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Clearly, Not Everyone Is Getting Rich Off The Stock Market

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Well, the NY Fed was out today with its Quarterly Report on Household Debt and Credit for Q4 2017. Clearly, Americans are in a lot of debt. Take a look. Just a couple of quick hits from the report. Total U.S. household debt rose $193 billion in the 4th quarter, to a new all-time peak of $13.15 trillion. That's 17.9% above the most recent trough in Q2 2013. Broken down by segment, what do you suppose was the largest gain in percentage terms? Credit cards, with a 3.2% increase. In the picture above, the widening gap represented by the red arrows reflects the fact that non-housing debt is rising at a faster pace than housing debt. Here's what's troubling about that. Below is a picture of the stock market, as represented by the S&P 500 index, over that same period; from the most recent credit trough in Q2 2013 to the end of 2017. And thus, the title of this article. Over that period, the S&P 500 index rose by 75%; from roughly 1,600 to 2,800. Apparently, ho
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Introduction to REITs

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What Is a REIT?

The initials REIT stand for Real Estate Investment Trust.

As one might quickly, and rightly, conclude from the name; a REIT is a corporate entity that invests in real estate. What makes REITs somewhat unique from other entities that might invest in real estate as part of their business is their tax status. To qualify as a REIT, a company must agree to distribute at least 90% of its earnings to its investors in the form of dividends. As a practical matter, many REITs distribute 100% of their income to investors such that they owe no corporate tax.

Characteristics of REITs

You might be surprised to discover that much of the real estate you see as you move about your daily life is owned by REITs. This can include everything from downtown Manhattan office buildings to suburban outlet malls to high-quality apartment complexes to mobile home parks.

As you might imagine, REITs derive most of their income from rents on such properties. If they invest well, they may also reap the benefits of capital gains. For example, a REIT may be able to acquire a property at a bargain price, perhaps due to the condition of the property or economic conditions, improve it, and later sell it for a higher price.

REITs and Personal Taxes

Currently, United States tax law allows most dividends paid by corporations to be taxed at a lower rate than an individual's ordinary tax rate. This makes such dividends attractive to individuals who are in higher tax brackets. Since REITs are exempt from corporate tax, however, the majority of dividends received from a REIT are taxed at an individual's ordinary tax rate. For this reason, many investors prefer to hold REITs in tax-deferred accounts, such as IRAs. Investors do well to analyze their personal tax situation or discuss it with their financial or tax advisor if considering investing in REITs.

For More Information

If you are interested in reading further about REITs, the following link provides what they describe as "REIT 101." This resource addresses the topics I have touched on above, and many more, in much greater detail.

http://www.reit.com/REIT101


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Disclosure: I am not a registered investment advisor or broker/dealer. Readers are cautioned that the material contained herein should be used solely for informational purposes, and are encouraged to consult with their financial advisor respecting the applicability of this information to their personal circumstances. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.

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