Dividends can be a great source of income for retirees. When you are ready to start delving into the investment options available to you, it can be hard to know where to begin.
Not a Fixed Income—But an Income
The number one thing retirees are usually after in their investments is a secure, dependable source of income. REITs are required to pay out 90% of earnings. This may make them appear to be stable compared to other investments. However, it’s important to remember that they are basically real estate stocks, and as such, their gains fluctuate with the markets. However, REITs pay out dividends, and although the payouts may fluctuate, it can still contribute to a steady stream of income. Here are some other points to consider:
- Solid Transparency and Governance: The REIT industry consistently gets high ratings for transparency and governance from independent consultants.
- A good way to balance your portfolio: REITs gain and lose separately from, say, the S&P 500. They can therefore help reduce volatility in your portfolio.
- Taxes: Dividends from REITs are taxed as ordinary income. However, REITs can be incorporated into IRAs and 401(k)s to at least provide a tax-deferred situation.
- Non-Traded REITs: Be careful to avoid REITs that are not publicly traded. For one, they are less liquid, which leads to less transparency: it can be hard for investors to find out what they’re worth.
- Funds are a good choice: You can find individual REITs on the market, but a strong REIT fund can reward investors with diversification and decreased volatility.
Investing in Company Stocks
Some retirees invest in company stocks. When you buy a stock, you become an owner of the company. As the company makes a profit, you will benefit from that profit in one of two ways:
- The company will pay you a dividend.
- The company will use their profits to continue to grow the business. If all goes well, you should then see the value of your stock rise.
Which investment is going to make more sense for your portfolio? Security-minded retirees, especially those who are depending on their retirement accounts for income, are going to gravitate toward the security offered by large- and mid-cap stocks. Another incentive that pushes retirees toward established companies are dividends. These payouts, which can amount to a more or less steady stream of income, are not payed out by every company. The more established a company is, the more likely it is to pay out dividends to its shareholders. These dividends are yours to do with what you will—even reinvest them in the company, which many investors do. These payouts (which are often paid out quarterly) can also fit nicely into a retiree’s income plan. This is where guidance and education becomes invaluable.
FOR MORE INFORMATION REGARDING USING DIVIDENDS FOR RETIREMENT INCOME CONTACT MIRAMONTES CAPITAL.
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Miramontes Capital is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Miramontes Capital and its representatives are properly licensed or exempt from licensure. This blog is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Miramontes Capital unless a client service agreement is in place.