Diversification of your retirement portfolio helps it weather the inevitable ups and downs of the stock market. One of the best ways of doing so is to add real estate. Doing so can also provide you with above average monthly income while also protecting you from the volatility of the stock market.
Two Ways to Add Real Estate to Your Retirement Portfolio
Basically, there are two methods of adding real estate to your retirement portfolio: you can buy property and collect rent or you can invest in funds and stocks that do so. While one method or the other could appeal to you more, there's no reason you can use both.
Buy or Invest Directly in Property
Talk to people about investing in real estate and most people will immediately think about purchasing another property besides the home you live in and renting it out. This produces a steady stream of passive income each month, but it means you'll need to take a more hands-on approach.
While many people deem this method to be safe, it can mean a significant difference in monthly income if you are without a tenant. You'll also be responsible for the day-to-day oversight on the property or you'll need to hire a professional who takes care of that.
One strategy is to purchase a home or multifamily property in the area where you plan to retire. This allows you to collect income over the years until it's time for you to retire. You'll have a home you love that's partially paid off when you do retire.
Another idea is to own shares in a private real estate investment trust (REIT). You can choose whether to invest in residential property or a commercial venture like a retail, grocery-based or healthcare option. Because such investments are considered to be illiquid, keep no more than 5 to 20 percent of your portfolio in them.
Invest in Publicly-Traded REITs
There are a lot of advantages found when investing in a publicly traded REIT. One of the most important is that it makes investing in real estate more accessible to a wider segment of investors. This is because it costs less to get started. REITs. Because their value is correlated to the broader stock market, though, REITs can also be more volatile than purchasing real estate outright.
Simply put, REITs are companies that usually invest only in real estate. They do so by owning and operating properties which can be commercial, residential or both. A federal law requires REITs to pay out 90 percent of their gross income to investors in the form of dividends. This difference sets REITs apart from stocks and bonds.
REITs are easy to own and can be purchased either in a mutual fund or on an individual basis. This type of investment also offers you more liquidity when compared to directly purchasing real estate. It's also a more hands-off investment.
As you can see, adding real estate to your retirement portfolio is not only easy, it's lucrative and provides you with choices. Boost your returns by turning to real estate.
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