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Personal Finance Advice and Education!

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2 hours ago, Random said:

If I want to move some investments from domestic to international (mutual funds), should I do this after an up day on the djia?

Probably doesn't matter.  But since international funds usually follow the US that's a good a guess as any.

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5 hours ago, Random said:

If I want to move some investments from domestic to international (mutual funds), should I do this after an up day on the djia?

Could also wait for a down day on the international. Or wait until the combo is there for both events. 

 

Or accept that what happened yesterday has no predictive value on what happens tomorrow, and just pull the trigger 

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3 hours ago, NutterButter said:

I know about the 72t allowing you to withdraw money early from your retirement accounts, but TIL that's also another option referred to as the rule off 55.  

Having multiple accounts makes this basically a ladder for us.  Use the current employer from 55-60 along with non retirement accounts. 60-death rely on Roth IRAs and former employer's account. Nice. 

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So I recd a buyout offer from previous employer for my pension.  Lump sum 51k now, annunity for same or leave my fixed pension of $562 per month in place.  I’m 53 now and pension payments start at 65.   Thinking the best option might be take lump sum and roll into ira.  What are your thoughts? 

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1 minute ago, stlrams said:

So I recd a buyout offer from previous employer for my pension.  Lump sum 51k now, annunity for same or leave my fixed pension of $562 per month in place.  I’m 53 now and pension payments start at 65.   Thinking the best option might be take lump sum and roll into ira.  What are your thoughts? 

To me, yes, lump sum makes the most sense.

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1 hour ago, stlrams said:

So I recd a buyout offer from previous employer for my pension.  Lump sum 51k now, annunity for same or leave my fixed pension of $562 per month in place.  I’m 53 now and pension payments start at 65.   Thinking the best option might be take lump sum and roll into ira.  What are your thoughts? 

If I'm doing this right, NPV for 15 years of that pension is a total of $24K.  25 years is $31K.   (using discount rate of 7.5%)

$51K in an IRA today would be worth $132K in 12 years (assuming 8% return).

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9 hours ago, Long Ball Larry said:

If I'm doing this right, NPV for 15 years of that pension is a total of $24K.  25 years is $31K.   (using discount rate of 7.5%)

$51K in an IRA today would be worth $132K in 12 years (assuming 8% return).

As long as it is invested well you can’t beat it. It’s like the waiting 8 years for SS. If you invest that money properly you can never catch up even with the bigger payments at 70 and your family does much better if you don’t live a long time. 

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59 minutes ago, stbugs said:

As long as it is invested well you can’t beat it. It’s like the waiting 8 years for SS. If you invest that money properly you can never catch up even with the bigger payments at 70 and your family does much better if you don’t live a long time. 

Plus you make sure you actually get the money

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Thanks for the advice guys and it confirms my decision...

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13 hours ago, Long Ball Larry said:

If I'm doing this right, NPV for 15 years of that pension is a total of $24K.  25 years is $31K.   (using discount rate of 7.5%)

$51K in an IRA today would be worth $132K in 12 years (assuming 8% return).

Couple things here

You don't account for taxes in this analysis.  I think that is likely a mistake

Your discount rates / return assumptions.  Who is using 8% returns with any confidence at this point?  I would suggest a 5% return

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5 minutes ago, wilked said:

Couple things here

You don't account for taxes in this analysis.  I think that is likely a mistake

Your discount rates / return assumptions.  Who is using 8% returns with any confidence at this point?  I would suggest a 5% return

fair.  i was just trying to do a quick back of the envelope calculation and a model for how to think about it, and I think that the conclusion is still clearly the same.

I am willing to only take half commission on this one.

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The easiest way to make the comparison is to determine what it would cost to buy that pension on the open market.  In this case you'd be shopping for an SPIA (single premium immediate annuity).  Those do roughly the same thing as a pension, pay you a monthly fixed amount til you die.  For this purpose I am going to assume you are male, and assume the numbers above have no survivorship built in, and that they are not inflation adjusted.  In other words, you get $562 a month beginning 2031 at age 62 and that's how it is until you die.

 

Popped the numbers in to schwab, and it says to buy that SPIA it would cost $73K today.  Based on that, it would say that the future payments (pension) are more valuable than receiving $51K today, and if you accepted the $51K you'd be taking a 30% haircut on the overall value

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for what it's worth, if I was a company offering lump sums, I would intentionally price the lump sums at a 25% discount or so, as I know psychologically people are going to value the immediate $$ over future $$

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3 hours ago, ghostguy123 said:

Plus you make sure you actually get the money

I think that's one of the biggest reasons to take the lump sum.

How do you value the risk of company/organization/government/whatever eventually not being able to pay out the pension?

I've heard far too many sad stories of people getting their pensions cut and/or worries about entities not being able to fund future pension payouts.  

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10 minutes ago, eoMMan said:

I think that's one of the biggest reasons to take the lump sum.

How do you value the risk of company/organization/government/whatever eventually not being able to pay out the pension?

I've heard far too many sad stories of people getting their pensions cut and/or worries about entities not being able to fund future pension payouts.  

I think the risk tends to be overblown.  Remember, the people who can direct the finances likely stand to collect a pension themselves, so lots of self-interest there.  There's a risk, but it's not the 30% risk that is being priced in above

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1 hour ago, wilked said:

The easiest way to make the comparison is to determine what it would cost to buy that pension on the open market.  In this case you'd be shopping for an SPIA (single premium immediate annuity).  Those do roughly the same thing as a pension, pay you a monthly fixed amount til you die.  For this purpose I am going to assume you are male, and assume the numbers above have no survivorship built in, and that they are not inflation adjusted.  In other words, you get $562 a month beginning 2031 at age 62 and that's how it is until you die.

 

Popped the numbers in to schwab, and it says to buy that SPIA it would cost $73K today.  Based on that, it would say that the future payments (pension) are more valuable than receiving $51K today, and if you accepted the $51K you'd be taking a 30% haircut on the overall value

Problem with this line of thinking is that this is not an option for him 

He has two options with this money, and taking the lump sum and investing it is a more wise option that waiting for the monthly payout.

The cost of this pension on the open market is irrelevant (to me anyway).

Edited by ghostguy123

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15 minutes ago, ghostguy123 said:

Problem with this line of thinking is that this is not an option for him 

He has two options with this money, and taking the lump sum and investing it is a more wise option that waiting for the monthly payout.

The cost of this pension on the open market is irrelevant (to me anyway).

You might want to re-read it.  I am not proposing any new options...  There are only two options - lump sum and pension.  I am taking the pension parameters, and finding the lump sum cost of the same product (in this case an SPIA).  If the lump sum is efficiently priced it would equal the cost of that SPIA.  In this case the lump sum they are offering is at a 30% discount to market rate for the same product (pension/SPIA).  

 

Pension / future payments is the smart financial move here.  There may be other factors than strict finances, but from a numbers game it's the move

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1 hour ago, wilked said:

The easiest way to make the comparison is to determine what it would cost to buy that pension on the open market.  In this case you'd be shopping for an SPIA (single premium immediate annuity).  Those do roughly the same thing as a pension, pay you a monthly fixed amount til you die.  For this purpose I am going to assume you are male, and assume the numbers above have no survivorship built in, and that they are not inflation adjusted.  In other words, you get $562 a month beginning 2031 at age 62 and that's how it is until you die.

 

Popped the numbers in to schwab, and it says to buy that SPIA it would cost $73K today.  Based on that, it would say that the future payments (pension) are more valuable than receiving $51K today, and if you accepted the $51K you'd be taking a 30% haircut on the overall value

What is your dollar value on the future payments, though?  Don't you think that there is still a value to being able to grow that $51K  over the next 12 years?

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11 minutes ago, ghostguy123 said:

Can you show me those number?  Cause I dont agree

He did.  You cant buy an equivalent annuity with the cash out offer.

The annuity being offered at his job would cost $73K, he's only being offered $51K.

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2 minutes ago, Random said:

He did.  You cant buy an equivalent annuity with the cash out offer.

The annuity being offered at his job would cost $73K, he's only being offered $51K.

I want to see the numbers if he cashes now and rolls over, looking at that growth.

Versus those payments starting at 65.  Where is the break even?  Is there one if the initial 51k grows at 5-6%?

The cost of the annuity seems irrelevant because it's not an option anyway.  Maybe it shows that annuities are over priced.

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18 minutes ago, ghostguy123 said:

I want to see the numbers if he cashes now and rolls over, looking at that growth.

Versus those payments starting at 65.  Where is the break even?  Is there one if the initial 51k grows at 5-6%?

The cost of the annuity seems irrelevant because it's not an option anyway.  Maybe it shows that annuities are over priced.

SPIAs are not overpriced.  They are very efficient and priced competitively

 

To answer, they use 7%

-73,000 in 2019

+6,744 (562/month) beginning 2028 and ending 2048 (death)

 

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19 minutes ago, wilked said:

SPIAs are not overpriced.  They are very efficient and priced competitively

 

To answer, they use 7%

-73,000 in 2019

+6,744 (562/month) beginning 2028 and ending 2048 (death)

 

They use 7% starting 12 years from now?  Doesnt seem efficient.

By the time he can draw money he should conservatively doubled his money, in which case that much bigger lump sum grows.

Oh yeah, plus he could potentially die before drawing anything, or the company folds......

Seems like a no brainer to take it and roll it over.  

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16 minutes ago, ghostguy123 said:

They use 7% starting 12 years from now?  Doesnt seem efficient.

By the time he can draw money he should conservatively doubled his money, in which case that much bigger lump sum grows.

Oh yeah, plus he could potentially die before drawing anything, or the company folds......

Seems like a no brainer to take it and roll it over.  

I think you are confusing IRR and interest rate, for what it's worth.  Two very different things

The IRR for the SPIA I noted above is 7%.  What you are talking about doing is taking the $51K, rolling it into an IRA and investing it - yes?  That is equivalent is about a 4% interest rate vs 20 years of $6744 beginning at age 62.

 

I am guessing that you think his IRA will outperform 4% (I also assume you'd have him invest it 100% in stocks, but I could have it wrong here).  The product you are comparing it to (pensions or SPIA) is guaranteed income though, which is why the 4% interest rate is appropriate.  

 

All of this is simplified a bit...  Presumably he might need the money once he retires so he'd start withdrawing it at 62 or so.  The $51K might have grown to $70K by then, and as you pull money out there is obviously less to grow, and so on.  And taxes would matter a good bit in all of this.

 

Still, I feel pretty certain that the lump sum is discounted ~ 30% from fair market value

Edited by wilked

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19 hours ago, stlrams said:

So I recd a buyout offer from previous employer for my pension.  Lump sum 51k now, annunity for same or leave my fixed pension of $562 per month in place.  I’m 53 now and pension payments start at 65.   Thinking the best option might be take lump sum and roll into ira.  What are your thoughts? 

 

19 hours ago, ghostguy123 said:

To me, yes, lump sum makes the most sense.

 

18 hours ago, Long Ball Larry said:

If I'm doing this right, NPV for 15 years of that pension is a total of $24K.  25 years is $31K.   (using discount rate of 7.5%)

$51K in an IRA today would be worth $132K in 12 years (assuming 8% return).

Back of the envelope math, he has 12 years, I'll use 6% mostly because that seems reasonable and easily fits the rule of 72 - so let's say the lump sum will be worth $102k. 

4% rule; means that's $4,000 / year, divide by 12 = $333 / month.   Do you get COLA with the $561?  I'm still taking the lump sum, but it's not a lock.

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4 hours ago, -OZ- said:

 

 

Back of the envelope math, he has 12 years, I'll use 6% mostly because that seems reasonable and easily fits the rule of 72 - so let's say the lump sum will be worth $102k. 

4% rule; means that's $4,000 / year, divide by 12 = $333 / month.   Do you get COLA with the $561?  I'm still taking the lump sum, but it's not a lock.

No cola, it’s fixed at $562 per month.  

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Can you guys remind me the differences of titling and investment account "tenants by the entirety with right of survivorship" as opposed to "joint tenants with right of survivorship"? It appears switching my Vangaurd account to the 1st is significantly more of a headache than the 2nd. 

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7 hours ago, GoBirds said:

Can you guys remind me the differences of titling and investment account "tenants by the entirety with right of survivorship" as opposed to "joint tenants with right of survivorship"? It appears switching my Vangaurd account to the 1st is significantly more of a headache than the 2nd. 

Best explanation I found:

 

There are different forms of real estate ownership. Each gives the property owner specific rights as well as restricting certain rights, which might include the right of conveyance, such as in community property ownership. Joint tenancy is one form of real estate ownership. The rights and restrictions under joint tenancy can vary according to state law.

Right of Inheritance

Joint tenancy is for two or more owners. One of the common characteristics of joint tenancy is the right of survivorship. This means that if one of the owners dies, his share of the property goes to the surviving owners, as opposed to his heirs. When a married couple owns a home as community property, either party can will his share to someone else, without the other spouse’s consent, which can be rather shocking news for the widower who discovers his wife left her half of their home to her boyfriend. Had the couple owned the home in joint tenancy instead of community property, the husband would normally inherit his wife’s share of the home after her death.

State Laws

Most states recognize joint tenancy, yet some of these have abolished the “right of survivorship” as an automatic characteristic of joint tenancy. In these states, the deed must specifically reference the right of survivorship.

Selling Interest

While the joint tenant with right of survivorship can’t will his share in the property to his heir, he can sell his interest in the property before his death. Once a joint tenant sells his share, this ends the joint tenancy ownership involving the share. The new owner is not a joint tenant, yet the rights of the other owners remain. For example, if John, Bill and Susan own property as joint tenancy with right of survivorship, and Susan sells her share to Ann, Ann is not included in the joint tenancy and can will her share to her heir. Yet, if John dies, his share goes to Bill.

Edited by -OZ-
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2019 has been awesome for the market. Just did my quarterly review, including home equity we're up for Jan-Oct more than I'll make all year. Around 18% 

Looks like the S&P 500 is up 19%

If the Democrats don't impeach Trump, he's got a pretty decent chance of getting another term unless the market tanks the next 13 months.

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53 minutes ago, -OZ- said:

Best explanation I found:

 

There are different forms of real estate ownership. Each gives the property owner specific rights as well as restricting certain rights, which might include the right of conveyance, such as in community property ownership. Joint tenancy is one form of real estate ownership. The rights and restrictions under joint tenancy can vary according to state law.

Right of Inheritance

Joint tenancy is for two or more owners. One of the common characteristics of joint tenancy is the right of survivorship. This means that if one of the owners dies, his share of the property goes to the surviving owners, as opposed to his heirs. When a married couple owns a home as community property, either party can will his share to someone else, without the other spouse’s consent, which can be rather shocking news for the widower who discovers his wife left her half of their home to her boyfriend. Had the couple owned the home in joint tenancy instead of community property, the husband would normally inherit his wife’s share of the home after her death.

State Laws

Most states recognize joint tenancy, yet some of these have abolished the “right of survivorship” as an automatic characteristic of joint tenancy. In these states, the deed must specifically reference the right of survivorship.

Selling Interest

While the joint tenant with right of survivorship can’t will his share in the property to his heir, he can sell his interest in the property before his death. Once a joint tenant sells his share, this ends the joint tenancy ownership involving the share. The new owner is not a joint tenant, yet the rights of the other owners remain. For example, if John, Bill and Susan own property as joint tenancy with right of survivorship, and Susan sells her share to Ann, Ann is not included in the joint tenancy and can will her share to her heir. Yet, if John dies, his share goes to Bill.

Thanks for this info? Do you guys think this is worth the trouble for an investment account with a spouse or just set it up with both names on it and don't worry about it? You guys in the business see many set up accounts this way or overkill? Wouldn't expect any issues but I guess it would protect from creditors after one spouse?

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Random question that hopefully someone can asnwer.

Can you explain to me briefly how REITs work?  Are they mostly structured the same?  Do they pay you dividends monthly, quarterly, yearly?  

Do you get paid dividends in a structured way, and how does that compare to the stock price?  

Can someone who invests in these give me a quick rundown on how it works?  Thanks a bunch

Edited by ghostguy123

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If I were to invest 10 grand in VGSLX, would I basically just get paid the "rent" and then the stock price just does whatever it does until I decide to sell?

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On 9/30/2019 at 5:30 PM, -OZ- said:

2019 has been awesome for the market. Just did my quarterly review, including home equity we're up for Jan-Oct more than I'll make all year. Around 18% 

Looks like the S&P 500 is up 19%

If the Democrats don't impeach Trump, he's got a pretty decent chance of getting another term unless the market tanks the next 13 months.

This is pretty cherry picking since snp took a dump December 2018.  

Keep politics to correct forum.  

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45 minutes ago, ghostguy123 said:

Random question that hopefully someone can asnwer.

Can you explain to me briefly how REITs work?  Are they mostly structured the same?  Do they pay you dividends monthly, quarterly, yearly?  

Do you get paid dividends in a structured way, and how does that compare to the stock price?  

Can someone who invests in these give me a quick rundown on how it works?  Thanks a bunch

Best advice is read prospectus closely as it is very different across funds.  

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1 hour ago, culdeus said:

This is pretty cherry picking since snp took a dump December 2018.  

Keep politics to correct forum.  

:lol: YTD is cherry picking? 

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13 hours ago, ghostguy123 said:

If I were to invest 10 grand in VGSLX, would I basically just get paid the "rent" and then the stock price just does whatever it does until I decide to sell?

I have about 10% in FRESX and it has been my best performer past 12 months

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6 hours ago, Gawain said:

I have about 10% in FRESX and it has been my best performer past 12 months

This looks really interesting, although it looks like I'd be buying it a 5 year high. 

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1 hour ago, skycriesmary said:

This looks really interesting, although it looks like I'd be buying it a 5 year high. 

March 2014 it was at a 5 year high.  It has since gone up 30%.  If you had made the decision then to wait for a significant drop-off before buying you'd still be waiting.

 

Past performance has no predictive value on future performance

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1 minute ago, wilked said:

March 2014 it was at a 5 year high.  It has since gone up 30%.  If you had made the decision then to wait for a significant drop-off before buying you'd still be waiting.

 

Past performance has no predictive value on future performance

Good reminder. Also need to research what happens to RE in a recessionary environment (looking 6-12 months out).  

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3 minutes ago, wilked said:

March 2014 it was at a 5 year high.  It has since gone up 30%.  If you had made the decision then to wait for a significant drop-off before buying you'd still be waiting.

 

Past performance has no predictive value on future performance

Great post.

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3 hours ago, skycriesmary said:

This looks really interesting, although it looks like I'd be buying it a 5 year high. 

You should really check out the thread predicting that the stock market had reached its peak a few years back.  Lots of good laughs in there.   

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1 hour ago, NutterButter said:

You should really check out the thread predicting that the stock market had reached its peak a few years back.  Lots of good laughs in there.   

Another good reminder...🙂

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16 hours ago, NutterButter said:

You should really check out the thread predicting that the stock market had reached its peak a few years back.  Lots of good laughs in there.   

Speaking of which, how is lhucks?

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On 10/7/2019 at 5:02 PM, ghostguy123 said:

Random question that hopefully someone can asnwer.

Can you explain to me briefly how REITs work?  Are they mostly structured the same?  Do they pay you dividends monthly, quarterly, yearly?  

Do you get paid dividends in a structured way, and how does that compare to the stock price?  

Can someone who invests in these give me a quick rundown on how it works?  Thanks a bunch

These are legal pass through structures that generally hold real estate, though some do cell towers and mortgage bonds, etc.  They are legally required to pass through 80% of their profits every year.  The dividend policies are all over the map.  Some are quarterly, some are monthly (like O - "the monthly dividend company").  Most are managed payouts like typical companies, but some are variable - NLY is a good example of that.

Also note that these are not qualified dividends, so the taxes are a bit more in a taxable account.  The new tax law does blunt this a bit with (I think) a 20% decrease in taxation.  So not quite the tax rate of a qualified dividend, but closer.

It's also important to note that P/E really isn't a good metric for REITs.  They are analyzed according to price/AFFO (adjusted funds from operations).  

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1 hour ago, Sand said:

These are legal pass through structures that generally hold real estate, though some do cell towers and mortgage bonds, etc.  They are legally required to pass through 80% of their profits every year.  The dividend policies are all over the map.  Some are quarterly, some are monthly (like O - "the monthly dividend company").  Most are managed payouts like typical companies, but some are variable - NLY is a good example of that.

Also note that these are not qualified dividends, so the taxes are a bit more in a taxable account.  The new tax law does blunt this a bit with (I think) a 20% decrease in taxation.  So not quite the tax rate of a qualified dividend, but closer.

It's also important to note that P/E really isn't a good metric for REITs.  They are analyzed according to price/AFFO (adjusted funds from operations).  

Any favorites of yours that aren't proprietary to any institutions? 

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56 minutes ago, skycriesmary said:

Any favorites of yours that aren't proprietary to any institutions? 

Well first I'd say that there is such a thing as private REITs bought through advisors and one should avoid those like the plague. Anything worth buying is in an exchange.

I have an amount set aside I dedicate to these securities (all listed on exchanges).  They include O, VTR, BIP, NLY, KIM, DLR, and CHCT.  All are a bit different in their focus except for CHCT - that was a spin off from VTR that had done well and I never bothered to sell it.

If you wanted an ETF VNQ has performed well and is one of the most established of these.

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42 minutes ago, Sand said:

Well first I'd say that there is such a thing as private REITs bought through advisors and one should avoid those like the plague. Anything worth buying is in an exchange.

I have an amount set aside I dedicate to these securities (all listed on exchanges).  They include O, VTR, BIP, NLY, KIM, DLR, and CHCT.  All are a bit different in their focus except for CHCT - that was a spin off from VTR that had done well and I never bothered to sell it.

If you wanted an ETF VNQ has performed well and is one of the most established of these.

I have a healthy portion in VNQ, and a fair bit in OHI. they've been nice over the past year. 

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