The falling stock market and troubling levels of inflation may have Gen Xers and younger wondering if retirement can ever come. But it is possible if you play your cards right and stay in the game for the long haul. In this case, the game invests.
To start, maximize your IRAs and 401(k) and leave them in stocks and funds with levels of risk appropriate to the time you have until retirement. It’s conventional wisdom that stocks reward those who buy well and stick with them, and who don’t try to time the market.
Wisdom is right: from 1972 to 2021, the S&P500 — which accounts for about 80% of the total market value — provided an annualized return of 9.4%.
It’s still a number that beats inflation, and you can replicate that retirement-accelerating performance simply by buying one of those huge index funds and adding to it over the years.
You can also enjoy long-term gains that bring you closer and closer to retirement by investing in real estate in all its forms. Indeed, there are many ways to get involved in real estate investing. Let’s take a look at a few of them, with a longer look at my favorite: real estate investment trusts (REITs).
1. Own real estate directly, if you can and dare
Buying your own property, whether to manage rentals or for someone else to do it, or just to hold for the short term and fix up and flip, can always pave the way to prosperity, as it has been for generations.
However, this might be the most difficult way, as you need initial capital, management skills and knowledge of the market. I know plenty of people who have all of these, or enough of each to make a difference, and they’ve done well. It’s a lot of work, but it has certainly been rewarding for them.
2. Real estate crowdfunding platforms
These deals give you the flexibility to invest in individual properties across all asset classes, especially smaller multi-family, retail and logistics sites, and require minimum investments typically ranging from $5,000+ .
Some also offer REITs that pay a regular income, usually quarterly, but they all pool your money with others in exchange for access to owning some of that real estate while it’s managed by platform operators. They don’t have the kind of track record, transparency, or liquidity that publicly traded stocks have, but you can certainly grow your retirement nest egg with smart use of this new, still-emerging option.
3. Actions in the real estate sector
There are a good number of companies deeply involved in providing real estate services, including commercial and residential brokers and property and investment managers. Just a few important examples include Jones Lang LaSalle and RE/MAX management. There are also data companies like Black Knight and major manufacturers like DR Horton.
As I enter my retirement years, my forte in all of this is REITs. These are pools of income properties whose operators are required by tax legislation to pay out at least 90% of their taxable income in the form of dividends to shareholders. This means that they provide you with a nice stream of passive income which – if the REIT is chosen well – should continue or even grow as the stock market goes up, down and sideways.
There are about 225 publicly traded REITs, and they can be quite diverse or largely focus on one type of asset class. Examples include industries, residences, offices, healthcare, and retail.
Their liquidity allows you to move easily between industries – for example, from struggling office space to the hot warehouse logistics market. And while most are struggling hard right now like the rest of the market, their stories show that they tend to hold up better than many sectors during bear markets and against inflation.
Currently, my investments include Accept real estate (CAN -0.63%), a retail REIT currently yielding around 4.24%; hospital owner Medical Properties Trust (MPW -1.07%) and its current yield of approximately 6.43%; and Innovative industrial properties (IIPR -4.70%)a medical marijuana specialist with a yield of around 4.84%.
This chart shows how Agree Realty and Medical Properties Trust have performed in terms of total return against the S&P 500 over the past 10 years.
Innovative Industrial Properties has only been public for about five years, but despite its plummeting price lately, it has still smoked the S&P 500, delivering a total return of around 815% versus 115% for the largest index. market at that time. And its first quarter report released this week was quite positive, in my opinion as an investor in this stock.
Let the right REITs generate your retirement income, now or later
The market hit REITs hard, like everything else, but it pushed yield higher. Yield is a function of both price and dividend, of course, and those yields have risen as prices have fallen, or in the case of innovative industrial properties, virtually fallen.
But their business prospects, in my view, remain strong. And as long as their dividends keep rolling in, I’m going to stick around and let them and the other income-generating parts of my diversified portfolio continue to fund the retirement that I’ve counted on the market to afford for decades of buying and to… continue to invest.