Investors might have much of their wealth in various stocks and assorted mutual funds, but this doesn’t mean they’re really diversified. Plenty of investors think they’ve diversified their holdings when, in reality, they haven’t. These investors are often only diversified in a single asset class, such as domestic or international equity.
As we saw in 2008, having too much wealth in a single asset class can lead to major losses during a market downturn since all of the investor’s proverbial eggs are in one basket. Too many investors find out too late that their holdings simply aren’t as diversified as they thought.
Avoiding Stock Volatility Can Pay Dividends
To avoid this, investors should consider tweaking their retirement plans to incorporate different diversification strategies as they look to fund their retirements. Investors who are looking to avoid the more volatile sectors, which is certainly not a bad strategy as they approach retirement or have already retired, may want to consider asset sectors that are not correlated with the stock market.
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There are plenty of investment opportunities off the beaten path, and some of them produce dividends. If investors choose to go this route, they could find a generally reliable source of dividend-producing investments with privately held companies. Contrary to some commonly held beliefs, there are plenty of investment opportunities in private offerings that provide dividends while helping cautious investors avoid the volatility of the stock market.
One Choice: Multifamily Real Estate Companies
Take investing in multifamily real estate companies, for example. This sector continues to see solid growth across the country, which may be because Baby Boomers and Millennials increasingly are choosing apartments and resort-style options for their living needs. There are plenty of reasons for the continued growth in this sector. As they start their careers with a flurry of job hopping, including changing locations if needed, Millennials want the freedom to go where they want, when they want. They certainly don’t want to be tied down with a mortgage, and so they avoid buying homes. All of this makes Millennials good customers for multifamily housing.
On the other end of the spectrum, with their mortgages paid off and retirement either a reality or just around the corner, many Baby Boomers now prefer the conveniences of pools, dog parks, fitness centers and the other perks that are increasingly common in multifamily complexes. Plenty of older Americans are finding that to be a better option than homeownership.
With more Americans preferring living in apartment communities, multifamily real estate continues to be resilient for investors. Many privately held companies operating in this sector continue to offer dividends. Investors looking for opportunities that can provide security and dividends may want to take advantage of this sector’s continued growth.
Another Option: Storage Companies
Storage companies also remain a good opportunity for many investors who prefer less volatile options while still wanting dividends. Even in the worst of economic downturns, privately held storage companies have proved resilient. As we saw in the 2008 downturn, people are far more likely to pay their storage bills than their mortgages. It’s a far less costly expense and one that’s more likely to be paid. Simply put, people always want their belongings to be secure. With a constant base of customers and generally little in the way of overhead, storage companies, many of which are privately held, continue to grow and show no signs of going away no matter how the stock market is doing. Many storage companies provide investors dividends on a consistent basis. Like multifamily housing, privately held storage companies are a generally safe but often profitable investment.
Private offerings also offer investment opportunities in other sectors: health care, data and even energy, for example. Several companies in these areas have established track records in recent years in providing dividends to investors. While they often provide stability, these kind of investments provide a good chance for growth — many of them offering distributions or dividends of 5% to 8% — which investors can use to accumulate funds for years to come.
For the most part, these privately offered dividend-focused investments are in sectors that are more conservatively managed. There isn’t as much volatility in some of these areas as there is in stocks and other investments tied to the global economy. When there’s a Brexit or another overseas issue, many domestic, privately held investments, such as storage, simply aren’t affected as much.
For investors who want to find a consistent source of dividends without encountering high volatility, these kinds of privately held investments often provide an excellent option. Investors planning to diversify their holdings should, at the very least, consider them.
Kevin Derby contributed to this article.
The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax or legal advisor with regard to your individual situation. Kalos Capital, Inc. does not provide tax or legal advice. The opinions and views expressed here are for informational purposes only. Please consult with your tax and/or legal advisor for such guidance. The opinions in the preceding commentary are as of the date of publication and are subject to change. Information has been obtained from third-party sources we consider reliable, but we do not guarantee the facts cited are accurate or complete. This material is not intended to be relied upon as a forecast or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. We may execute transactions in securities that may not be consistent with the report’s conclusions. Investors should consult their financial advisor on the strategy best for them. Past performance is no guarantee of future results.
Cornerstone Wealth Management offers securities through Kalos Capital, Inc., and investment advisory services through Kalos Management, Inc., both at 11525 Park Woods Circle, Alpharetta, GA 30005, 678-356-1100. Cornerstone Wealth Management is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.
Real Estate Investment Trusts are a longer-term illiquid investment and may not be suitable for all investors. Vacancies can negatively impact income and capital gains potential. Investments in real estate may be affected by adverse economic conditions and regulatory changes. Distributions are not guaranteed. Due to the risks involved in the ownership of real estate, there is no guarantee of any return on your investment, and you may lose all or a portion of your investment. This is neither an offer nor a solicitation to purchase any products, which may be done only with a current prospectus. Investors should consider their investment objectives and risks, along with the product’s charges and expenses before investing. Please read the prospectus carefully before investing.
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