REITS and Preferred Stocks - Brinker's Opinion

Moneytalk with Bob Brinker Commentary for June 24, 2012 Radio Show

The following commentary is from my "Retirement Advisor" writing partner,  David Korn. 

REITS

Caller:   This caller is trying to come up with a way to increase the returns in his portfolio against a backdrop of a market that has low interest rates and incredibly low yields on Treasuries.  What do you think of investing 10-20% of his portfolio in real estate investment trusts?  Bob said if you are going with a real estate investment trust, you really need to do your homework.  REITs have been very volatile and all over the place.  Bob said he would be inclined to use a diversified format, such as the one offered by Vanguard.  That would come with low expenses which would be a bonus.  Bob said he would prefer a fund over an individual REIT to get the diversification.  Later on in the broadcast, Bob mentioned that Vanguard also offers the REIT Index ETF which trades under the ticker VNQ.

EC: The Vanguard REIT Index Fund Investor Shares (VGSIX) has an expense ratio of just 0.24% -- which is one of the lowest ones around.  Learn more about it at this url:  http://tinyurl.com/yb7288l

Kirk Comment: I have had this REIT fund in my newsletter (Kirk's Two Investment Letters), for a decade.  I also recommend its ETF alternative (See page 33 of recent issues.)  I am VERY pleased with the performance of both:

As of 03/31/2012 from Vanguard

VGSIX	1 Year	3 Year	5Yr	10 Year	Since Inception 05/13/96
REIT Index Fund Inv	12.76%	43.25%	0.31%	10.45%	10.86%

Long Term Results that Speak for Themselves
Since 9/30/98 inception, "Kirk's Newsletter Explore Portfolio" is UP 390%
vs. the S&P500 UP only 51% vs. NASDAQ UP only 57% (All through 12/31/11) 
(More Info, Testimonials & Portfolio Returns)
Q1 2012 Update:  Up 11.3% YTD  as of 3/31/12
(remember this 2012 performance is with 1/3 in fixed income!)

Subscribe to my service NOW and get the June 2012 Issue for FREE! !   

PREFERREDS
Caller:  This caller also wants to increase his portfolio returns and has heard a lot of good things about preferred stocks as way to generate higher returns.  Bob said he would be very careful before investing in these kinds of securities.  Over the last few years, a lot of money was lost in preferred stock.  Look at Freddie Mac which came out with preferred stock that disappointed investors.  Bob wouldn’t even give the caller a recommendation in this area.

EC:  Everyone knows what common stock is - that's the stock that you see on CNBC every day -- the stock that investors are buying and selling every day on the major exchanges.  Well, some companies also offer "preferred stock" which is simply another class of ownership in a corporation.  Preferred stock generally grants preferred stockholders rights that common stock holders do not have, hence the name "preferred stock."  For example, owners of preferred stock receive payment of dividends before the owners of common stock and have preference over common stock holders if the company declares bankruptcy.  Some preferred stocks are "callable" which means that the company could force the owner of the preferred stock to sell it back to the company for either cash or common stock.  The price and conditions are usually set up when the stock is issued.  For practical purposes, many investors own preferred stock because they are seeking current income (via the dividend) and preferred stocks typically pay dividends quarterly and offer higher yields relative to long-term Treasury bonds.  Bob has never been a fan of preferred stock and neither have his guests like Jeremy Siegel or Larry Swedroe.

Vanguard Funds YTD Returns as of 06/26/2012

Name	Symbol	Price as of 06/26/2012			YTD as of 06/26/2012
		Price	Yield
GNMA Fund Investor Shares	VFIIX	$11.04	3.00%		1.40%
Total Bond Mkt Index Inv	VBMFX	$11.10	1.88%		2.35%
Prime Money Mkt Fund	VMMXX	$1.00	0.04%		0.02%
Inflation-Protect Sec Inv	VIPSX	$14.65	–0.71%		4.09%
REIT Index Fund Inv	VGSIX	$20.89	note		10.21%
Total Stock Mkt Idx Inv	VTSMX	$32.80	2.04%		5.75%

The above commentary is courtesy of my writing partner, David Korn: 

David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2012

More from David Korn:

• June 10: Review of Bob Brinker's Five (5) Root Causes of a Bear Market

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