Clearly Speaking

Alternative Investments in a Volatile World


Travis L. Dobbs, CFP, is the founder of ClearView Financial, which specializes in providing retirement and legacy planning. Mr. Dobbs is Blount County's only Certified Financial Planner and a proud member of the Million Dollar Round Table. Investment Advisory Services and securities offered through ProEquities, Inc., a registered broker-dealer, and member of NASD & SIPC.

Travis L. Dobbs, CFP, is the founder of ClearView Financial, which specializes in providing retirement and legacy planning. Mr. Dobbs is Blount County’s only Certified Financial Planner and a proud member of the Million Dollar Round Table. Investment Advisory Services and securities offered through ProEquities, Inc., a registered broker-dealer, and member of NASD & SIPC.

Higher than average yields

Over the past three years, investors have faced many challenges concerning their portfolios. The volatility of the stock market and the low returns offered by traditional fixed-income securities have prompted many to seek alternative investments, such as real estate investment trusts, that can provide asset class diversification and higher dividend rates.

Most REITs available today are publicly traded (like equity securities) and subject to the pressures and daily gyrations of the marketplace. However, non-public (or private) REITs are not actively traded, can offer less price volatility, return attractive yields, and have gained in popularity among investors.

REITs allow individuals and institutions to invest in actively managed, income-producing real estate properties by participating in the rental revenues of office buildings, warehouses, hotels, retirement communities and retail centers. In order to ensure favorite tax treatment, 90 percent of the revenues must be passed through to investors.

Yields typically average around 5 percent to 7 percent in the current environment, significantly higher than most other traditional fixed-income sources (such as government bonds and CDs).

REITs also provide certain tax advantages that increase the potential return to the investor. Available in minimum denominations as low as $1,000, these securities can be owned by individuals as well as larger institutions. Today, they are finding their ways into education savings accounts, qualified plans and non-qualified portfolios.

Because real estate as an asset class shows very little (if any) correlation with equity or other fixed-income securities, REITs offer excellent diversification within an investment portfolio.

As such, the investors are less subject to economic weaknesses that may impact certain geographic regions of the country or specific industries. Likewise, there should never be a year when too many leases come up for renewal at the same time.

What does that all mean?

In a non-publicly traded REIT your principal investment remains stable (typically $10 share) for a length of time, usually 4-7 years. During this time you receive or reinvest a predictable cash flow. So while the markets can cause your investment portfolio to change every day. Your REIT holdings do not fluctuate in value.

Say you are retired or have a fairly sizable accumulation of CD’s or other investments. This type of REIT would provide a stable income stream, every month, without market or interest rate volatility. Most, also offer a capital appreciation of your original investment after a few years.

Are they for everyone?

Not everyone meets the suitability requirements for these types of investments. They are generally more appropriate for higher net worth individuals and should make up only a portion of the portfolio. However, they should be considered for someone who has the bulk of their holdings in CD’s or Bonds. So if receiving a higher-than-average yield (every month), stable price and capital appreciation sound appealing then nonpublicly REITs may be for you.

This information is educational in nature and is being provided with the understanding that it is not intended to be interpreted as specific legal or tax advice. Individuals are encouraged to consult with a professional in regards to legal, tax, and/or investment issues.