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Author: Money Alert
If you dream of emulating Donald Trump but don't have millions to invest in real estate, a Real Estate Investment Trust or REIT can provide some of the upside income potential with a much smaller investment.
Simply put, a Real Estate Investment Trust is a way for everyday investors to invest in property and real estate. It can be commercial real-estate, apartments, condominiums, homes and other types of property. REITs specifically invest in properties that produce income and pass on the profit to investors in the form of dividends. In fact, REITs must distribute at least 90% of any profit to qualify for preferential tax treatment.
Investors can buy, sell and trade shares of REITs just as they would a normal stock. However, because a REIT deals with real estate instead of widgets, they differ in how they finance expansion and measure profitability. Normal investor screening criteria like P/E ratios may not apply to a REIT the same as to another equity investment. On the other hand, like a stock, investors in REITS look for trustworthy and competent management and reasonable compensation of those managers.
Real Estate Investment Trusts come in three major forms. The most common and widely purchased are shares of equity REITs, which invest in commercially managed property that produce income. This is generally the type of REIT that is referred to when discussing them as an investment tool.
Less common versions of REITS include mortgage REITs, which make loans to owners of real estate or invest in current outstanding mortgages. According to Investopedia.com, these REITs account for less than 10% of REITs available today. The final version is a hybrid of the equity REIT and the mortgage REIT and also accounts for a small percentage of REITs. These hybrids combine the mortgage investment of one with the property management of the other.
Most REITs contain numerous properties ranging in size, activity and function. Like portfolio diversification, a REIT's diversification may provide some protection from the ups and downs of individual properties such as occupancy rates, defaults on rents, and downturns in industry sectors or local markets. Specialized REITs hold only specific types of property, such as apartments, commercial office space or retail.
Like other investments, REITs carry the risk of loss of investment. Because they can be a complicated investment product, consult your financial professional before investing to better understand whether REITS are right for your portfolio.
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Author: Mplummer
Investment fund is the investment of money for profit. An investment fund is a financial investment vehicle, which is aimed at private investors - little or large-or institutional investors-insurance companies, banks - and offers the following five key advantages over direct investment in shares, bonds and property:
1. Risk is spread and hence reduced.
2. Funds allow you to tap into professional, expert and full time investment management expertise.
3. Funds are cost effective.
4. Funds offer access to markets that may otherwise be closed or too technical for retail/individual investors.
5. Funds benefit from institutional safety, which means they are heavily regulated and supervised.
The benefits of investment funds, where individuals from all walks of life pool their savings together, can be summed up as offering everybody - from professional or institutional investors to people with limited time, or limited investment skills or modest means - access to investment returns otherwise only available to more sophisticated investors, who are able to buy their own professional portfolio management advice.
Investment funds generally entail less risk than direct holdings of securities, and offer economies of scale. It is a firm that invests the pooled funds of retail investors for a fee.
Information on the product you, as an investor, are contemplating buying is crucial.
Usually, all vital information must be included in an investment fund's prospectus. However, prospectuses have become increasingly complex and difficult to understand, thus discouraging investors from reading them.
Investment funds are suitable for anyone who:
1. Is planning to invest in the capital markets but does not want the risks or costs associated with direct investment in equities or bonds.
2. Already has enough money to cover their everyday spending needs and has some spare cash.
3. Can accept possible temporary falls in the value of their investment.
Investment funds should be considered as a long-term savings product. Investments should be held for at least three to five years, preferably longer. In fact, the longer the time scale, the greater the potential to make money grow.
Investment funds can be classified according to their investment objectives.
1. Money Market Funds
Money market funds invest a sizeable portion of the fund's portfolio in short-term bonds and/or money market instruments (such as certificates of deposit, commercial paper, treasury bills,).
2. Bond Funds
Bond funds invest in fixed interest rate securities as a sizeable portion of the fund's portfolio. These funds generally have a global average maturity of more than one year and its investments can consist of different instruments with very different quality ratings.
3. Equity Funds
Equity funds invest in the stock market at a significant portion of the fund's portfolio. These funds are frequently also called stock funds.
4. Balanced Funds
Balanced funds spread their portfolio over the three main classes described above.
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