Learn more about capital gains and how they are taxed so that you can efficiently build wealth…

 

Caution: 35-minute read

 

Even with all that is happening with tariffs and uncertainty on the world stage, there are some bright spots in spite of it being the tax season in the United States.

 

Although there is much that is simple and uneventful in the tax code, there also are more complex topics that could be more challenging for you when it comes to using the tax code to your benefit and you want to be aware of them proactively as opposed to re-actively.

 

Whether it is the sale of your home and the exclusion of gain, ($500,000 married and $250.000 single if you qualify), using Depreciation/Mileage, using Retirement Deductions/Savers Credit, Schedule A Deductions along with numerous other deductions that may appear complex but could be of real benefit to you at this time or at a time in your future, if you qualify or potentially qualify–you need to know about them.

 

Therefore, you want to be aware of them “prior to” filing your tax return–not after so that you can reach your immediate, short-term, intermediate and long-term goals in a more satisfying manner!

 

Just so we are all on the same page TheWealthIncreaser.com will define a few terms so that you can comprehend this discussion with more clarity:

 

Interest—a charge for borrowed money generally a percentage of the amount borrowed.

Deferral of gain–In a tax-deferred exchange, the deferred gain is the amount of gain that escapes current taxation and is deferred until a later date.  Deferral of gain is a strategy that is often used in 1031 exchanges involving like-kind property by savvy investors who desire not to pay taxes at the time, and desire to prolong the payment of capital gain taxes to a date in the future and in some cases after they transition.

Dividends—a dividend is a distribution of a company’s earnings to eligible shareholders (not all companies pay dividends).

ESOP–stock options offered to employees at some companies

Ordinary dividend—ordinary income is income earned by an entity or an individual that is taxable at marginal tax rates, therefore an ordinary dividend that you received would be taxed at your marginal tax rate.

Qualified dividend—a qualified dividend is an ordinary dividend reported to the Internal Revenue Service (IRS), which taxes it at capital gains tax rates which are generally more favorable to most taxpayers.

Realized gain—a real profit that shows up not only on paper, but also in your bank or investment account.  A realized gain is an increase in value of an asset or investment you own and have sold or cashed-in on.  A tax occurs only when sold and if held for over a year the gain would be taxed at the capital gains rate based on your income.  Exceptions may apply in certain situations based on the asset classification, timing of the gain, and your income level as the AMT or NIIT could apply, thus increasing the taxation on the gain.

Unrealized gain—a potential profit that shows up on paper or an increase in value of an asset or investment you may own but have not sold or cashed-in on.  A tax occurs only when sold.  Realized and unrealized losses also follow the same logic, as there is either a paper loss or an actual loss, depending on the actions you take or fail to take–and at what time you take those actions (short versus long-term).

Capital asset–capital assets among others include stocks, bonds, mutual funds, 529 plans, real estate, sale of business, crypto, timber sales from your land, collectibles, etcetera.  Capital assets are significant pieces of property such as homes, cars, investment properties, stocks, bonds, mutual funds, ETFs and even collectibles or art.

 

Although there are exceptions, capital gains can be short (taxed as ordinary income) or long term (taxed at the generally more favorable capital gains rate of 0, 15, or 20%) and deferred as in the case of a “successful” 1031 exchange or installment sale! 

 

In many instances you will have to pay capital gains taxes if you sell a capital asset for a gain and in some cases a capital loss can be used to offset capital gains to a limit.  In this discussion TheWealthIncreaser.com will focus on the topic of capital gains so that you can use the concept to achieve more during your lifetime.

 

Common “exceptions” to standard capital gain rates:

 

Collectibles (taxed at the higher 28% rate)

Owner Occupied Real Estate (all or a portion may be excluded from taxation depending on the amount of gain))

Rental Real Estate (depreciation add back may increase your capital gains tax)

1031 exchange (a successful exchange can defer your taxes to a later date once property is sold)

Installment Sale (instead of being taxed in one year, your gain would be taxed over a number of years and that could have the effect of lowering your overall capital gains tax)

 

 

Art/Collectables capital gain rate is 28%

 

Antique Cars capital gain rate is 28% 

 

All of the following are taxed at the higher capital gain rate of 28%:

 

• Works of art
• Rugs and antiques
• Metals and gems (gold, silver, platinum, palladium etcetera)
• Stamps and coins
• Alcoholic beverages (fine wines, rare whiskeys, vintage champagnes, craft beers, limited edition spirits etcetera)

 

Note: Additionally, the IRS reserves the right to classify any other tangible personal property as a collectible for tax purposes.  And there are some limited exceptions for certain metals, gems, and coins.  Additionally, if you have some of the above assets inside of a fund in a non-physical form, you might be able to avoid the higher 28% rate.

 

Essentially, if you sell your collectible for a profit, you will face capital gains tax.  As you would expect, the amount you’ll owe depends on how long you’ve held onto the item (short versus long-term).

 

For short-term holdings of one year or less, any profit is taxed as ordinary income at your marginal federal tax rate.

 

Long-term gains, on the other hand, are treated differently:

 

• If you’ve held the collectible for over a year, you’ll be subject to a maximum tax rate of 28%.  This rate is higher than the typical long-term capital gains tax rates of 15% or 20%.

 

• Why is this rate higher?  The federal government basically wants to discourage speculation in potentially volatile markets and encourage investments that contribute more directly to economic growth.  Also, while the maximum 28% rate for long-term collectible gains exceeds rates for other assets, it’s still lower than short-term rates taxed as ordinary income for those in the higher income tax brackets.

 

• Determining your tax liability on a collectible sale involves a few steps.  First, you need to establish “your basis” in the item.

 

• For purchased collectibles, like silver bars, for example, your basis is generally the original cost plus any associated fees, such as costs for restoration (for hobbyists), expenses for specialized storage (climate-controlled facilities for art and other collectibles), or fees paid to brokers or dealers to obtain the asset.

 

• If you inherited the collectible, your basis would be its fair market value “at the time” of inheritance (adjusted basis).

 

Once you’ve determined your basis, subtract it from the sales price to find your capital gain.  This gain is then subject to the appropriate tax rate based on your holding period and income level.

 

Bonds–varies as municipal bonds may be tax exempt at the federal and possibly state level.

 

Cancellation of Debt–could in many cases be taxed at your ordinary income tax rate–you and the IRS would receive a 1099-C from the issuer who canceled your debt.

 

Collectibles–taxed at 28% rate

 

To report sales for collectibles, use Form 8949.  That information is then entered on Schedule D of Form 1040 to calculate and report your overall gains or losses.

 

Can the marginal rate on collectibles exceed 28%?

The effective tax rate on collectible gains can sometimes exceed 28% due to the net investment income tax (NIIT) and/or the alternative minimum tax or the more commonly known acronym AMT.

 

• Net investment income tax (NIIT): Depending on your adjusted gross income, you might face a 3.8% net investment income tax on your gains.  The NIIT is an additional tax on investment income for those with income exceeding specific thresholds (Modified Adjusted Gross Income of $200,000 for single filers and $250,000 for married couples filing jointly).

 

• For more information, see What is Net Investment Income Tax?

 

• Alternative Minimum Tax (AMT): If you are subject to the Alternative Minimum Tax (AMT), your effective tax rate could increase as well.  Also realize that your state and local taxes can also contribute to a higher overall tax burden when it comes to gains on collectibles and other capital assets.

 

Corporate Bonds

Interest earned from corporate bonds are fully taxable at all levels.  Because corporate bonds typically have the “greatest risk” of default, they pay the highest interest rates of any bond.  Investors who own 100 corporate bonds at $1,000 par value, with each paying 6% annually, can expect to receive $6,000 of taxable interest income each year, unless the account was held inside of a retirement account.

 

Corporate earnings–ordinary income rate of 21%

Short-term capital gains arise from the sale of assets held for a year or less and are taxed at the corporation’s ordinary income tax rate.

 

Corporate capital gains 

Long-term capital gains result from selling assets held for more than a year and are generally taxed at a lower rate.  This tax advantage encourages corporations to adopt strategic asset management practices, often opting to hold assets longer which normally strengthens the economy.  The type of asset sold also influences the capital gain classification.  For example, gains from selling depreciable business property, like machinery, may follow different tax rules than gains from investment securities.

 

 

 

Crypto Currency—considered an asset and capital gains would apply.  Cryptocurrency is treated as property for tax purposes in the United States, meaning that any profits from selling or using it are subject to capital gains tax.  You must report any taxable events, such as selling or trading crypto or other digital assets, on your tax return.  Additionally, if you own cryptocurrency and digital assets you must disclose if you have movement of those assets, along with disclosing if you have foreign holdings.

 

ESOP—stock option offered to employees at some companies that may be taxed at capital gain rates when exercised.  If done after retirement and depending on holding period could be taxed at ordinary income or capital gain rates.

 

Gaming/Gambling—if you file your taxes using schedule A you can deduct your gambling losses (keep good records) up to the extent of your gains thus reducing your gain that would be taxed at ordinary income rates up to 37%.  In many instances you would receive a form W-2G from the issuer (many winnings over $5,000 will have withholdings up to 24%) and the IRS would also receive a copy.

 

Gold Bullion/Precious Metals–when it comes to tax purposes, the IRS classifies precious metals held in physical form as collectibles, and thus they may potentially be taxed at the maximum collectable capital gains rate of 28 percent.

 

Government Bonds

The interest from Treasury bills, notes, and bonds are taxable at the federal level but not at the state and local levels.  In addition, some U.S. government agency securities, such as those issued by Fannie Mae, are taxable at the federal level but exempt from state and local taxes.

 

Municipal Bonds

Municipal bonds are generally tax-free at the federal level and may be tax-free at the local or state level if issued and purchased by you in the area that you reside.  Often purchased by high-income investors, municipal bonds can mean tax-free investment income when utilized in a strategic manner.

 

 

Suspension of Rental Losses–If your income exceeds $150,000 and you are not a real estate professional; your rental losses are not allowed and are suspended.

Rental losses as a result of exceeding the $150,000 threshold are not permanent, they are suspended, and if you later decide to sell your rental property, you can use the “suspended losses” to offset your capital gains, thus lowering your taxation on the gain in the tax year that the property is sold.

Additionally, if you receive “income on the rental property” the “suspended losses” can be used to offset your rental income, thus lowering your taxes.

And finally, if your income was to drop down below the $150,000 threshold, you could deduct some or all of the suspended losses, thus lowering your taxes.

 

Zero-Coupon Bonds

Although they have no stated coupon rate, zero-coupon bond investors must report a prorated portion of “interest” each year as income.

 

A zero-coupon bond is an investment in debt that does not pay interest but instead trades at a deep discount.

 

The profit is realized at its maturity date when the bond is redeemed for its full-face value.  Always realize that zero-coupon bonds are issued by governments at discounts, and they mature at par values, where the amount of the spread is divided equally among the number of years to maturity.  Consequently, zero-coupon bonds are taxed as interest, just like any other original issue discount bond.

 

529 Plans have no capital gains or ordinary income taxes assessed on money in a 529 Plan and when the money is withdrawn, as long as it is used for a qualified purpose, there are no taxes due whatsoever.

 

Because of tax reforms that went into effect on January 1, 2018, plans now allow up to $10,000 per year per beneficiary to be used towards K-12 private school education.

 

In addition, the SECURE Act changed the 529 Plans’ list of qualified purposes to include certain apprenticeship programs, and to allow up to $10,000 to be used (only once, not annually) to reduce student loan debt for the named beneficiary.

 

The contribution limits for 529 Plans are the same as the federal annual gift tax exclusion, which is $18,000 per donor, per year, as of 2024.

 

ROTH IRA–contribution withdrawals are normally tax free, however earnings are taxable unless 5-year rule and age 59 1/2 rule is met prior to withdrawal otherwise taxable with penalty unless an exception applied.  Mandatory withdrawals are not required at age 73.

 

Traditional IRA & Retirement Plans–capital gain taxes are normally deferred, early withdrawals (before age 59 1/2) would be taxed as ordinary income and incur a 10% penalty unless an exception applied.  Mandatory withdrawals are normally required at age 73.

 

Other–my asset doesn’t appear on this post.

More research may be necessary by you or your financial professional(s) to determine if you must pay capital gains or any other taxes on the asset in question.  Additionally, the IRS reserves the right to classify any other tangible personal property as a collectible for tax purposes.

 

Due to the importance of real estate in the building of wealth in many households, the capital gains implications will be discussed in detail below so that you can build wealth more efficiently.

 

Capital Gains & Real Estate

 

 

Personal rental real estate 2 of 5 rule not met 0%, 15% and 20% capital gains rate apply on rental properties sold (depreciation that you claimed or failed to claim as a deduction over your years as a rental owner will be added back thus increasing your gain)

Personal real estate 2 of 5 rule met $250,000 exempt from taxation for single and $500,000 if married (technicalities apply) will be exempt if your gains don’t exceed these limits and you otherwise qualify

Rental Real Estate 0%, 15% and 20% on rental properties sold (depreciation recapture of 25% will apply to a portion of the sales gain)

Sale of Business form 4797, 0%, 15% 20% or other rate may apply depending on time that business or assets are sold along with the depreciation calculation

Refinance your home or rental property (considered a loan and no capital gains or any taxation, if proceeds are used for home improvement, interest repayment may be deductible on your tax return)

 

Many people know the basics of the capital gains tax and are aware that gains on the sale of personal or investment property held for more than one year are taxed at favorable capital gains rates of 0%, 15%, or 20%, plus a 3.8% net investment income tax for people with higher incomes, but many are unaware that:

• The capital gains rates are based on set income thresholds, which are adjusted annually for inflation.

 

• For 2024, the 0% rate applies to individuals with taxable income up to $47,025 for single filers, $63,000 for head-of-household filers, and $94,050 for joint filers.

 

• The 15% rate is for individuals with taxable incomes between the 0% and 20% break points of $47,026 to $518,900 for single and $94,050 to $583,750 for joint filers.

 

•  The 20% rate starts at $518,901 for single filers, $551,351 for head-of-household filers and $583,751 for joint filers.

 

Residential Real Estate

• Compared to long-term gains, the sale of personal or investment property held for one year or less, which are taxed as ordinary income rates up to 37%, the 0, 15%, and 20% rates appear quite appealing.  There are also “a lot of exceptions” to these general rules, with some major advantages applying to residential real estate that you must be aware of.

 

• With many residential home sales, the profit isn’t even taxed at all.  That’s because of the home sale exclusion that is available if you have owned and lived in your main home for at least two out of the five years before the sale date.  You could avoid capital gains tax on up to $250,000 ($500,000 for joint filers) of your gain from the sale.  Any gain above the $250,000 or $500,000 exclusion amounts is taxed at long-term capital gains rates.  If you had a loss from the sale of your primary home, “the loss is not” deductible.

 

Let’s say you’re married, bought your home in 2005, have a tax basis of $150,000, and are selling the home for $550,000.  The entire $400,000 gain is tax-free to you and your spouse (Call me now and let’s party–LOL).

 

Let’s now take the same example, but instead of selling your home for $550,000, you sell it for $900,000.  The first $500,000 of the gain is tax-free, and the remaining $250,000 is taxed at long-term capital gains rates.  (Call me now and let’s really party–LOL).

 

• To determine your gain or loss from the sale of your primary home, you start with the amount of gross proceeds reported in Box 2 of Form 1099-S and subtract selling expenses such as commissions to arrive at the amount realized.

 

• You then reduce that figure by your tax basis in the home to come up with your gain or loss.

 

• To figure the tax basis in your home, start with the original cost, including the mortgage if you financed the purchase, add certain settlement fees and closing costs, plus the cost of any additions as well as improvements that add to the value of your home, prolong its useful life, or adapt it to better uses.

 

• IRS Publication 523 has some examples of improvements that increase your tax basis in the home and those that don’t.  Examples of big-ticket items that are added to your basis include adding a room, installing new air-conditioning, renovating a kitchen, finishing a basement, or putting in new landscaping or a pool. Even small-scale capital improvements can increase basis.  These include new doors and windows, duct and furnace work, built-in appliances and water heaters.

 

• Repairs, maintenance and improvements that are necessary to keep your residence in good condition but don’t add value or prolong its life generally will not increase your basis.

 

• If you claim a tax credit or otherwise receive a subsidy for putting in energy-savings improvements in your home, you must first reduce the cost of the system by the tax credit or subsidy that you received before increasing your home’s tax basis.

 

More on the Home Sale Exclusion: Capital Gains Tax Home Sale Exclusion, What You Need to Know

 

If you must sell your home early, you may still be eligible for a portion of the exclusion, depending on the circumstances that led you to sell.  If your home sale was prompted due to job changes, illness, or unforeseen circumstances, you may qualify for a partial exclusion.

 

The percentage of the $500,000 or $250,000 gain exclusion that can be taken is equal to the portion of the two-year period that you used the home as a residence.

 

For example, say you as a single person bought a home for $600,000 in March 2023, lived in it for 15 months, and sold it in May of last year for $685,000 after moving out of state due to an illness.  The maximum gain exclusion in this instance is $156,250 ($250,000 x (15/24)).  So, the $85,000 gain is fully excluded and tax-free. You can also use days or months for this calculation.

 

Death of a spouse and selling primary home

A spouse who sells the family home within two years after the death of the other spouse gets the full $500,000 exclusion that is generally available only to couples, provided the two-out-of-five-year use and ownership tests were met before death.

 

• There is also a welcome added tax benefit if you owned the home jointly with your spouse.

 

• If you don’t live in a community property state, half of the home will get a step-up in tax basis upon the death of the first-to-die spouse.

 

• The rule is more generous if the house is held as community property.  The entire tax basis is stepped up to fair market value when the first spouse dies.

 

Here’s an example.

 

Let’s say you and your spouse bought a home for $150,000 many years ago in a non-community property state, and it is worth $980,000 on the date that your spouse dies.  As the survivor, your tax basis in the home jumps to $565,000 (your half of the original $150,000 or $75,000 basis plus half of your deceased spouse’s $980,000 or $490,000 date-of-death stepped-up basis value).

 

Twenty months later, you as the surviving spouse sell your home for $1,100,000.  Of the $535,000 gain from the home sale ($1,100,000 – $565,000), $500,000 is tax-free and $35,000 is taxed at long-term capital gains rates that would be determined by where you would fall based on your tax bracket.

 

Home office deduction and selling a primary home

You may be wondering whether the capital gain tax on the sale of your home would differ if you took the home office tax deduction in prior years for using a room or other space in your residence exclusively and regularly for business or rental (e.g., as a home office or the rental of a spare bedroom).

 

It depends, but generally, the tax consequences are the same whether or not the home office deduction was previously claimed.  Gain on the office or rental portion generally qualifies as part of the $250,000/$500,000 capital gains tax exclusion for a primary home sale, subject to two exceptions.

 

1. The first is for so-called unrecaptured Section 1250 gain, which applies “if you took depreciation deductions in the past” for the office or rental space.  If you used the simplified method to claim home office deductions on your return, you don’t have to worry about recapturing depreciation claimed in years prior to your home sale.

 

2. The second exception applies if the workspace or rental space is in a building on the          property separate from the main home—think first-floor storefront with an attached residence, rented apartment in a duplex, or working farm with a farmhouse or other unattached building on the property.

 

Rental property and capital gains calculation

If you hold rental property, the gain or loss when you sell is generally characterized as a capital gain or loss.  If the property was held for more than one year, it’s a long-term capital gain or loss, and if held for one year or less, it’s a short-term capital gain or loss.

 

The gain or loss is the difference between the amount realized on the sale and your tax basis in the property.

 

The capital gain will generally be taxed at 0%, 15%, or 20%, plus the 3.8% net investment income surtax for people with higher incomes.

 

However, a special rule that you must be aware of applies to gain on the sale of rental property for which you took “depreciation” deductions!

 

When depreciable real property held for more than one year is sold at a gain, the federal tax law requires that previously deducted depreciation be recaptured into income and taxed at a top rate of 25%.   This is known in the tax industry as unrecaptured Section 1250 gain, and the name is based on the number in the federal tax code section.

 

Sale of vacation home and capital gains

Gains from the sale of vacation homes don’t qualify for the $250,000/$500,000 capital gains tax exclusion that applies to the sale of main homes.  You will pay tax on the entire amount of your profit and if you are contemplating the sale of your vacation home–you must prepare in advance for the tax consequences.

 

When you sell a vacation home, your gain will be subject to the normal capital gains tax on real estate!

 

Therefore, if you’ve owned the vacation home for more than one year before you sell, the difference between your amount realized on the sale and your tax basis in your home is subject to capital gains tax rate of 0%, 15%, or 20%, depending on your income, plus the 3.8% net investment income surtax if you are in the upper-income tax brackets.

 

If you owned the vacation home for a year or less, then any gain from the sale will be taxed at “ordinary income tax rates” up to 37%.

 

For example, say that in 2024, you sell a vacation home that you owned since 2010 for $875,000, and you have a tax basis of $635,000.  Your $240,000 gain is taxed at long-term capital gains rates.  And just as you can’t deduct a loss with your primary residence, so too is the case with your vacation property.

 

What if you convert a vacation home to your primary residence, live there for at least two years, and then sell your home?  Can you qualify for the full $250,000/$500,000 capital gains tax exclusion?

 

Probably not, but it depends!

 

• If you sell a main home that you previously used as a vacation home, some or all of the gain is ineligible for the home-sale exclusion.

 

• The portion of the gain that is taxed is based on the ratio of the period after 2008 that the home was used as a second residence or rented out to the total time that you as the seller owned the house.

 

• The remaining gain is eligible for the $250,000 or $500,000 home-sale exclusion.

 

Short sale of your main home and capital gains

After the great financial downfall in 2008, many financially distressed homeowners sold their home as a short sale in order to get from underwater mortgages on their home.  If you are considering a short sale of your home, you want to know the tax consequences upfront.

 

A short sale occurs when your mortgage lender agrees to accept less than the outstanding balance on your loan to help facilitate a quick sale of the property.

 

The tax rules applicable to short sales differ depending on whether the debt is recourse or non-recourse!

 

Recourse debt is when the owner/debtor remains personally liable for any shortfall.  If the lender forgives the remaining debt, a special tax rule provides that up to $750,000 in forgiven debt on a primary home is tax-free.

 

The owner/debtor will be taxed on any remaining forgiven debt at ordinary income tax rates up to 37%.

 

The tax results are different for non-recourse debt, meaning the owner/debtor isn’t personally liable for the deficiency and in this case, the waived debt is included in the amount realized for calculating capital gain or loss on the short sale.

 

For primary homes, no loss is allowed, and up to $250,000 of gain ($500,000 for joint filers) can be excluded from income for homeowners that meet the two-out-of-five-year use and ownership tests!

 

These same rules apply if your home is foreclosed on.

 

Main Home Destruction and capital gains

If your principal residence is damaged or destroyed in a hurricane, tornado, widespread wildfire, or other federally declared disaster, you’ll have gain to the extent the insurance proceeds you receive exceed your pre-disaster tax basis in the home.

 

Up to $250,000 ($500,000 for joint filers) of that gain is excluded from income if you meet the two-out-of-five-year use and ownership tests.  If your gain exceeded those amounts, your gain over those excluded amounts would then be taxed at capital gain rates.

 

One way to delay the tax hit on all or part of the otherwise taxable capital gains is to use the proceeds you get from your insurance company to buy a new home within four years of the disaster.  The so-called “involuntary conversion” rules are complex, so be sure to contact your tax adviser or other professional if you are thinking about this option.

 

Refinancing of your home or rental property and capital gains

As stated earlier and reiterated again, a refinance or tapping into your home equity are considered loans and no capital gains or any taxation on the proceeds will occur.  Furthermore, if funds are used for home improvement, interest repayment may be deductible on your tax return annually.

 

Always keep in mind that with a refi you must have an effective repayment plan in place and there will normally be closing costs that can get into the thousands.  You also want to ensure that your credit is at an acceptable level if you are seriously considering this option.

 

If you failed to plan properly or not at all, a reverse mortgage is yet another option that you have if you find yourself in position where you need more income during your retirement years and you have a high equity position with your personal residence.

 

Section 1031 exchanges and capital gains tax

When real property used in a business or held for investment is exchanged for like-kind real property under Section 1031 of the tax code, all or part of the gain that would otherwise be triggered if the real estate was sold can be deferred.  This tax break doesn’t apply to main homes or vacation homes, but it can apply to rental real estate that you own.

 

The Section 1031 exchange rules are very complicated and difficult to navigate, with many requirements that must be met in a timely manner.  Therefore, make sure to talk to your tax adviser and/or other professionals if you are seriously contemplating a like-kind swap of rental real estate that you own.

 

Opportunity Zone Funds and deferral of capital gains

The Qualified Opportunity Zone program was created under the 2017 tax reform law, the Tax Cuts and Jobs Act (TCJA).

 

• The program allows taxpayers to defer capital gains from the sale of business or personal property, including real estate, by investing the proceeds in entities called Qualified Opportunity Funds.

 

• These QOFs then use the money to help the development of struggling communities.

 

• As with many of the provisions in the TCJA, this program is set to expire after 2025.

 

Let’s say you have a large capital gain from the sale of a rental home that you owned, and you want to defer paying federal income tax on that gain.  If you can invest those gain proceeds in a QOF, you could see meaningful tax benefits come your way.

 

The gains are deferred until the earlier of December 31, 2026, or when you dispose of your QOF interest.

 

The tax would generally be owed at that time on the deferred gains less the tax basis in the QOF investment!

 

The longer you hold a QOF investment, the more tax incentives there are generally speaking. You, as an investor, would begin with a zero-tax basis.

 

How long you hold your QOF Investment	What happens to your basis
If you hold your QOF investment for at least 5 years	Your basis in it increases by 10% of the originally deferred gain, meaning that 10% of the deferred gain can go permanently untaxed.
If you hold your QOF investment for at least 7 years,	Your tax basis in it is further increased by 5% of the gain that was originally deferred.
If you hold your QOF investment for 10 years or more	You can then elect to increase your basis to fair market value at the time you sell the investment, so that post-acquisition appreciation in the QOF isn’t taxed when the interest is sold.

Note: the deferred gain from your real estate sale will be taxed in 2026 unless updated legislation says otherwise.

 

You have 180 days from selling your real estate to invest the proceeds in a QOF.  You can invest all of your short-term or long-term capital gain proceeds from the sale or just part of the gains.  However, if you invest part of the gains, only that portion of the gains contributed to the QOF qualifies for deferral.

 

If you decide to go the QOF route, “you must elect” the tax deferral on your tax return for the year of the sale.  Be sure to follow the instructions on Form 8949 for electing deferral and reporting the deferred gain and be sure to submit Form 8949 with your return.

 

Also, you’ll have to complete and attach Form 8997 to your return.  Form 8997 lets the IRS know of the Qualified Opportunity Fund investment and the amount of gain deferred, among other information.

 

Conclusion

Whether art, antique vehicles, stocks, bonds, real estate, crypto or many other items that are sold for a gain–capital gains taxes may very well apply, and you want to know the likely amount that you will have to pay prior to the transaction (sale of assets) or before taxes will be due–not after.

 

When it comes to your personal finances, whether you require a tune-up or major overhaul, your awareness of capital gains at the earliest time possible will serve you well throughout your wealth building journey.

 

By having that awareness you will put yourself in position to know what to expect tax wise and you can plan for and take the amount that you will likely pay in taxes into the decision-making process and better determine if selling is your best option, or selling in a different manner, finding other ways to get the funds you need, doing a like-kind exchange when applicable or not selling at all–is your “best” option.

 

You can also reduce your capital gains after you transition by maximizing the gift tax guidelines while you are alive and participating in donor advised funds, (deduction can help reduce your overall taxes), charitable trusts and other estate planning options that can legally be done to reduce the size of your estate and increase what your heirs will receive and reduce what they will have to pay tax wise after your transition.

 

Charitable trusts, including donor advised funds and others can provide tax benefits by reducing your taxable income, avoiding capital gains taxes, and removing assets from your estate.  You normally need to have a sizable net worth and you will need a highly competent attorney who specializes in this area to educate and guide you in the process.

 

As a quick mental reference you can estimate roughly where you fall as far as “long-term capital gains taxes” are concerned!

 

First determined whether you file as Single, HOH or Married Filing Jointly and then commit the numbers below to memory and use those numbers as a “quick reference mental guide” to help you determine where you fall on the capital gains tax spectrum proactively–not reactively.

 

If you have income of roughly $50,000 or less and you are Single, you pay 0 capital gains tax, the 15% rate falls roughly between $50,000 and $520,000 and anything over roughly $520,000 in MAGI would be taxed at the 20% rate.

 

For Head Of Household filers, you can have income up to roughly $60,000 and pay 0 capital gains tax, the 15% rate falls roughly between $60,000 and $520,000 and the 20% rate applies for those who have MAGI above roughly $520,000.

 

For Married Filing Jointly filers you can roughly have MAGI income up to $100,000 and pay 0 capital gains tax, the 15% rate falls roughly between $100,000 and $600,000 and the 20% rate applies to couples who have MAGI above roughly $600,000.

 

By committing the above numbers to memory, you can use strategies to possibly pay zero in capital gains taxes and even when you have to pay, you will know or at a minimum have an idea of how the sale or cashing out of stocks, collectibles, mutual funds and other assets held outside of your retirement account will be affected based on capital gain rates based on your income and length of holding of the asset.

 

Also realize that short-term capital gains are taxed at ordinary income tax rates that apply, and further realize that income ranges used in the various tax brackets, along with MAGI amounts for long-term capital gains are adjusted annually, so the numbers will change.  However, the above rough estimates can be used as a guide to help you reduce or eliminate capital gain taxation and help you build wealth more efficiently at the various stages of your life.

 

In short, by analyzing your capital gains tax potential on the front end, you put yourself in a better position to make strategic decisions that can be of more benefit to you and your family in this economic climate–or any future economic climate–or even after you transition.  Also, if you are a high-income earner, be aware that an additional 3.8% NIIT and/or the AMT may apply to your capital gains tax payment on your tax return.

 

Isn’t it time you avoid short and long-term pain so that you can sincerely enjoy your capital gain!

 

You can now “fly high” as you pursue an unrelenting path toward capital gains and long-term wealth building success, as you have NOW been kicked out of your nest and you must now fly at an altitude that is your absolute best…

 

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More on Capital Gains…

Return from Capital Gains & Wealth Building to What is the 3 Step Structured Approach

Return from Capital Gains & Wealth Building to Curb Appeal & Wealth Building

Return from Capital Gains & Wealth Building to Investment Basics

Return from Capital Gains & Wealth Building to Investments & Personal Finance

Return from Capital Gains & Wealth Building to Retirement & Personal Finance

Return from Capital Gains & Wealth Building to Reducing Your Taxes & Wealth Building

Return from Capital Gains & Wealth Building to Bond Simplification & Wealth Building

 

Copyright© 2014–2025–TheWealthIncreaser.com–All Rights Reserved

 

 

Learn all about bonds and how you can possibly use them to build wealth more effectively…

 

Learn what is inside Wealth Building NOW…

Read sample chapter in Wealth Building Now Book–20 minute read…

 

Caution:  30 minute read

In the United States you will often hear of corporate bonds and government bonds being touted by many, but exactly what are corporate and government bonds and how can you use them to build wealth?

 

In this discussion TheWealthIncreaser.com will focus on government and corporate bonds and discuss ways that you can possibly use them to build wealth more efficiently.

 

Municipal, Mortgage-backed, Agency and Corporate bonds will all be discussed to further enhance your understanding of the bond market.  You can also purchase bonds as part of a Mutual Fund, ETF, Target Date Fund, 401k’s, IRA’s or other retirement plans by utilizing brokers or doing the selections yourself on your brokerage account.

 

Treasuries (Bills. Bonds, Notes) and CDs (Certificates of Deposit) are often considered the safest of investments on the market because they are government backed, and they too will be covered in this discussion.

 

Other bond investments, like municipal or corporate bonds, have credit ratings from rating agencies like Moody’s Investors Services and Standard & Poor’s.  The higher the credit rating, the more likely an issuer is to make timely interest and principal payments.

 

Conversely, the lower the credit rating, the greater the risk that the issuer can’t make timely interest or principal payments.  Prices for bonds with longer maturities tend to be more sensitive to changes in interest rates compared to shorter-term bonds.  Be particularly cautious of junk bonds as they are riskier, and the inability of the issuer to make payments should be of higher concern to you.  On the flip side you can potentially receive higher returns, but with more risk.

 

Municipal, are bonds issued by states, cities, counties, and other local governments, as well as enterprises that serve a public purpose, such as universities, hospitals, and utilities.  Those who issue municipal bonds generally pay “interest income” that is “exempt” from federal and potentially state income taxes.

 

Corporate are bonds issued when companies issue corporate bonds to raise capital for activities such as expanding operations, purchasing new equipment, or building new facilities.  The issuing company is responsible for making interest payments and repaying the principal at maturity.

 

Mortgage-backed securities are created by pooling mortgages purchased from the original lenders.  As an investor you would receive monthly interest and principal payments from the underlying mortgages. These securities differ from traditional bonds in that there isn’t necessarily a predetermined amount that gets redeemed at a scheduled maturity date.

 

Agency bonds are issued by either a government-sponsored enterprise (GSE) or a government-owned corporation (GOC) and are debt obligations solely of the issuing agency (fannie-mae and freddie-mac come to mind as well as the Tennessee Valley Authority and the Hoover Dam).

 

There are generally two types of government bonds that you can buy directly at TreasuryDirect.gov, and they are marketable and non-marketable.

 

Marketable:

 

Marketable bonds include TIPs, (Treasury Inflation Protected securities), Treasuries (Bills, Bonds, Notes), FRNs (Floating Rate Notes), and STRIPs (Separate Trading of Registered Interest and Principal securities).

 

Non-marketable:

 

Non-marketable bonds include series EE and series I-Bonds (series is based on issue date), and they can be purchased in electronic form on treasurydirect.gov or purchased with your tax refund at set purchase amount intervals–you will receive a paper bond(s).

 

TheWealthIncreaser.com will start by discussing bond basics and because marketable bonds cause more confusion for many and are generally a more complex transaction than purchasing non-marketable bonds, government marketable bonds will be discussed first among bonds, followed by corporate marketable bonds and then non-marketable bonds.

 

Bond Basics

When you buy a bond, you are a company’s (or government entity) lender and the bond is like an IOU-a promise to pay back the money you’ve loaned to the company or agency, with interest back to you.

 

The amount of income a bond pays is largely determined by the prevailing interest rate at the time of issuance and other factors specific to that bond.

 

In simplified form, face value multiplied by interest rate equals interest payment to you.

 

$1,000 * 5% = $50

 

You might receive 2 coupon payments a year for $50 each and get payment of face value in 5 or 10 years, depending on term of the bond.

 

Bonds are often used to generate income, protect earnings, diversify portfolios and a strong point for many with government bonds are that they are often backed by the full faith and credit of the U.S. government.

 

What determines a bond’s yield?

Two key factors that determine a bond’s yield are credit risk and the time to maturity.

 

Credit risk: A bond’s yield generally reflects the risk that the issuer will not make full and timely interest or principal payments.

 

Rating agencies provide opinions on this risk in the form of a credit rating.  Bonds with lower credit ratings generally pay higher yields because investors expect extra compensation for greater risk.

 

Maturity: Generally, the longer the maturity, the higher the yield.  Investors expect to earn more on long-term investments because their money is committed for a longer period of time, and they lack access to it.

 

Who Issues?

Bonds are issued by both public and private entities.

 

Many cities, states, the federal government, government agencies, and corporations issue bonds to raise capital for a variety of purposes, such as building roads, improving schools, opening new factories, and buying the latest technology—along with other stated purposes.

 

How Bond Yields Work?

The yield you’re quoted when you buy a bond is often different from the interest it pays.

 

I’m sure you want to know why that is the case!

 

Because in addition to the annual interest rate, the bond’s return reflects any difference between its purchase price and its face value—the amount you’re expected to receive when the bond matures.

 

If you buy the bond at a price higher than the face value (at a premium), you’ll receive less than you paid when the bond matures.  Let’s say face value is $1,000 and you pay $1,100, when the bond matures you will only get $1,000.

 

If you buy the bond at a price lower than the face value (at a discount), you’ll receive more than you paid when the bond matures.  Let’s say face value is $1,000 and you pay $900, when the bond matures you will get $1,000.

 

If you sell the bond before it matures, you get its current price, which may be higher or lower than the amount you originally paid and you are in essence forfeiting your future coupon (interest) payments.

 

Frequently Asked Questions about Bonds…

 

TIPS (Treasury Inflation-Protected Securities) Basics

• Treasury Inflation-Protected Securities (TIPS) are a type of Treasury bond that is indexed to an inflationary gauge to protect investors from a decline in the purchasing power of their money.

 

• TIPs with a fixed principal can be stripped (more on stripping later in this discussion).

 

• TIPS are issued with maturities of five, 10, and 30 years and are considered a low-risk investment because the U.S. government backs them.

 

• Auctions are held several times a year.

 

• TIPs pay interest every six months based on a fixed rate determined at the bond’s auction.

 

• The principal value of TIPS rises as inflation rises.

 

• The principal amount is protected since investors will never receive less than the originally invested principal.

 

• The principal value of TIPS rises as inflation rises, while the interest payment varies with the adjusted principal value of the bond.

 

• TIPS can be purchased directly from the government through the TreasuryDirect system, in $100 increments with a minimum investment of $100.

 

• Some investors prefer to get TIPS through a TIPS mutual fund or exchange-traded fund (ETF).    However, purchasing TIPS directly allows investors to avoid the management fees associated with mutual funds.

 

Suppose you as a bond investor owns $1,000 in TIPS at the end of the year, with a coupon rate of 2%.  If there is no inflation as measured by the CPI, then you will receive $20 in coupon payments for that year.  If inflation rises by 4%, however, then the $1,000 principal will be adjusted upward by 4% to $1,040.  The coupon rate will remain the same at 2%, but it will be multiplied by the adjusted principal amount of $1,040 to arrive at an interest payment of $10.40 for the year.

 

Conversely, if inflation were negative—known as deflation—with prices falling 5%, then the principal would be adjusted downward to $950.  The resulting interest payment to you would be $9.50 over the year.   However, at maturity, you would receive no less than the principal amount invested of $1,000 or an adjusted higher principal, if applicable.  Learn more about TIPs by visiting “Treasury Inflation Protected Securities (TIPS),” at TreasuryDirect.gov.

 

Treasuries

You can buy most at auction or in the open market.  If bought at auction you can re-invest your earnings automatically.  If you have an investment account with a brokerage, many brokerages allow you to purchase treasuries on their platform and re-invest as well.

Check current interest rates…

 

Treasuries (Bills, Bonds, Notes)

NOTE: Treasuries have a competitive and non-competitive bidding process, and you want to be aware of that proactively, as opposed to after the fact.

 

Treasury Bill Basics

Note about Cash Management Bills: Cash Management Bills (CMBs) are also available at various times and for variable terms.  Cash Management Bills are only available through a bank, broker, or dealer and cannot be purchased at TreasuryDirect.gov.

Treasury issues short-term cash management bills periodically to manage short-term financing needs.

 

*Bills are issued in electronic form only for periods of 4, 8,13, 17, 26 and 52 weeks.

• Interest is “fixed rate” and is set at auction.

 

• Interest is the difference between what you paid and the face value you get

 

• when bill matures interest is paid

 

• minimum purchase is $100 and sold in increments of $100

 

• Taxes at federal level are due on interest earned yearly (no state or local taxes)

 

• Not eligible for STRIPs

 

Treasury Bond Basics

*Issued in electronic form only.

• Term is either 20 or 30 years.

 

• Bonds pay a fixed rate of interest every six months until they mature and that rate is determined at auction.

 

• You can hold a bond until it matures or sell it before it matures.

 

• Interest rate is never lower than .125%.

 

• Minimum purchase is $100 and interest is paid every 6 months until maturity.

 

• Sold at auction several times a year.

 

• Taxes at federal level are due on interest earned annually (no state or local taxes).

 

• Are eligible for STRIPs.

 

NOTE: Treasury Bonds are not the same as U.S. Savings Bonds

EE Bonds, I Bonds, and HH Bonds are U.S. savings bonds and are “non-marketable,” meaning they can’t be sold in the secondary market, see U.S. Savings Bonds.

 

Treasury Note Basics

*Issued in electronic form only

*Term is of 2, 3, 5, 7, or 10 years.

*Notes pay a fixed rate of interest every six months until they mature.  The rate is fixed at auction.

*You can hold a note until it matures or sell it before it matures.

• Interest rate is never lower than .125%

 

• Minimum purchase $100 and interest is paid every 6 months until maturity

 

• Sold at auction several times a year

 

• Taxes at federal level are due on interest earned each year (no state or local taxes)

 

• Are eligible for STRIPs

 

• Whether you purchase at auction or on the secondary market the bonds can be readily bought and sold.

 

FRNs (Floating Rate Notes)

*are relatively short-term investments that are issued in electronic form only.

• Mature in two years.

 

• Pay interest four times each year.

 

• have an interest rate that may change or “float” over time.

 

• You can hold a FRN until it matures or sell it before it matures.

 

• Minimum purchase $100, sold in increments and Interest paid every 3 months.

 

• Sold at auction.

 

• Federal tax due each year on interest earned. No state or local taxes

 

• Are not eligible for STRIPs.

 

STRIPs

You can buy, hold, sell, and redeem STRIPS only through a financial institution, a broker, or dealer who handles government securities.

 

Treasury securities with a fixed-principal, such as notes, bonds, and TIPS are eligible and may be stripped!

 

Treasury Bills and FRNs can’t be stripped!

 

The idea behind STRIPS is that the principal and each interest payment become “separate securities” that are treated individually.

 

Each separated piece is a zero-coupon security that matures separately and, has only one payment.

 

You can learn more about stripping by going to TreasuryDirect.gov!

 

Corporate Bonds

Corporate bonds are often used by investors in their portfolio to help reduce the risk of returns from other investments.  Many investors use a laddered approach (purchase bonds or bond funds of varying maturities to reduce risk) and many laddered corporate bonds pay 5% or better if properly structured.

 

Investors usually select Junk or High Yield Corporate bonds so that they can obtain a higher rate of return and possibly an increase in the bond price down the road.

 

The segment that is considered high-yield would be rated B to BB+ by S & P or B to Ba1 by Moody’s.

 

They can be a good choice during economic expansion and quite risky during an economic decline.

 

High-yield bonds are also less sensitive to interest rate movement than the other categories mentioned in this discussion.  You can buy junk-bonds through a broker or invest through a fund.

 

Investment grade bonds are purchased by many mutual fund companies and more conservative investors as they are not as risky as junk bonds but provide a stable return in many instances.

 

Although many domestic bond funds invest a small percentage in markets overseas you may be able to diversify your fixed income investments and receive a more attractive yield (bond yields and inflation on international bonds tend to have a low correlation to the U. S.  Bond Market).

 

Some corporate bonds pay interest monthly, but quarterly or semi-annually are more common!

 

Be sure you are properly positioned to invest as there will be more risk.  In addition to interest rate risk which is always a constant when investing in bonds—you will also have currency risk.

 

Depending on your “life stage” you could use international bonds to increase your nest egg–or utilize them during retirement if you are properly “positioned” to do so!

 

To help reduce currency risk, some International Bond Funds enter into “currency forward contracts” that lock in an exchange rate to buy or sell a currency on a future date and locks in the foreign currency fluctuations versus the United States Dollar.   In addition, other methods are used to reduce currency risk depending on the company that you choose.  As with any fund it is important that you are aware of the expense ratio—and particularly with International Bond Funds as there are usually other fees added that you won’t see on the expense ratio but will be charged to your account, nevertheless.

 

Even though you can get hefty returns during good times, market risk can be substantial when bond funds in international markets plummet during volatile times, therefore it can never be stressed enough that you must be in the “right financial position” and at the “right stage in your life” to utilize International Bonds & Bond Funds in your portfolio for maximum results.

 

Non-marketable Bonds 

 

Series EE and Series I Bonds

These are also government issued bonds that are sold at a “discount of face value” and mature over 20 to 30 years.

 

Series I bonds are also adjusted for inflation twice a year!

 

Non-marketable bonds include series EE and series I-Bonds (series is based on issue date), and they can be purchased in electronic form on TreasuryDirect.gov or purchased with your tax refund at set dollar amounts with your tax refund–you will receive a paper bond(s).

 

The interest would accumulate in your account and once you cashed in you would receive the interest and principal.  If you cash in early there could be a penalty!  In order to get the full face value on the bond, you would have to keep the bond for the full term.  You could also be taxed on the interest unless an exception such as proceeds were used for educational purposes–were to apply.

 

CD’s (Certificate of Deposit) & Money Market Accounts

A CD with a fixed term and guaranteed rate can be a good place for money you plan to spend down the line, such as a wedding, or the purchase of a house or boat.  Due to early withdrawal penalties, however, the money is not as easily accessible as funds in a savings account.  This makes a liquid savings account a better option for money you may need for emergencies.

 

You want to ensure that you properly establish an emergency funds at the earliest time possible to help with unplanned events that will occur in the short and long-term.  A CD could work for you as part of your emergency fund if you found low penalty CD’s that otherwise met your goals and you used a laddered approach in establishing the fund.

 

Unlike bonds, a CD’s fixed term is guaranteed to pay a specific yield on a set date in the future!  If you like the safety of bonds and CDs, you may want to set up a bond or CD ladder so that you can have better access to your funds, particularly if you will be using part or all for your emergency fund utilization!

 

You can use a CD calculator to determine exactly how much interest the CD that you are considering can earn when the CD matures so you will know your “numbers” in advance.  And you can go to bankrate.com to learn more about CDs and how the one you are considering ranks as far as safety and penalties are concerned.

 

Since CDs usually pay fixed yields, a CD may be a smart option in a falling interest rate environment.  When rates are decreasing, you may be able to lock in a higher yield than what will be offered in coming months or years.

 

Although they are not in the bond family, CD’s and money market accounts are worth considering depending on your goals as there are a large number of consumers who possess these accounts and like their safety ($250,000 protection through FDIC).

 

With interest rates fluctuations Certificates of Deposits and Money Market Accounts will vary on what they pay in returns and returns that you expect may depend on FED policy of keeping short term rates close to zero or utilizing FED policy to raise interest rates!

 

Conclusion

You can use bonds to fund your IRA if you have a brokerage account.  You can possibly save on management fees by purchasing Treasury bonds directly at TreasuryDirect.gov.

 

Bonds can play an important role as you approach retirement and even during your retirement years.  Used as part of an overall or comprehensive wealth building approach they can play a role in helping you live out your retirement years with dignity.  If you are uncomfortable selecting bonds you can use bond mutual funds or let mutual fund managers select bonds that are part of the mutual fund that they manage.  Target Date and Educational accounts may automatically include bonds in your account if you are currently using that type of financial product.

 

All bond types have their pros and cons so you may want to do additional research or consult with your financial advisor if you are still uncomfortable with bonds.

 

Bonds can also be used to fund your, your children’s, or grandchildren’s education, and the interest earned could be tax free if you meet the educational guidelines outline in the IRS tax code.

 

Treasury marketable securities are sold through auctions.  In 2023, Treasury Direct held 428 public auctions and issued about $22 trillion in Treasury marketable securities–no small change!

 

Treasury marketable securities include Bills, Bonds, Notes, Treasury Inflation-Protected Securities (TIPS), and Floating Rate Notes (FRNs).  What makes them “marketable” is that you can sell or transfer them before they mature and there are always ready buyers.  Agency, mortgage-backed, municipal and other bonds are available at the federal, state and local level and are offered by various entities.

 

You can strip some marketable bonds and basically break them down into individual payments!

 

Corporate bonds include investment grade, junk, international, bond funds and other classifications and they can be found in abundance in the financial markets.  You can set up an account with all bond types in 15 minutes or so at many brokerages as the process is fairly straightforward.

 

Many mutual funds that you may already have, or are considering, may already have a percentage invested in bonds that you may not be aware of.  If you have a target date fund or a 529 savings plan a portion of your investment is more than likely already invested in the bond market.

 

Non-Marketable bonds include series EE and I bonds and they can be purchased by you, but can’t be sold in the financial markets.

 

Bonds can be an important part of your wealth building future if you utilize them in the appropriate manner and you have addressed your finances in a comprehensive manner as a major part of your approach to your future, whether it be for retirement or any other purpose.

 

All the best to your bond management success…

 

Set up a non-competitive bidding account at TreasuryDirect.gov…

 

Treasury Auction Dates…

 

 

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Learn if you at this time have the right investment vehicle(s) to effectively reach your investment goals…

 

Caution:  35-minute read, however it is “well worth your time” in The Wealth Increaser.com’s opinion

 

It is important that you start your long-term investing at the earliest time possible and there are investment vehicles that you can utilize to get you where you need to be more efficiently.

 

In this discussion The Wealth Increaser will hone in on some of the most useful and time-tested investment vehicles that you can use to build wealth and reach goals that you desire at the various stages of your life.

 

Your path to investment success does not have to be a difficult one if you start early, invest consistently and you know your “target number” that you need to reach to fulfill your various goals.

 

Your home purchase, college funding, traveling around the world, reaching your retirement number or reaching the number that you need to reach for any other purpose is attainable if you are at this time willing to make a serious effort toward achieving what you desire.

 

Mutual Funds (MFs) Investment Calculator

A Mutual fund is an investment program funded by shareholders that trades in diversified holdings and is professionally managed.  It normally includes a “bundle of stocks” and investment products and frees you from the hassle of selecting individual stocks or other investments yourself.

 

A MF is a portfolio of stocks, bonds and other securities and creates a diversified investment portfolio that generally reduces your risk factor.  It is key that you understand that mutual funds are “bought and sold” at the “end of” the trading day!

 

• Mutual funds are sold based on dollars, so “you can specify any dollar amount” that you’d like to invest.

 

• Mutual funds are divided into several kinds of categories, representing the kinds of securities they invest in, their investment objectives, and the type of returns they seek.  Although there are others, most mutual funds fall into categories which include stock funds, money market funds, bond funds, and target-date funds.

 

• Mutual funds charge annual fees, expense ratios, or commissions, which may affect their overall returns and you want to ensure that the fund that you select has reasonable fees.

 

• Employer-sponsored retirement plans commonly invest in mutual funds and if your employer offers them–especially with an employee match, you want to put yourself in position to contribute as best you can, based on your financial ability to do so.

 

Index Funds (IFs) Investment Calculator

Technically a Mutual Fund, Index funds invest in stocks that correspond with a major market index such as the S&P 500, Nasdaq or the Dow Jones Industrial Average (DJIA).  It could be one focused on a sector, such as healthcare, durable goods or technology.  This investment strategy requires less research from analysts and advisors, so your expenses as a shareholder would be lower, and these funds are often designed with cost-sensitive investors in mind.

• The positives of index funds are that they require little financial knowledge, are low cost, and are convenient to invest in.  On the negative side, you could end up stuck with poorly performing assets and the potential for returns to be less than those of successful managers of actively managed funds.

 

• The goal of index fund managers are to mirror the performance of a particular index – and not try to outperform it, which is the goal of managers of active funds.

 

• Although many think that index funds are relatively new, the first publicly available index fund was launched back in the mid-1970s.

 

• Index funds often perform better than actively managed funds over longer investment time frames.  Even so, there are still risks involved with this style of investing.  If the tracked index falls, then your investment’s value will follow and if it is at the time of your retirement or planned withdrawal, you will suffer financially, and your living conditions could be affected.

 

• You can reduce risk by diversifying your portfolio by holding several different index funds covering a variety of stock markets or sectors.

 

• Index funds can provide a very straightforward, cost-effective, and diversified way for you to steadily increase your wealth over time.  Fund managers do not decide which individual investments they should buy or sell, which is what happens in active mutual funds.

 

• Investors in these products expect their chosen index to rise over the long term, even if it encounters some turbulence along the way!  The performance of the FTSE All-World Index, which has delivered an average annual return of 9.3% since 1993, according to Vanguard, provides a real world blueprint (30 plus years of results) of what index funds can achieve IF utilized appropriately.

 

• So, should you as a novice investor choose an active mutual fund(s) or index fund(s)?  You can spread your risk by investing a portion in each at the level that you are comfortable with.  Again, index funds replicate the performance of an index, whereas the managers of mutual funds will pick and choose securities they believe will help them outperform that index.  If an active manager makes the right calls, then they can substantially outperform their benchmark index and deliver handsome returns to investors–normally with more risk.

                                                                                                                                                       

Popular index funds that you may want to consider include the following:

 

*Fidelity 500 Index Fund (FXAIX)

*Schwab S & P 500 Index Fund (SWPPX)

*T. Rowe Price Equity Index 500 Fund (PREIX)

*Vanguard 500 Index Fund Investor Shares (VFINX)

* Schwab 1000 Index Fund

*Many others

 

Be sure to do your own independent research, confirm that fees are low, and you can do so by going directly to the sites by “typing in the ticker symbol” using your favorite search engine!

 

Target Date Funds (TDFs) Investment Calculator

Although technically a mutual fund, target date funds are separated out in this discussion in order to give you more clarity on how you can use them to build wealth.

 

Below you will find some of the more popular target date funds that you may want to consider:

 

Exchange Traded Funds (ETFs) Investment Calculator

They are similar to Mutual Funds as just a few key differences set them apart.  The biggest similarity between ETFs (Exchange-Traded Funds) and mutual funds are that they both represent professionally managed collections (or “baskets”) of individual stocks, bonds or other investments.

 

However, investment minimums are normally lower with an ETF!  You can purchase an ETF share of Vanguard FTSE Emerging Markets for under $100.  Many more ETF shares start at $500 or more and you can learn more about ETF offerings by visiting VettaFi financial website.

 

• It is key that you understand that ETFs allow you to trade “throughout the trading day” at market prices.  This flexibility is a key difference in how the fund works as compared to a mutual fund.  This level of flexibility may be utilized by active traders making moves throughout the day.

 

• The main difference between ETFs and mutual funds are that an ETFs price is based on the market price and is sold only in “full” shares.  Mutual funds, however, are sold based on dollars, so “you can specify any dollar amount” that you’d like to invest.

 

• As an investor, you have options and can reap the benefits of diversification.

 

Conclusion

When you are investing it is imperative you know that your goals, risk-tolerance, income and your personal situation must be taken into serious consideration!

 

If you currently owe $100,000 on your home mortgage and you desire to pay it off in 5 years, you will need to do some analysis and not just choose the first thing that comes to your mind.  If your monthly payment is $1,000 and $500 of your mortgage payment is going toward principal, in 5 years your balance would be roughly $70,000 if you continued on that path.

 

By adding $1,200 to the monthly payment of $1,000 you could pay $2,200 monthly ($1,700 going toward your principal) and have your mortgage paid off in 5 years, however you would be responsible for paying your property taxes (mandatory) and insurance (optional after your home is paid off, but generally makes sense to have).

 

Or you could choose an investment strategy of investing the $1,200 per month for 5 years in the market and based on historical trends you could have over $90,000 after 5 years, and since you continued your mortgage payments at $500 per month in principal payments, you would owe $70,000 and therefore have an addition $20,000 plus after the payoff of your mortgage, in your pocket by doing so–assuming your returns were as expected.

 

In this example inflation is assumed to be 3% and your rate of return is assumed to be 9%.  Even if you only assumed a rate of return of 3% (same as inflation) you would have over $80,000 which would still put you ahead by over $10,000 after the payoff of your mortgage.  As long as you had a positive return you would come out ahead based on the assumptions mentioned above.

 

If after 5 years of investing you had a negative return you would possibly fall short of the $70,000 that was needed and you could decide to ride the market longer and pay off the mortgage later, cash in, in spite of the losses and payoff as much as you could on the mortgage.

 

As you can see from this discussion, your goals, risk tolerance, income and personal situation will play a large part in how you decide to pay off your debt and how you select your investments!

 

You want to know how to invest properly on the front end and you want to know that you can invest inside of your retirement account(s) (your earnings will grow tax free) and avoid taxes for years or outside of your retirement account(s) (you will provide 1099 and other paperwork to your tax professional that your brokerage would send to you at tax time) where you would possibly owe taxes on an annual basis (ETFs and Index funds are often tax efficient even outside of retirement accounts).

 

If you are age 25 and desire to retire by age 55 with your house paid off and over 4 million in your account in today’s dollars, you would have to invest $1,600 monthly for 30 years assuming 3% inflation and a 10% rate of return–and also assuming you pay your house off within that 30-year period.

 

Therefore, in the above examples, your returns would be affected depending on the type of investment and whether the investment is inside or outside of your retirement accounts.  Once you reach age 59 1/2 you can withdraw your retirement funds without incurring an early withdrawal penalty, however you would pay taxes at your ordinary income rate–unless the distributions were from a ROTH IRA or there was an exception that applied.

 

Mandatory withdrawals from your traditional IRA or retirement plan would be required once you reached age 73, however with a ROTH IRA, there are no mandatory withdrawals, however after your transition your beneficiaries must take required minimum distributions!

 

Also realize that you can choose balanced funds that invest in a hybrid of asset classes, whether stocks, bonds, money market instruments, or alternative investments. The objective of this fund, known as an asset allocation fund, is to reduce the risk of exposure across asset classes.

 

In closing, it is important that you realize that this discussion is not about theory or what you possibly need to do, but what you CAN do!  You must at this time analyze your income and expenses and determine your discretionary income that you have available so that you can start investing now, get more income by creating a plan to increase your income whether by the payoff of your debt, scaling back on your entertainment and other expenses–or finding other ways to get income on a consistent basis.

 

Although you will hear many financial planners tout the fact that you can increase your savings and come up with a significant amount to invest by scaling back on the $5 that you spend daily on your favorite latte or coffee, that is not something that we are a big proponent of as we realize that for some, a $5 cup of coffee can give them the added energy that is needed to help them earn more on a daily, weekly and annual basis–therefore they more than offset the $100 or so that they spend on a monthly basis on coffee that they could be using for investing.

 

However there are other ways that you can get more income and cut expenses and you may want to analyze and pursue them!

 

Once you determine the amount of income that you have available to invest and you commit to investing that or another amount over a period of time, you can start on a path to reaching the number that you need to attain your goal(s) and live daily with more joy on the inside!

 

Whether your discretionary or available funds to invest are $200 per month or $2,000 per month and you decide to use it to invest long-term, you can achieve significant results over a 30-year period.  By calculating what you can do now, (you need to know your discretionary or available income that you have to invest, whether you will invest weekly, monthly, yearly or a one-time lump-sum investment and furthermore you need to know the “time frame that is needed or desired” to reach your goal) you can determine the nest egg that you can have by investing consistently in a relatively painless way–starting today.

 

Investment Calculator

 

Investing $200 monthly at 3% inflation and a 9% rate of return will will provide you the opportunity to have over $500,000 (five-hundred thousand) in 30 years! 

 

The 4 percent raise that you get, the promotion that you get or working one or two days a month for lyft, uber, grubhub or other new economy options can easily provide you that cushion to invest either temporarily or permanently over the next 30 years.  In many cases, you can find the $200 by analyzing your monthly spending and tightening up your budget some.  You can do a detailed analysis of your insurance products, taxes and other areas of your finances and discover new savings or increases in income.  The ways that you can come up with the needed funds for long-term wealth building success is endless–if you want to achieve your goals in a sincere manner!

 

Investing $2,000 monthly at 3% inflation and a 9% rate of return will provide you the opportunity to have over $5,000,000 (five million) in 30 years! 

 

To get that extra $2,000 per month you may have to start a business, have your stay-at-home spouse find employment either part-time or full time or determine other ways to increase your monthly income based on your creativity and the unique skills that you now have or will cultivate in the near future.  In many instances high net worth and high-income earners wasted hundreds if not thousands on a monthly basis on frivolous or unnecessary spending that could be utilized more appropriately for building long-term wealth of significant amounts.

 

What is the discretionary amount that you “need or want to get to” so that you can invest at this time and in your future, to work towards making life more manageable for you and your loved ones?

 

How You Can Invest using Mutual Funds, Index Funds, Target Date Funds and Exchange-Traded-Funds:

 

1. Make sure you have a brokerage account with enough cash on hand, and with access to mutual fund shares and other investments
2. Identify specific mutual funds or ETFs that match your investing goals in terms of risk, returns, fees, and minimum investments.  Some brokerage platforms offer fund screening and research tools.
3. Determine how much you want to invest initially and submit your trade.  If you choose, you can set up automatic recurring investments in the amount that you desire.
4. Monitor and review performances periodically, making adjustments as needed.
5. When it is time to close your position, enter a sell order on your platform.
6. Realize that with some funds you can invest directly and depending on the fund type, the functions mentioned above will be done by the fund manager or brokerage.

 

 

Some funds are defined with a specific allocation strategy that is fixed, so the investor can have a predictable exposure to various asset classes.  Other funds follow a strategy for dynamic allocation percentages to meet various investor objectives.   This may include responding to market conditions, business cycle changes, or the changing phases of the investor’s own life.

 

The portfolio manager is commonly given the freedom to switch the ratio of asset classes as needed to maintain the integrity of the fund’s stated strategy.

 

Below you will find what is often included in mutual funds, including balanced funds, index funds, target date funds, and exchange traded funds.

 

Money Market Funds

The money market consists of safe, risk-free, short-term debt instruments, mostly government Treasury bills.  An investor will not earn substantial returns, but the principal is guaranteed.  A typical return is a little more than the amount earned in a regular checking or savings account and a little less than the average certificate of deposit (CD).

 

Income Funds

Income funds are named for their purpose: to provide current income on a steady basis.  These funds invest primarily in government and high-quality corporate debt, holding these bonds until maturity to provide interest streams.  While fund holdings may appreciate, the primary objective of these funds are to provide steady cash flow​ to investors.  As such, the audience for these funds consists of conservative investors and retirees.

 

International/Global Funds

An international fund, or foreign fund, invests only in assets located outside an investor’s home country.  Global funds, however, can invest anywhere around the world.  Their volatility often depends on the unique country’s economy and political risks.  However, these funds can be part of a well-balanced portfolio by increasing diversification, since the returns in foreign countries may be uncorrelated with returns at home.

 

Specialty Funds

Sector funds are targeted strategy funds aimed at specific sectors of the economy, such as financial, technology, or health care.  Sector funds can be extremely volatile since the stocks in a given sector tend to be highly correlated with each other.

 

Regional funds make it easier to focus on a specific geographic area of the world.  This can mean focusing on a broader region or an individual country.

 

Socially responsible funds, or ethical funds, invest only in companies that meet the criteria of certain guidelines or beliefs.  For example, some socially responsible funds do not invest in “sin” industries such as tobacco, alcoholic beverages, weapons, or nuclear power.  Other funds invest primarily in green technology, such as solar and wind power or recycling.  Fidelity Charitable and other “Socially Responsible Investment Funds” are now available in abundance in the investment world.

 

 

Isn’t it time that you use a “more pragmatic approach” toward investing and building wealth?

Always realize that you have numerous options to choose from in the investment world regardless of your goals, however the process of investing in an effective manner is not that complicated, unless you make it complicated.  In this short (relative to what you have learned) discussion you have learned how you can invest in a straightforward manner and achieve realistic results that can enhance your living conditions while you are here on planet earth.

 

All the best to your investment and wealth building success…

 

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Learn what you can do to determine if your investment returns are doing as well as you think they are as you build wealth…

 

Although choosing a financial planner or advisor can be a wise choice for some, in many instances professional advisors do no better than the market as a whole.

 

Whether you have an advisor at this time or you are choosing your portfolio yourself, you can now compare your returns to those of total market index funds (you can choose among many) to see how well (or poorly) you and/or your financial planner(s) have done over the past few years or so.

 

You will have to “adjust your allocation figures” to reflect “your mix” and then multiply by the index funds’ returns to get your total portfolio return for the year.

 

In the examples below, you will see an allocation of 70% United States stocks, 20% International stocks and 10% bonds–and the total portfolio returns over the years 2022, 2021, 2020 and 2019 and you can then compare your results based on your allocation to those below or other portfolios that you may want to use as a point of comparison.

 

You basically multiply your “allocation percentage” by the “year end return” of your selected portfolio percentage for United States stocks, international stocks and bonds–and then total them up to get your total portfolio return.

 

You can do this for 2022, or if you prefer (or you feel up to it) you can go back three additional years as well by fully grasping the discussion below!

 

2022
If you have 70% allocated to stocks: 70% * -19.53% = -13.67%

If you have 20% allocated to international stocks: 20% * -16.10% = -3.22%

If you have 10% allocated to bonds: 10% * -8.40% = -0.84%

 

TOTAL PORTFOLIO RETURN -17.73%

 

As you can see, 2022 was a bad year for many in a down market!

 

2021

If you have 70% allocated to stocks: 70% * 25.71% = 17.99%

If you have 20% allocated to international stocks: 20% * 8.84% = 1.77%

If you have 10% allocated to bonds: 10% * -2.41% = -0.24% (Note: 3 yr. return 2020-2022)

 

TOTAL PORTFOLIO RETURN 19.52%

 

2021 was a much better year for many compared to 2022!

 

2020
If you have 70% allocated to stocks: 70% * -20.99% = 14.69%

If you have 20% allocated to international stocks: 20% * 11.24% = 2.25%

If you have 10% allocated to bonds: 10% * -2.41% = -0.24% (Note: 3 yr. return 2020-2022)

 

TOTAL PORTFOLIO RETURN 16.70%

 

2020 was also a decent year for many!

 

2019
If you have 70% allocated to stocks: 70% * 30.80% = 21.56%

If you have 20% allocated to international stocks: 20% * 21.80% = 4.36%

If you have 10% allocated to bonds: 10% * .85% = .085% (Note: 5 yr. return 2018-2022)

 

TOTAL PORTFOLIO RETURN 26.01%

 

2019 was a really good year for many!

 

Below are the numbers from which the above calculations were made:

 

Vanguard Total Stock Market Index

Minimum investment $3,000

Expense Ratio .04

 

YEAR           1ST QUARTER                                 YEAR-END RETURN

2022                -5.46%                                                     -19.53%
2021                 6.43%                                                       25.71%
2020                -20.87%                                                     20.99%
2019                 14.04%                                                     30.80%

https://investor.vanguard.com/investment-products/mutual-funds/profile/vtsax

 

Vanguard Total International Stock Index Fund Admiral Shares

Minimum investment $3,000

Expense Ratio .11

YEAR-END RETURN
2022           -16.10%
2021            8.84%
2020            11.24%
2019            21.80%

https://investor.vanguard.com/investment-products/mutual-funds/profile/vtiax

 

Vanguard Total Bond Market Index Fund Admiral Shares

Minimum investment $3,000

Expense Ratio .05

1 yr. -8.40%
3 yr. -2.41%
5 yr. 0.85%
10 yr. 1.39%
Since inception 2001 3.33%

https://investor.vanguard.com/investment-products/mutual-funds/profile/vbtlx#performance-fees

 

Conclusion

By comparing how your portfolio has performed against an index fund you can determine if you (and possibly your planner) had a better return than benchmarks that are available!  Always keep in mind that many funds have a minimum investment amount along with an expense ratio for the management of the fund.

 

The lower the expense ratio the better it is for you, generally speaking–because that means your fund balance is not being chipped away by fees.

 

The allocation breakdown included above is at 70%/20%/10% for a 4-year period and that is done for illustrative purposes only, as allocations will vary from year to year as in many cases you will have to “re-balance” (fees will be involved) your portfolio.  It is also not uncommon for portfolio allocations to fluctuate due to market conditions–even in low-turnover funds.

 

Did you and/or your planner do better or worse than the market portfolios listed above–or a market portfolio fund that you chose?

 

By doing this simple analysis you can determine if you are getting worthwhile returns or whether a change in approach is possibly needed!  Also keep in mind that your returns will be greatly affected by whether your investments are “inside of your retirement account” or “outside of your retirement account” as tax deferral or taxation will play a major role in your returns–particularly over time.

 

Your goal is to invest in the most tax efficient manner possible based on your goals–no pun intended!

 

As you can see above, even though 2022 was a down year–many had a decent total portfolio return when averaged over the four years (11.13%) of analysis.  The key to successful investing is to get your finances in order as soon as practical and invest consistently over time, all while enjoying life as optimal as possible while doing so.

 

By starting early and having a consistent approach (dollar cost averaging) you will normally fare much better in the long-term than those who jump in and out of the market or start the process late in their life stage.

 

It is important that you make “reaching your retirement number” a priority at the earliest time possible.

 

You must know the goals that you seek, your risk tolerance level, your income and financial position and your personal situation as we are all unique in what we desire to achieve during our lifetime.  And your family dynamics will also determine what you need to address at this time and in future years.

 

In addition, if you will be leaving investments, houses or other assets for your heirs you may want to seek competent legal advice as some assets will receive stepped-up basis that can reduce or eliminate possible taxation, and some will not–depending on who receives the asset(s), how they are classified and local or national laws in your country or jurisdiction.

 

All the best to your improved portfolio returns success–as you intelligently add to your wealth building nest…

 

Note: The above information and “market index links” do not serve as an endorsement for Vanguard or any market index fund.  The information along with the links are provided so that you can save time and gain additional insight about how you can use benchmarks to achieve more throughout your lifetime.

No payment or compensation from Vanguard or any other source is provided and TheWealthIncreaser.com will receive no compensation from any source as a result of providing this information.  In addition accuracy of the above information cannot be guaranteed, although all reasonable efforts were made to ensure accuracy.

 

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 _{Learn why it is important to invest in a wise manner as you build wealth…}

_{In the current economy consumers are bombarded with investment options on a daily if not hourly basis.}  

 

_{Many have no approach or a wrong approach when it comes to investing and this discussion is designed to clear up some misconceptions that you and possibly others may have about investing and building wealth in the current economy—or any economy.}

 

It is important that you do all you can during your working years to invest in a wise manner and in a manner that is more beneficial for you and your family.  You must have a basic understanding of how investments work so that you can build wealth more efficiently.

 

In the following paragraphs TheWealthIncreaser.com will discuss investment options and what you need to be aware of investment wise–at the various stages in your life.

 

Annuities

An annuity is a stream of income that you receive throughout your life based on your contributions–in a lump sum or over time.

 

There are immediate annuities (you contribute a lump sum and begin to receive payments immediately) and the type where you invest at set intervals and receive payments later.

 

Social Security is a form of an annuity (although not in the traditional sense) and will be discussed later.

 

Bond Investments

Investing in bonds and bond funds may be an important component of your wealth building efforts.  I-bonds, municipal bonds, treasury securities, corporate bonds and the like can play an important role in your portfolio.

 

Certificates of Deposit

CD’s and savings accounts can be used for investing and are particularly effective inside of an emergency fund or short-term savings plan.  Many super conservative investors will even use CD’s (laddering approach) for long-term investing due to its relative safety and their low tolerance for risk.

 

Crypto Currency

A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms and they don’t need banks or any other third party to regulate them and they are normally uninsured and can be hard to convert into a form of tangible currency (such as US dollars or euros).

 

• A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.

 

• The word “cryptocurrency” is derived from the encryption techniques which are used to secure the network.

 

• Blockchains, which are organizational methods for ensuring the integrity of transactional data, are an essential component of many cryptocurrencies.

 

• Many experts believe that blockchain and related technology will disrupt many industries, including finance and law.

 

• Cryptocurrencies face criticism for a number of reasons, including their use for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them. However, they also have been praised for their portability, divisibility, inflation resistance, and transparency.

 

Cryptocurrencies are systems that allow for secure payments online which are denominated in terms of virtual “tokens,” which are represented by ledger entries internal to the system. “Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.

 

Currencies

Currency investing is somewhat more advanced investing and should be entered into with caution.  Those who are skilled normally have good returns.  There are many foreign exchange companies that offer services for the novice to advanced investors.

 

ETF’s

An Exchange Traded Fund often called ETF’s is a group of securities that track an index.

 

A well-known example would be the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index.

 

ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types.  An ETF is a marketable security, meaning it has an associated price that allows it to be easily bought and sold and is considered more liquid than a mutual fund.

 

Gold and Other Commodities

If you wanted to invest in gold and other precious metals you could do so through mutual funds, individual gold stocks, exchange-traded funds (ETFs), buying stock in gold mines and associated companies, and the buying of a physical gold or other precious metal product.

 

Most gold investors have a high net worth and see gold as a diversifying investment!

 

Gold has historically served as an investment that can add a diversifying component to your portfolio, regardless of whether you are worried about inflation, a declining U.S. dollar, or even protecting your wealth.

 

If your focus is simply diversification, gold is not correlated to stocks, bonds, and real estate and could be what you are looking for if you are properly prepared to invest successfully at this time.

 

Insurance

Many consumers invest through various whole life insurance products.  Whether it is wise or the best thing to do is a personal decision and has been up for debate for years.

 

It is the opinion of TheWealthIncreaser.com that insurance products primarily should be used for insurance purposes! 

 

Use caution if you are using insurance products for investment purposes.

 

Money Market Accounts and Money Market Mutual Funds

Normally provides a better rate of return than a savings account and could be more beneficial inside of a properly funded emergency fund than a regular savings account.

 

Money Market accounts could also be a great place to “park” your money during volatile market activity or as a transfer portal when you transfer funds from your retirement accounts.

 

Mutual Funds

Mutual funds pool money from the investing public and use that money to buy other securities, usually stocks and bonds. The value of the mutual fund company depends on the performance of the securities it decides to buy, therefore effective management is key.

 

When you buy a unit or share of a mutual fund realize that it is not the same as investing in shares of stock, you are buying the performance of its portfolio or, more precisely, a part of the portfolio’s value and as a holder you “would not” have any voting rights.

 

A share of a mutual fund represents investments in many different stocks (or other securities) instead of just one holding.  That’s why the price of a mutual fund share is referred to as the net asset value (NAV) per share, sometimes expressed as NAVPS.

 

A fund’s NAV is derived by dividing the total value of the securities in the portfolio by the total amount of shares outstanding. Outstanding shares are those held by all shareholders, institutional investors, and company officers or insiders at the company.

 

If you buy 10 shares in a Mutual Fund with a NAV of $111.00 for $1110.00 on Monday November 21st and the NAV goes to $141.00 per share on December 1st of the following year–you would have a long-term gain of  $300.00 and would be taxed at your capital gains rate if held outside of your retirement accounts.

 

Mutual fund shares can typically be purchased or redeemed as needed at the fund’s current NAV, which—unlike a stock price—doesn’t fluctuate during market hours, but it is settled (updated) at the end of each trading day.

 

There are funds for nearly every type of investor or investment approach and common types of mutual funds include money market funds, sector funds, alternative funds, smart-beta funds, target-date funds, socially conscious funds, growth funds, aggressive growth funds, growth and income funds, income funds, international funds and even mutual funds that buy shares of other mutual funds–among others.

 

Options & Futures

Options and futures investing is somewhat more advanced investing and should be entered into with caution.

 

Options trading is the trading of instruments that give you the right to buy or sell a specific security on a specific date at a specific price.

 

An option is a contract that’s linked to an underlying asset, e.g., a stock or another security and you have the right to exercise your option or you can choose to not exercise your option.

 

Stock Investments

A stock (also known as equity) is a security that represents the ownership of a fraction of a corporation.

 

This would entitle you if you were the owner of the stock to a proportion of the corporation’s assets and profits equal to how much stock you own.

 

Units of stock are called “shares” and are bought and sold predominantly on stock exchanges, though there can be private sales as well, and effective stock purchases are the foundation of many individual investors’ portfolios.

 

Stock transactions have to conform to “government regulations” which are meant to protect investors from fraudulent practices.  Stocks have historically outperformed most other investments over the long run  and can be purchased from most online stock brokers–including many that you may already be familiar with.

 

Other

Many other commodities and investment vehicles are available and being created each year that allows you to invest.  Many are novel and unusual such as sneaker investment, cryptocurrency, oil and gas exploration and mining among others.  Be sure you understand your financial position and how you handle risk and always remember that generally speaking:

 

Less Risk Less Reward—More Risk More Reward

1    – –       2      —        3          – –       4      —    5

 

Selling real estate (including your personal home)–particularly can bring you a financial windfall.   If done properly you can sell and avoid taxation on all or a  portion of the gain.

 

Be sure to keep all records in regard to your home purchase, including improvements that you make to your home as that could be beneficial when you sell your home.

 

At this time limited housing is pushing home prices up and now may be a great time to sell.

 

Refinancing, a home equity loan or a home line of credit (HELOC) could be right for you as interest rates are at historical lows (around 3% at this time) and if you wanted to pay off other debt, improve your home prior to selling or retiring and pursue other goals that you may have–now may be the time to do so.

 

If you sell your home, always realize that you will need a place to stay.  Be sure you know the costs associated with your move and the age, location, area, taxes, closing costs, utility costs, transportation costs etcetera in the area of the home or apartment you plan on moving into.

 

You definitely want to know the cost of your new home, your intended down payment, monthly payment and a rough estimate of your utility payments.   You can then put an interim plan (now until retirement) and post retirement plan in place so that you don’t have any unwanted surprises down the road.

 

Conclusion

When it comes to investing you want to minimize your risks, minimize unpleasant surprises and maximize your ability to succeed so that you can achieve more.

 

By gaining a basic understanding of investing you can put yourself and your family on a more prosperous path toward wealth building in any economic environment.

 

Investing must be balanced against your current cash flow and plans for your and your family’s future.

 

You must know your risk tolerance level, diversify appropriately, invest intelligently and have a comprehensive overview of your finances so that you know how to invest in a winning style.

 

By doing so you can avoid being in an adverse position that makes your life more challenging–and not rewarding!

 

Furthermore, you must know the Goals that you seek, know your Risk tolerance level, know your Income level and know your Personal situation at this time.  Or another way of looking at it is–you must get a real GRIP on your wealth building activities at this time so that you can reach your highest potential.

 

Proper wealth building and investing for those who are “in tune” is like music of the mind transmitted from your brain–and if done right is one of a kind–that has the real potential to roll like a train.

 

Your goals are unique and so is the success that you now seek.

 

Make the choice today to do your wealth building in a better way!

 

When it comes to investing you want to minimize your risks, minimize unpleasant surprises and maximize good decisions so your net worth rises!

 

By doing so you can sincerely get on a continuous path–that ensures that your net worth rises–because you have done the math.

 

You must have an unstoppable feeling on the inside–along with a view of what you plan to do–to make your wealth building dreams come true!

 

Now is the time that you invest at a level that allows you to past any test.

 

All the best toward your investment and wealth building success…

 

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Learn how to invest in a way that will DRIVE you toward the success that you desire as you avoid turbulence and reach higher…

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If you are new to investing or you desire to re-evaluate your current portfolio and find ways that you can invest more effectively you can do so with the right approach.

 

In this discussion TheWealthIncreaser.com will provide information to assist those who are new to investing or those who desire to invest more effectively, 5 ways or 5 steps that can lead to more investment success.  It is important that you invest in your future in a manner that is more favorable  for your success.  You must at this time show the desire and determination–and you must be willing to give it your best–as you build wealth and improve your financial health.

 

It is important that you have D R I V E on the inside as you prepare for investing in your and your family’s future and this discussion is designed to assist you as you drive in the direction where success lives as you pursue investing at a higher level of commitment.

 

You must have the drive to reach your investment goals and the following five factors that you have the opportunity to learn on the front end (prior to your investment journey) can help you achieve more throughout your lifetime.

 

D iversify or Spread Out Your Investments

R eBalance so Your Investments are Allocated Appropriately

I nvestment Risk Analysis Must be Performed

V alue the Usage of Leverage

E ase into Investing

 

D iversify or Spread Out Your Investments

 

It is important that you have investments in a number of sectors or asset classes such as stocks and bonds.  Other more exotic investment choices (gold, cryptocurrency, forex, REIT’s etcetera) should be considered only after you have workable and practical understanding and application of the basics in real world investments.

 

Always remember that stocks are generally for growth and bonds are generally for preservation of capital!

 

Your challenge is to create a portfolio that has a mix so that one stock won’t overwhelm or have an unwanted effect on your portfolio.  A portfolio of 15 stocks are better than a portfolio of five as you can spread the risk more assuming they are invested in different industries.

 

Mutual Funds, Exchange Traded Funds, and other grouping of stocks and bonds by a third party may also be worth consideration if you are new to investing as it allows you to use dollar cost averaging and other relatively painless measures (from a financial standpoint) to ease into investing while you continue to learn about investments and how you can utilize them more effectively in your financial future.

 

R eBalance so Your Investments are Allocated Appropriately

 

Did you know that the growth of your portfolio is a good thing, however it will require that you re-balance your portfolio occasionally?

 

Even losses from your investments can create the need for you to re-balance your portfolio!

 

Market activity will determine how frequent you should re-balance, however a good rule of thumb is to analyze at least annually and re-balance if necessary to bring your allocations in line with your prior allocations or your current risk tolerance level and future goals.

 

I nvestment Risk Analysis Must be Performed

 

You must align your risk tolerance level with your intended goals whether it be a down-payment on your new home, retirement, education funding, a dream trip or anything else.

 

It is important that you realize that investments allow you the opportunity to make money—and lose money!

 

Your time horizon and risk tolerance must be analyzed appropriately and you must prepare properly for a successful investing career by having an appropriate emergency fund and an understanding of where you are currently at in your life stage.

 

V alue the Usage of Leverage

 

You can possibly use leverage to increase your potential investment returns.

 

You can use leveraged ETF’s, futures contracts and margin loans to amp up your returns—but they are also riskier than using your own money to invest!

 

You must value the use of leverage by knowing that it can be dangerous for the novice investor and you must learn all about leverage prior to your leveraged investment activity.  By using leverage appropriately and learning how to properly utilize leverage in the best way possible based on your unique financial position, you can possibly avoid the pitfalls that have affected many in a negative way.

 

E ase into Investing

 

If you are new to investing or you desire to invest more effectively, it is important that you are relaxed and don’t rush into it.  You may want to start with dollar cost averaging, mutual funds or contributing to your retirement plan at work or start a traditional or ROTH IRA making consistent contributions.

 

You may also be eligible for a “saver’s credit” that can help you at tax time (and provide an additional investment incentive) if you meet certain income thresholds!

 

If your employer offers a retirement plan and there is a “match” provision, be especially alert and plan to contribute up to the match at a minimum as by doing so it can lead to you reaching your goals more efficiently!

 

Always be aware of the effects of investing inside and outside of your retirement accounts as the approach that you take with the selection can work for or against you and your ultimate goals.

 

You can learn investment success principles along the way and make adjustments to your investment activity as you learn more.

 

Conclusion

 

It is important that you know the importance of your need to:

 

D iversify or Spread Out Your Investments

     R eBalance so Your Investments are Allocated Appropriately

          I nvestment Risk Analysis Must be Performed

               V alue the Usage of Leverage

                     E ase into Investing

 

With the advent and progression of technology (fintech) you now have access to robo and micro advisors, easier access to the markets, lower trading costs, access to fractional share purchase at some brokerage houses and you can now invest in a more convenient way from many of your electronic devices.

 

In a real sense you can now DRIVE toward the investment success that you desire in a more convenient way–starting today!

 

Even so, you must still have an awareness of “investment fundamentals” so that you can diversify appropriately based on your risk tolerance and goals, re-balance and manage investment risk on a consistent basis, use leverage wisely and ease into investing in a relaxed manner as you build your net worth more efficiently.

 

There is no need to panic as you can invest and learn along the way and more effectively manage the turbulence in your life from day to day.

 

All the best as you drive with more acceleration toward lasting investment success…

 

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Learn what Real Estate Investment Trusts are and how you can use them to build wealth…

 

In the current economy there are many investment choices.

 

An often overlooked but potentially rewarding investment choice is a REIT, however they are not as popular as many other investment choices but could possibly offer you a better rate of return than many popular investment options.

 

In this discussion TheWealthIncreaser.com will detail how you can make REITs a part of your portfolio and how you can use them to help build wealth more efficiently.

 

A “Real Estate Investment Trust” or REIT (pronounced REET) is an investment option that became available to investors many years ago (1960’s) and there popularity has grown over the years, however they are not as popular an option among many.  As an investor you have many investment choices–such as stocks, bonds, mutual funds, commodities and options (no pun intended) among others.

 

REITs are now offered around the world and is seen as an economical way to get into real estate without incurring the actual cost and expense of actually owning real estate.

 

The acceptance of investing in global real estate securities has grown over the years but there remains room for growth as developing markets continue to rise.

 

The REIT industry struggled beginning in 2007 as the global financial crisis kicked in. In response to the global credit crisis, listed REITs responded by paying off debt and re-equitizing (selling stock to get cash) their balance sheets.

 

https://en.wikipedia.org/wiki/Real_estate_investment_trust

 

At this time (October 2019), REITs are worth consideration as a part of your portfolio as they have in many years outperformed the S&P and other market indices when it comes to rate of return.

 

A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate.

 

REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands.  Many REITs engage in financing real estate in an effort to increase their returns.

 

REITs can be publicly traded on major exchanges, publicly registered but non-listed, or private. 

 

The two main types of REITs are equity REITs and mortgage REITs and this discussion will primarily focus on equity REITS.

 

A REIT (Real Estate Investment Trust) gives investors of all sizes access to income producing commercial real estate without the hassle of actually owning commercial real estate.

 

REITs have been increasing in popularity and they are designed to hold a range of real estate assets that are primarily commercial that provide investors the opportunity to invest in real estate with limited risk exposure.

 

For many investors, investing in this way represent the simplest, most cost-effective way to add real estate to their investment portfolio—without having to identify, manage  and sell properties themselves.

 

But not all REITs are created equal!

 

Your earning potential varies based on several factors, such as your investment sector, costs, fees, whether your REIT is inside or outside of your retirement account(s) and how you decide to participate in general.

.

REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors.  These real estate companies have to meet a number of requirements to qualify as REITs.  Most REITs trade on major stock exchanges, and they offer a number of benefits to investors.

 

REIT-owned real estate can be found in many countries, in every state in the United States–including local communities–and is an important economic engine for spurring growth in the world economy.

 

By purchasing real estate using a REIT you benefit through the properties they own, finance and operate.

 

REITs are real estate working for you without the hassle of locating, managing and selling!

 

Again, a real estate investment trust (“REIT”) is a company that provides you the opportunity to choose an investment vehicle which owns, operates or finances income-producing real estate–so that you won’t have too!

 

REITs provide “all” investors the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help many areas around the world move forward economically in a more efficient manner.

 

REITs “allow anyone” who is willing to invest–the  same opportunity” to invest as they have to invest in other industries.

 

You can purchase a REIT through the purchase of individual company stock or through a mutual fund or exchange traded fund (ETF).

 

The stockholders of a REIT earn a share of the income produced through real estate investment – without actually having to go out and buy, manage or finance property.

 

Over 80 million Americans alone invest in REIT stocks through their 401(k) and other retirement plans.

 

Assets that REITs  can own

 

In total, REITs of all types collectively own  trillions in gross assets across the U.S. alone, with stock-exchange (publicly owned)  listed REITs owning over $2 trillion in assets, representing more than 500,000 properties. U.S. listed REITs have an equity market capitalization of more than $1 trillion.

 

You can go to the following links to learn more about REITs

 

• REIT Basics reit.com/what-reit/reit-basics
• Why Invest in REITs reit.com/investing/why-invest-reits
• REIT Sectors riet.com/what-reit-sectors
• REIT Glossary reit.com/what-reit/glossary-reit-terms
• Real Estate Glossary the best atlanta real estate
• REIT FAQs reit.com/…frequently-asked-questions-about-reits
• List of REIT Companiesreit,com/investing/reit-directory
• List of REIT Funds reit.com/investing/reit-funds

 

Always realize that REITs can invest in a wide variety of real estate property types, including offices, apartment buildings, warehouses, retail centers, medical facilities, data centers, cell towers, infrastructure and hotels among others.

 

Many REITs have limited focus or focus on a particular property type, but some hold multiples types of properties in their portfolios as well.

 

In the following paragraphs you can learn about many of the more popular “property sectors” that REITs invest in:

 

Office REITs

Office REITs own and manage office real estate and rent space in those properties to tenants and they can range from skyscrapers in large cities to small offices in rural and suburban areas.  They may focus on certain areas such as central business districts or suburban areas or rural areas. They may even focus on  specific classes of tenants, such as government agencies, technology, medical etcetera.

 

Industrial REITs

Industrial REITs own and manage industrial space such as warehouses and distribution centers and are particularly popular at  this time with the explosion of ecommerce and the demand for same day and next day delivery in many areas.

 

Retail REITs

Retail REITs own and manage retail real estate and rent space to tenants at large regional malls, outlet centers, grocery-anchored shopping centers, strip malls that are anchored by big box retailers and other similar developments of a retail nature.  Most retail REITs are structured in a way that the tenants pay both rent and the majority of operating expenses for the property.

 

Hotel REITs

Hotel REITs own and manage hotels and resorts and rent space in those properties at varying levels of service and amenities.  They serve the casual traveler to business customers and all those in between.

 

Residential REITs

Residential REITs own and manage  residences and rent space in those properties.   REITs that specialize in apartment buildings, student housing, manufactured homes and single-family homes among others are very popular at this time.  Many focus on geographical or “hot” areas of growth or certain classes of residential properties.

 

Health Care REITs

Health Care REITs own and manage health care-related real estate and collect rent from tenants in senior living facilities, hospice care facilities, medical office buildings, skilled nursing facilities and the like.

 

Self-storage REITs

Self-storage REITs own and manage self storage facilities and collect rent from customers and are seeing a boon in many areas. Self-storage REITs rent space to both individuals and businesses and are very popular at this time in many areas of the United States.

 

Infrastructure REITs

Infrastructure REITs own and manage infrastructure and collect rent from tenants and include fiber cable investments, wireless infrastructure investments, telecommunications towers and energy pipelines among others.

 

Data Center REITs

Data Center REITs own and manage facilities that customers use to safely store data and help keep servers and data safe, including providing uninterruptable power supplies, air-cooled chillers and physical security for companies large and small.

 

Diversified REITs

Diversified REITs own and manage a mix of property types and collect rent from tenants. They may include a combination of the REITs mentioned above including others such as timber REITS.

 

Specialty REITs

Specialty REITs own and manage a unique mix of property types and collect rent from tenants such as  movie theaters, casinos, farmland and outdoor advertising sites.

 

Throughout history real estate has generally proven to be an above average long-term investment!

 

When you purchase property it often comes with a large down-payment, therefore investing in REITs may be a great alternative to you owning real estate directly and help you build your wealth in a less painful way.

 

Keep in mind that if you own REITs you cannot:

 

*Deduct depreciation as Rental or Business expense

*Deduct other expenses associated with the properties in the portfolio

*Directly own property (you hold no title to real estate directly)

*Generally deduct dividends at the more favorable capital gains rate (must use ordinary income rate)

 

Most REITs will deduct those expenses associated with the properties and they are required by the IRS to return a minimum of 90% of its taxable income back to shareholders each year, therefore REITs pay dividends and also have the potential for growth.  Most investors think of REITs as slow growth vehicles that pay big dividends. However in 2019, the REITs, as an industry, have outperformed and may be worth considering as part of your portfolio.

 

If you invest in a 401k or other retirement plan you probably already invest in REITs in an indirect way.  However, directly investing with REITs may be worth considering as part of your asset allocation.  They can be of real importance if they are inside of your retirement account as they have the potential to provide you solid returns along with a delay or avoidance of tax payments for a period of time.

 

To reiterate, REITs generate income, and 90 percent of that “taxable income” must be distributed to the shareholders on a regular basis.  REITs make money from the properties they purchase by renting, leasing and/or selling them.

 

https://www.investopedia.com/ask/answers/060415/what-average-annual-return-typical-long-term-investment-real-estate-sector.asp

 

 

Conclusion

 

Investing in income-generating real estate can be a great way to increase your net worth and may be worth considering.

 

Because directly investing in real estate, particularly commercial real estate, is simply out of reach financially for many–a REIT which allows you to pool your resources with other small investors and invest in large-scale commercial real estate as a group may be a better option.

 

REITs (pronounced like “treats”) allow you to get into commercial real estate and benefit from the returns in a more cost efficient and less riskier manner.

 

In this discussion you learned that REIT stands for real estate investment trust and is thought of  by many as  a “real estate stock.”

 

Essentially, REITs are corporations that own and manage a portfolio of real estate properties and mortgages.  Anyone can buy shares in a “publicly traded” REIT.

 

They offer the benefits of real estate ownership without the headaches or expense of property management!

 

Keep in mind that not all REITs are created or managed equally.  Investing in some types of REITs also provides the important advantages of liquidity and diversity.  You can sell shares quickly and they are normally easily sold.  And because you’re investing in a portfolio of properties rather than a single building, you face less financial or investment risk.

 

­REITs­ came about in the 1960’s, when Congress decided that smaller investors should also be able to invest in large-scale, income-producing real estate.  Congress determined that the best way to do this was to follow the model of investing that was already in existence in other industries that traded on the exchanges.

 

Remember, a company must distribute at least 90 percent of its “taxable income” to its shareholders each year to qualify as a REIT.

 

Most REITs pay out 100 percent of their taxable income.  In order to maintain its status as a pass-through entity, a REIT deducts these dividends from its corporate taxable income.  A pass-through entity does not have to pay corporate federal or state income tax–it passes the responsibility of paying these taxes onto its shareholders (i.e. you if you owned shares in a REIT).

 

REITs cannot pass tax losses through to investors, however!

 

Because of the high demand for real estate funds, President Eisenhower in 1960 signed the real estate investment trust tax provision qualifying REITs as pass-through entities.

 

A corporation must meet several other requirements to qualify as a REIT and gain pass-through entity status such as:

 

• Be structured as corporation, business trust, or similar association
• Be managed by a board of directors or trustees
• Offer fully transferable shares
• Have at least 100 shareholders
• Pay dividends of at least 90 percent of the REIT’s taxable income
• Have no more than 50 percent of its shares held by five or fewer individuals during the last half of each taxable year
• Hold at least 75 percent of total investment assets in real estate
• Have no more than 20 percent of its assets consist of stocks in taxable REIT subsidiaries
• Derive at least 75 percent of gross income from rents or mortgage interest

 

­At least 95 percent of a REIT’s gross income must come from financial investments (in other words, it must pass the 95-percent income test).  These include rents, dividends, interest and capital gains.  In addition, at least 75 percent of its income must come from certain real estate sources (the 75-percent income test), including rents from real property, gains from the sale or other disposition of real property, and income and gain derived from foreclosure of property.

 

Tax Reporting

 

You would receive a schedule 1099-DIV from your REIT and you would include that income on your tax return.  By providing the tax reporting documents to your tax professional they would include the dividends on your tax return and you would pay taxes at the appropriate rate depending on your filing status and income level.

 

The Dividends from REITs are almost always “ordinary income” as opposed to “qualified dividends” that would be taxed at the lower capital gains rate.

 

Box 1 of the 1099-DIV is where a REIT reports such dividends!

 

Payments from REITs are referred to as “dividends,” but they are not the same as the dividends that you are probably familiar with when you buy stock.

 

A REIT generates income in different ways than stocks, REIT dividends include the following:

 

1. Ordinary income: Money made from collecting rent or mortgage payments.
2. Capital gains: Money made from selling property for more than the REIT paid for it.
3. Return of capital: This is essentially the REIT giving you some of your own money back.

 

In general, “what happens in the REIT” dictates the tax treatment.

 

Capital gains distributions, for example, are subject to capital gains taxes.  If no properties in the portfolio of the REIT was sold during the year you would only have ordinary income and/or return of capital on your 1099-DIV.

 

As a practical matter you will normally receive a 1099-DIV that will have a portion of the Dividends designated as:

 

• Return of Capital–dependent on how much you invest in the REIT and how much has been already designated as return of capital on prior year 1099-DIV forms
• Ordinary Income–will almost always receive on 1099-DIV unless REIT had a loss for the tax year, and
• Capital Gains–dependent on the type of REIT and the sectors the REIT invests in and if properties in the sectors were sold for a gain during the tax year

 

In closing, a real estate investment trust (REIT) allows you to:

 

* have ownership interest,  but not manage income-generating real estate or related assets

*invest in the collection of properties that a REIT would manage, and you would benefit from the dividends earned and capital gains

*be part of a group that would also bear the cost of taxes and any other losses incurred

*be able to build up your financial portfolio without directly buying real estate

*potentially have a lower up front cost and an ownership interest in commercial real estate

 

The main difference between a REIT and a real estate company is that a real estate company develops properties to resell them, while REITs acquire and develop properties to own, hold and manage–but may sell at a future date.

 

They can be looked at from a different angle by envisioning a REIT as a “mutual fund” for real estate” that contain property sectors and/or mortgage backed securities that are aggregated and contain all of the requirements discussed above that must be met–so that the REIT can maintain their pass-through tax advantage status–according to IRS guidelines.

 

Always be aware of the difference between an Equity REIT and a Mortgage REIT that are now on the market.

 

In this discussion we have primarily discussed equity REITs, however always keep in mind that mortgage REITs that invest in mortgage backed securities are also available.

 

• Equity REIT companies procure business properties such as shopping malls, hotels, office buildings and commercial buildings, then rent out the spaces.  After deducting all operational costs, equity REITs pay dividends in the form of return of capital and ordinary dividends to their shareholders annually.  The dividends also include any appreciation of the property(s) and gain from sale (capital gains).  Equity REITs have been discussed in this article quite extensively.

 

• A mortgage REIT or mREIT, provides mortgage financing or obtains mortgage-backed securities and earns income from the interest from such properties. Mortgage REITs can either be on residential or commercial properties. In fact, some REIT companies deal with both (hybrid). Due to their high potential for leverage, mortgage REITs are a rather risky investment, as they gain profits from interest, which is something that can change.  Mortgage REITs have not been discussed in great detail in this article–however you must be aware of their existence as they too may be worth considering and adding to your asset portfolio.

 

NOTE: A HYBRID REIT which includes equity and mortgage backed securities are also offered by some REITs

 

As a potential investor you must also determine if the REIT you are considering to invest in is private (a private REIT does not need to disclose as much information as public REITs do) or public (a public REIT is registered with the Securities and Exchange Commission and trades on national stock exchanges).

 

By not having to publicly disclose information to the public a private REIT could lead to management making the wrong investment decision and you not knowing about those decisions. Public REITs offer investors more exposure to properties across the world than do private REITs and more information about investment activity would normally be publicly available for those who are considering investing in a Public REIT.

 

And an even greater incentive for you to seriously consider adding REITS to your asset allocation at this time is the fact that you can now under the new tax law enacted in 2017 possibly deduct 20% of MLP or REIT income as qualified business income,  thereby lowering your taxable income.

 

All the best toward your REIT and Wealth Building success…

 

 

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Be sure to do additional research as the links below are provided for convenience but does not represent an endorsement by TheWealthIncreaser.com

 

Public REITs:

NAREIT

Sure Dividend

 

Private REITs:

Non-traded REITs 101 Investor Junkie

Fundrise is a private REIT that offer reasonable fees and low initial investment.

• Diverse portfolio of private real estate deals
• Minimum investment of $500 to $1,000
• Management and advisory fees add up to about 1%, but be aware of other fees

Fundrise’s proprietary eREITs® https://fundrise.com/start-investing?cta=inline-get-started-textare the next evolution in REITs, combining innovative technology and direct access to private market real estate, all at lower costs

5 Top REIT Stocks–TheMotleyFool

How to Set Up a Self-Directed IRA…

 

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