Honey EC: I decided to cover one call today because it gives a clear picture into Neale Godfrey's qualifications to give financial advice on national airwaves -- and why I have no interest in seriously covering her broadcast.
Frank in New York said "I have been dollar cost averaging money into the market for years. And fortunately, I have come into some new – $200,000. I have been waiting patiently, as Bob has expressed in weeks and months past. But not having invested, I feel like I have lost out in the run-up of the market… Do I start putting this money into the market now – over what time frame would you recommend, three months, six months, a year? How should I approach this?"
Neale Godfrey said: "First of all I want you to think where you see rates going. If you think we're in the trough and they are going to go up then start putting the money in. That's the whole kind of game that you're playing with the dollar cost averaging. That's a question you can have to answer for yourself. Are you missing out? Do you need to get the money in there or do you want a kind of laid back and wait for what is perceived as the trend? If we were all smart enough to know when that happened – it's hard to tell until it's over. I don't want you to miss the opportunities in this. The other thing is just for the fact that you got that money, it should be invested in something because by definition on a present value basis you are missing out on a return that you could be getting."The only other call of note was from Steve from Oklahoma who made the false statement that Bob Brinker has said that it is a "good idea" to have some gold in your portfolio. Brinker has never said anything close to that. Even when he had GLD in his Marketimer "off-the-books" list of individual issues, he never made any recommendations whatsoever.
BOND MARKET UPDATE: Speaking of Bob Brinker. where does he currently stand on bond market? I think you know that he is touting low-duration bond funds. He prefers close to one year over anything longer than that. He has sold all GNMA Funds because he considers the duration too long.
STOCK MARKET UPDATE: Brinker said this in the August 2014 issue of Marketimer: "We continue to maintain our fully invested position in all of the Marketimer model portfolios in anticipation of additional stock market progress into next year." Brinker recommends dollar-cost-averaging on periods of short-term weakness. He defines short-term weakness a "a short-term interruption of an ongoing uptrend." He believes that if a correction develops, it will lead to a lower-risk buying opportunity.
Frankj's Third-Hour Guest Summary:
Neale Godfrey’s third hour guest this Labor Day weekend was Brad Thomas, a nationally known expert on REITs (Real Estate Investment Trusts). I was very pleased to hear that he was the guest because I have followed his work on the financial website SeekingAlpha.com for a few years now.
Brad’s bio is posted at www.SeekingAlpha.com. Or, you can visit his website, IREITINVESTOR. You can type his name into the search box AT SeekingAlpha and find his articles. His most recent one is good introduction to the subject, here is the link:
The interview started promptly when Neale returned from the break.
Brad pointed out that REITs have been around as an asset sector for 50 years. REITs are obligated to return 90% of their taxable income to investors in the form of dividends. This “have to” requirement sets them apart from normal C-corporations who may pay dividends but are not obligated to do so and can freeze, lower, or cancel their dividend. REITs generate income from rent payments, lease payments or from selling appreciated properties.
People can own REITs in the form of individual securities, mutual funds or ETFs. Individual REITs may be owned as publicly traded stocks, or private, REITs. Private REITs (non-traded) are more risky because they are not fully liquid and you cannot easily get your money out if you want it. Also, loads and fees are paid because these are often paid through financial planners.
Neale went to calls and Fred was first up … no question, just praise for covering this topic.
Next at bat was Harry who recited his profitable experience with REITs until the Thai baht melted down and squashed the US yield curve in 1997. He bailed out. Mr. Thomas fielded the call by pointing out that the recession in 1997 affected mortgage REITs which are not quite the same as brick and mortar REITs because mREITs are more volatile.
Rich from Florida called next to ask what would happen when interest rates go up and what did Brad think about the rental market (Rich had three rentals). Brad said that the Fed will raise interest rates when the economy strengthens. This means real estate will be getting stronger and landlords will be able to increase rents. He referenced the business cycle for real estate is 18 years long and for the overall stock cycle it averages about 5 years. There is a more complete explanation of this in the ”pathways” article link above.
Rich’s second question concerned rentals. Brad expressed his own experience at dealing with the “3 T’s” (Toilets, Trash and Taxes). Some people might be willing to put up with these headaches.
Since the recession, REITs have pruned their holdings and locked in longer term fixed debt at attractive rates. His big concern with rising interest rates is how they might affect the tenants – those businesses who write the rent checks. He ran through the average lease lengths: “triple net leases” and health care facility leases tend to be 10-12 years with annual rent increases built in.
(A “triple net” lease is one where the tenant pays the property taxes on the building, takes care of the maintenance and pays the insurance on the building).
Judy from San Jose is taking distributions from mutual funds, including one that is invested in a REIT. She had a question about tax treatment. Brad suggested she contact him through his website, IREITINVESTOR and he said he would try to answer it.
(Editoral note: If you have the option, the place to own a REIT is in a ROTH-IRA. REIT dividends do not get the favorable tax treatment that normal dividends get. And, if you own a REIT in a traditional IRA, you can re-invest your dividends, sure, but ultimately, those dividends will come out and be taxed as ordinary income.)
Alan from Chicago wanted to know what was the “safest” REIT to invest in? Neale jumped in probably to prevent Brad from making a specific recommendation. Brad answered indirectly saying the safest would be one that had a long record of increasing dividends. He said there is one out there that has such a record for 46 years.
Albert wanted to know about REITs that held mall properties in their portfolios. Brad said there haven’t been any major malls built in 10 years and malls can be tricky if there are weak tenants, mentioning Penney’s and Sears. He mentioned factory outlet malls and Tanger Factory Outlets as an alternative.
Neale wrapped up the interview at about 3:55.
Honey here: Thank you so much Frankj...as always another outstanding guest summary. And it's nice to know that you have found this guest worthwhile to follow for some time. I will be checking out his website. If I heard correctly, he also sells a newsletter.
Jeffchristie's Moneytalk Final Exam Question:
What term does Bob Brinker use to describe it when a US company acquires a foreign company and then relocates its headquarters to that country to now be taxed at that countries lower rate?Jeffchristie.....Thank you for another hilarious Final Exam question. There is no excuse for anyone missing any answers if-and-when the Starship Moneytalk takes its final voyage "To the third star on the right and on until morning____Captain James T. Kirk
A) Subversion; B) Tax evasion; C) Inversion; D) Perversion.
San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.)