REIT Investing Challenge - September 2019 Report

REIT Investing Challenge - September 2019

I have been doing the REIT Investing Challenge since November 10th, 2018.

A little background if you stumbled upon this Challenge Report. I started these challenges in 2018 as a way to show everyday people how investing and saving for your future is as easy as putting a little money aside and growing it using investment securities. As I developed these challenges, I wanted the amount that was saved to be affordable to anybody who was reading these reports. In the REIT Investing Challenge, I commit $100 per month to a Real Estate Investment Trust. The goal is to keep it there for as long as it takes (30 + years long). This isn’t my retirement plan, but in order for readers to actually see it work, I have to make this longer than just 5 or 6 years. So as long as blogs and websites are still a thing 30 years from now, I’ll keep reporting on it month by month.

Results

As of 9/15/2019 dividend date (investments are usually made on the 10th and dividends are paid on the 15th):

Investment Month Number: 11
Amount Invested Each Month: $100.00
Investment: Real Estate Investment Trust
Total Amount Invested: $1,100.00*
Total Account Value: $1,194.85
Total Expected Value: $1,132.46 (See below for calculation)
Total Annual Interest Rate Return: 22.87% (See below for calculation)

*Dividend reinvestment are not considered towards the total amount invested. Only actual cash investments are considered. Results are lower if you consider the dividend as a personal investment into this challenge.

Commentary

On an annualized basis I was able to achieve a 22.87% annual interest rate return. We’re seeing an increase primarily due to the weakening of the greater stock market due to trade relations. As such, investors are looking for other areas where they can store their money. REITS are definately an area were investors store their money, especially with high dividend rates.

One decision that I have been making on this challenge is whether or not to move the funds from the brokerage type account that it is in right now to a Roth IRA. The key reason is the longevity of this challenge and the tax savings. Currently, dividends that are paid by this REIT are subject to ordinary tax rates (tax bracket rates). If I move the funds to a Roth IRA, I may be able to sheld those dividends from both capital gains taxes and dividend (ordinary income) tax. (This is not to be taken as tax advice, one should talk with a tax professional on their particular situation). As such, it looks like in October, this challenge will be taking a 10-day hiatus as I will sell the funds, get the cash, and open a Roth IRA. (By doing this, I will still be under my Roth IRA contribution maximum). The impact will be noticeable in October’s report but just wanted to give you a heads up.

Since this is a personal choice, The amount that I liquidate at will be the amount that I will transfer over to the new account. There is trading fees involved, so I am going to absorb them as this change would not have been made if I thought it through in the beginning.

Calculation

Below is how I calculated the percentage return based on keys in a financial calculator for a time value of money (beginning payment setting):

N = 10
I/Y = Solving (22.87%)
P/Y = 12 Months
PV = $0 Starting (Technically)
PMT = -$100 (Per Month Investment)
FV = $1,111.04 ($1,211.04 - $100 just invested which has no time to grow).

Expected Return Calculation

The expectation is that the market will return at least 7% over a long period of time. This is lower than the 9% many people tout with the broader market, but with investment fees and fund fees, that 9% often is decreased. To be ultra-conservative in our expected calculation, we use 7% in our expected return. Below is the calculation of the expected return:

N = 10
I/Y = 7.00%
P/Y = 12 Months
PV = $0 Starting (Technically)
PMT = -$100 (Per Month Investment)
FV = $1,132.46 ($1,032.46 + $100 just invested which has no time to grow).

If you want to read more about this challenge, make sure you check out the REIT Investing Challenge page here.

To see more of our challenges, click on the challenge name below:

Until October, see you later.