I’m working on a finance discussion question and need support to help me understand better.In this discussion, you will have an opportunity to make connections between your prior knowledge and the new content you are learning this week. Use your results from this week’s Build Your Proficiency Diagnostic to provide context for your prior knowledge and consider the new content about stocks, bonds, mutual funds, and other investment types as you respond to this discussion prompt.
Last week, you considered how much money you might need in retirement. This week, you will learn about investment options to help you save for the future. Consider the investment options discussed this week (stocks, bonds, mutual funds, real estate). How would you choose to invest your retirement savings (stocks, bonds, mutual funds, other)?
Why did you choose that option(s)?
What are the advantages of investing in mutual funds?
Section 13.1 of Personal Finance lists types of investment companies that offer mutual funds.
Which of these would be of most interest to you? Why? The answer to this is A real estate investment trust and I would attach a short summary of this and you can answer this question based on that.Real Estate Investment TrustsA real estate investment trust (REIT) is a special type of closed-end fund that invests in real estate and mortgages. By law, a REIT must have a buy-and-hold investment strategy, a professional manager (the trustee), and at least 100 shareholders.
The trustee initially issues shares and then uses the investors’ money to buy real estate assets according to the terms of the trust, much like a unit investment trust. The difference is that the REIT doesn’t have a limited life span, because most real estate investments don’t have fixed maturities. An important factor for individual investors is that REITs must distribute 90 percent of their profits to shareholders each year, and this income will be taxable as ordinary income unless the shares are held in a tax-deferred account.REITs offer individual investors the opportunity to diversify their investment portfolios into real estate.
Many investors wouldn’t otherwise have access to this investment class because of the high initial investment required and the liquidity risk involved. In many respects, REITs are similar to stock investments and closed-end mutual funds, trading on national exchanges and distributing profits to the investors through dividends. REITs often specialize in particular types of real estate investments. Equity REITs, which make up a large share of the market, specialize in making direct investments in income-producing real estate, such as office buildings and shopping centers. Mortgage REITs focus on mortgage investments, such as residential and construction loans.REITs can provide diversification for your portfolio because their prices do not tend to go up and down at the same time as stock and bond prices.
However, they aren’t as liquid as stocks and are highly sensitive to the real estate market environment. In the early 2000s, REIT investors benefited from the real estate bubble, earning higher returns than investors in most other asset classes. But when real estate prices plummeted later in the decade, contributing to the 2008 financial crisis, REIT investors were badly affected. As shown in Figure 13.1, the average equity REIT lost about two-thirds of its value between April 2007 and February 2009, much more than the decline in the stock market over that period. Fortunately for investors, as the economy recovered and real estate prices stabilized, REIT shares returned to their pre-2008 values.
Requirements: 175 words
