real estate investment trusts from the financial services sector into their own individual category.

It’s not often that an investment makes this shift, but that’s exactly what is happening this fall. Some stock exchanges are getting a new category — real estate — which real estate investment trusts, better known as REITs, will fall under.2

If you’re not familiar with a REIT, it is a type of security that invests in real estate through purchasing, managing and developing real estate properties. It works similar to a mutual fund, enabling even small individual investors to acquire shares of real estate ventures such as apartment complexes, hospitals, office buildings, warehouses, hotels and shopping malls. REITs are required to pay out at least 90 percent of their dividends, on which investors must pay income taxes for their share.3

Because REITs rely on the health of the real estate market, they did not fare so well during the recession and real estate market decline. But in recent years, they’ve improved with the help of foreign money pouring into domestic real estate, stronger rental markets and the growing economy.4

Low rates are one reason why REITs have outperformed recently. The less it costs to borrow money, the higher the demand for real estate, which can increase the value of REIT holdings.5 In fact, U.S. REITs listed on the stock exchange outperformed the S&P 500 during the first half of 2016.6

It’s important to consider any investment within the context of your own goals, risk tolerance, investment timeline and the composition of your overall portfolio. We will only provide investment advisory services after we have assessed your financial situation. If you’re interested in a comprehensive review of this nature, we’d be happy to schedule a time to discuss this with you further.

Content prepared by Kara Stefan Communications.

1 Michael Wursthorn. The Wall Street Journal. July 11, 2016. “Wealth Adviser Daily Briefing: When the S&P 500 Breaks Out REITs, Investors May Get a Tax Bill.” http://blogs.wsj.com/moneybeat/2016/07/11/wealth-adviser-daily-briefing-when-the-sp-500-breaks-out-reits-investors-may-get-a-tax-bill/. Accessed July 28, 2016.

2 Than Merrill. The Street. Feb. 14, 2016. “REITs Likely to Gain Ground in 2016.” https://www.thestreet.com/story/13435112/1/reits-likely-to-gain-ground-in-2016.html/. Accessed July 28, 2016.

3 Mark P. Cussen. Investopedia. June 2, 2016. “REITs: How Long Can They Stay This Hot?” http://www.investopedia.com/articles/investing/060216/reits-what-you-need-know-about-them-right-now.asp. Accessed July 28, 2016.

4 Diana Olick. CNBC. June 27, 2016. “How the UK’s exit benefits US REITs.” http://www.cnbc.com/2016/06/27/how-the-uks-exit-benefits-us-reits.html. Accessed July 28, 2016.

5 Konrad Putzier. The Real Deal. July 27, 2016. “Here’s why REIT stocks are on the rise.” http://therealdeal.com/2016/07/27/heres-why-reit-stocks-are-on-the-rise/. Accessed July 28, 2016.

6 REIT.com. July 11, 2016. “REITs Outperform S&P 500 in 2016 First Half.” https://www.reit.com/media/nareit-media/reits-outperform-sp-500-2016-first-half. Accessed July 28, 2016.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Pension Payments and Retirement Income Trends

It used to be that only surviving soldiers were guaranteed an income to enjoy in their later years, a concept introduced during the first century B.C. by rulers of the Roman Empire. The idea of companies helping workers put money away for retirement didn’t exactly catch on with the rest of the workforce until the 19th century.

In the mid-1800s, some larger cities offered disability and retirement benefits to police, firefighters and other public sector employees. It wasn’t until 1875 that American Express created the first private pension plan in the U.S. to provide income for retired workers and those with disabilities.

At that point, the concept spread rapidly, with about 200 pension plans adopted by larger corporations by 1926. Defined benefit plans grew to cover 26.3 million private sector workers by 1970, which represented 45 percent of all private sector employees.1 Then, those numbers began to drop with the introduction of the defined contribution plan.

Today, only 15 percent of private sector workers and 75 percent of state and local government workers participate in a traditional pension plan. 2 According to the U.S. Bureau of Labor Statistics, there are a couple of options for how to receipt pension benefits. One is through a series of monthly payments over time. The second is a lump sum paid out all at once.

In the end, the amount of money may end up being about the same, if you consider that the lump sum invested for a conservative return (say 4 percent) would be the equivalent to a lifetime of payments over the same number of years it was invested, given assumptions about life expectancy and investment returns.3

A lump-sum payout gives retirees a bit more control over the distribution of those assets, but the tradeoff may be a greater risk of running out of money. If you’re interested in ways to take a portion of your retirement assets and benefit from the guarantee of a reliable income stream, we can share strategies on how to do so using insurance products, such as annuities.

Interestingly, the more people understand their financial options, the better off they tend to be. New research indicates that workers who know more (as measured by financial wellness assessments) tend to have higher contribution rates to employer-sponsored retirement plans.4

Fortunately, the idea of educating workers on financial matters is spreading quickly. Today, more than 80 percent of U.S. employers offer some type of wellness program and offering financial wellness programs is on the increase. There’s even better news: Financial wellness is also associated with better sleep, reduced stress and higher productivity.5

If you don’t participate in a company-sponsored retirement plan, you may in the near future. A recent survey found that 21 percent of corporate HR professionals report their companies now automatically enroll current employees in their sponsored retirement plans (although workers have the ability to “opt out” if they want). While auto-enrolling new employees is not a new trend, automatically enrolling current employees who have not been participating in the plan now is.6

Content prepared by Kara Stefan Communications.

1 Liz Davidson. Workforce.com. June 21, 2016. “The History of Retirement Benefits.” http://www.workforce.com/2016/06/21/the-history-of-retirement-benefits/. Accessed July 15, 2016.

2 William J. Wiatrowski. U.S. Bureau of Labor Statistics. June 2016. “You’re getting a pension: What are your payment options?” http://www.bls.gov/opub/btn/volume-5/pdf/youre-getting-a-pension-what-are-your-payment-options.pdf. Accessed July 15, 2016.

3 Ibid.

4 The National Association of Plan Advisors. May 31, 2016. “Report: Contributions Climb with Financial Wellness.” http://www.napa-net.org/news/managing-a-practice/industry-trends-and-research/report-contributions-climb-with-financial-wellness/. Accessed July 15, 2016.

5 Lou Carlozo. U.S. News & World Report. May 19, 2016. “How Companies Invest in Financial Wellness.” http://money.usnews.com/investing/articles/2016-05-19/how-companies-invest-in-financial-wellness.

6 John Iekel. National Tax-deferred Savings Association. July 7, 2016. “Nuanced Changes in Retirement Benefits, Study Finds.” http://ntsa-net.org/News/Browse-Topics/Inside-NTSA/Article/ArticleID/6470. Accessed July 15, 2016.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice.

All investments are subject to risk including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection benefits or steady and reliable income refer only to fixed insurance products, not securities or investment products.  Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.  If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Financial Strategies: CDs, Stocks and More

In some way or another, there’s risk involved with any form of investment.

Staying away from high-yield investments may prevent you from losing a significant amount of money, but then you may run the risk of not having enough retirement assets to reach your goals. Today, about 30 percent of individual investors’ liquid financial assets are sitting in bank accounts and money market funds.1

For some, “playing it safe” may be an option to put a portion of your assets, but first, you need to identify your individual goals and objectives, tolerance for risk and time horizon.  Then you will want to design a financial strategy around those factors. Not all investments hold the same risks. It is important to work with a financial advisor to determine the appropriate risk tolerance for your situation.

Over the past eight years, the interest rate on money market accounts has declined significantly, from 4.5 percent in 2007 to about 0.1 percent today.2 There’s been talk about the Fed raising interest rates, but the recent Brexit vote may put that action on hold even longer. 3

The direction of interest rates impacts most options for cash holdings, including money market accounts, short-duration bonds and certificates of deposit (CDs). While CDs are considered a conservative financial vehicle, you still trade liquidity for yield. The longer the term, the higher the yield, but the rates today may not justify tying up cash for very long. Individuals may wish to consider a CD laddering strategy to take advantage of changing interest rates in the future. A typical CD ladder consists of several different “rungs,” each representing a CD with a different maturity.4

Generally, bonds operate in much the same way, trading higher yields for longer terms. For some investors, today’s intermediate-term bonds may offer the potential for earnings without some of the additional risks that may be associated with longer-term maturity bonds. Please note that bond obligations are subject to the financial strength of the bond issuer and its ability to pay. Before investing, you should consult with your financial advisor to understand the risks involved with purchasing bonds.

One thing that’s true for most people is that it’s better to start planning early. Those who wait until the last minute to start thinking seriously about retirement will have a harder time accumulating the necessary assets to allow them to retire with the lifestyle they desire.

A report from BlackRock issued at the end of 2015 revealed that the average retirement portfolio of Americans age 55 to 65 held only $136,200. Historically, people in their 50s and 60s were more concerned with capital preservation than with capital accumulation,5 but today, that’s not always the case.

After all, owning stocks isn’t the big risk, it’s selling them when they’ve declined. 6 There are strategies to help mitigate this risk as well. For example, diversifying holdings through different types of financial and insurance products, and a combination of traditional tax-deferred retirement accounts and Roth IRAs may be used to help mitigate investment risk.

Content prepared by Kara Stefan Communications.

1 David A. Levine. The New York Times. July 1, 2016. “The Goldilocks Strategy for Prudent Investors.” http://www.nytimes.com/2016/07/02/your-money/the-goldilocks-strategy-for-long-term-investment.html?_r=1. Accessed July 12, 2016.

2 Bryan Borzykowski. CNBC. Feb. 24, 2016. “The big risk looming in your money market fund.” http://www.cnbc.com/2016/02/24/beware-you-may-lose-cash-in-your-money-market-fund.html. Accessed July 12, 2016.

3 Ann Saphir. Reuters. June 24, 2016. “Brexit vote means Fed stays put.” http://www.reuters.com/article/us-britain-eu-fed-analysis-idUSKCN0ZA0R6. Accessed Aug. 9, 2016.

4 Fidelity. June 1, 2016. “Is it time to look at CDs?” https://www.fidelity.com/viewpoints/investing-ideas/time-for-investing-in-cds. Accessed July 12, 2016.

5 Jeff Reeves. Forbes. July 6, 2016. “Why Boomers Should Show Stocks More Love.” http://www.forbes.com/sites/nextavenue/2016/07/06/why-boomers-should-show-stocks-more-love/#53bc0d683620. Accessed July 12, 2016. (Paste link into browser to access article.)

6 Jeff Reeves. Forbes. July 6, 2016. “Why Boomers Should Show Stocks More Love.” http://www.forbes.com/sites/nextavenue/2016/07/06/why-boomers-should-show-stocks-more-love/#53bc0d683620. Accessed July 12, 2016. (Paste link into browser to access article.)

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.  If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Too Much Positivity can Equal a Negative

The mind is a powerful tool. It can protect, justify, trick and even make good things happen by its sheer will. A good example is the placebo effect, a biology-based phenomenon with proven positive results.1

But there are limits to what a positive mindset can truly accomplish. For example, a 2016 survey by asset manager Schroders found that American investors may be expecting unrealistically high returns. The average stock market yield globally is 3.8 percent, but investors over the age of 35 think they can achieve 8.4 percent. Millennials are even further off the average mark, anticipating returns of 10.2 percent.2

Simply believing your investments will pay off won’t make it happen. As financial advisors, we’re here to help you analyze your personal financial situation and create strategies utilizing a variety of investment and insurance products that can help you work toward your financial goals.

The positive outlook consumers have developed after the recession could be a good sign for our nation’s spending and continued economic rise. However, this optimism can actually be a negative factor if it leads to an irrational confidence in investment choices.3

According to the Wells Fargo/Gallup Investor and Retirement Optimism Index, even after the volatile swings of this year’s first quarter, investor optimism regarding the stock market was pretty high. Most investors (81 percent) said they “rode out” the volatility and did not make changes to investments, while only 4 percent reported selling stocks in response to market changes.4

That’s a good sign, because doing nothing can be one of the most difficult actions when an investment starts losing money. Human nature is hard-wired to fight or flee; people may want to liquidate for cash, trade for something better or just blame somebody. Part of that is fueled by the enormous amount of information available to investors, which makes it seem like there’s always somewhere else we can go for higher returns. But studies show that investors who overtrade tend to earn mediocre returns once all of those transaction costs are factored in.5

Every year, the Employee Benefit Research Institute conducts a Retirement Confidence Survey to gauge how confident Americans feel about their retirement income prospects. In 2016, the survey found that only 28 percent lack confidence in their financial preparations for retirement, with 28 percent feeling very confident and 43 percent somewhat confident. Among retirees, the survey found that 39 percent are very confident (up from 18 percent in 2013) that they have enough money for a comfortable retirement.6

Content prepared by Kara Stefan Communications.

1 NPR. Jan. 26, 2016. “How Meditation, Placebos and Virtual Reality Help Power ‘Mind Over Body’.” http://www.npr.org/sections/health-shots/2016/01/26/464372009/how-meditation-placebos-and-virtual-reality-help-power-mind-over-body. Accessed July 8, 2016.

2 Suzanne Woolley. Bloomberg. June 16, 2016. “Wanted: Big Returns, Low Risk. (And Millennials? They Want 10.2%).” http://www.bloomberg.com/news/articles/2016-06-16/wanted-big-returns-low-risk-and-millennials-they-want-10-2. Accessed July 8, 2016.

3 Shreenivas Kunte. CFA Institute. April 21, 2016. “The Behavioral Continuum: What’s the Best Behavioral Bias?” https://blogs.cfainstitute.org/investor/2016/04/21/the-behavioral-continuum-whats-the-best-behavioral-bias/. Accessed July 8, 2016.

4 Wells Fargo. March 10, 2016. “Wells Fargo/Gallup: Stock Market Jitters Drive Investor Confidence Down; Majority Ride out the Volatility.” https://www.wellsfargo.com/about/press/2016/gallup-stock-market-jitters_0310/. Accessed July 8, 2016.

5 Fidelity International. December 2014. “Behavioural finance: Overconfidence.” http://www.fidelity.com.au/insights-centre/education/behavioural-finance-overconfidence/. Accessed July 8, 2016.

6 EBRI. March 2016. “The 2016 Retirement Confidence Survey: Worker Confidence Stable, Retiree Confidence Continues to Increase.” https://www.ebri.org/pdf/surveys/rcs/2016/EBRI_IB_422.Mar16.RCS.pdf. Accessed July 8, 2016.

This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.  If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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