Invest in REITs with 401k for Small Business
Small business owners and self employed individuals require retirement savings just like their employed counterparts. A GAO analysis of 2013 Survey of Consumer Finances (SCF) revealed that 29% of households with members above 55 years of age or more had neither savings nor any other traditional retirement plans. It depicts a horrible financial picture of an average American, alarming everyone to contribute towards his or her retirement plans. If you are a self-employed individual or sole proprietor contributing towards 401k for small business, adding real estate investment trusts (REITs) in your portfolio might offer better returns.
Understanding Scope of REIT Investments with 401k for Small Business
A majority of qualified retirement plan holders choose traditional stock and mutual fund investments for their plan. It could be out of unawareness about other investing options or unavailability of alternative investing options. According to the National Association of Real Estate Investment Trusts (NAREIT), REITs listed on the U.S stock exchange have outperformed S&P 500’s annual returns of 9.8% over the last 20 years until December 31, 2014 by 1.3%. Further, the REITs in the United States had real estate assets worth in excess of $2 trillion at the end of 2014, promising a stable growth to their shareholders.
The IRS permits qualified retirement plans to make investments in REITs, which means you can add them in your Solo 401k portfolio. However, the income generated out of these alternative investments should flow back to the retirement plan, as per the regulations. You can add REITs by simply purchasing their shares in the stock market much like other stock investments. It is best to start with publicly-listed REITs and compare them in terms of performance, instead of dividend yields only. Let us find out the key benefits of investing in REITs against other traditional investments.
How REITs Outmatch Most of the Investment Options?
- Stable income: REITs offer a stable income primarily because of the IRS ruling, requiring them to distribute at least 90% of their income.
- Professional management: REITs maintain a similar operating structure as that of major companies, ensuring maximum growth and value for shareholder. Real estate investment trusts are run by board of directors, having an excellent understanding of the real estate trends, and they follow a similar compliance structure as that of companies.
- Mandatory disclosure: The government requires mandatory SEC disclosures from REITs, including their quarterly and annual financial reports, hence, adding safety to your investments.
- Higher dividend yields: REITs distribute 90% of their income as dividends, which puts them in a higher dividend bracket against equities. Higher dividend yields provide a stable income source for your 401k for small business.