5 Actions You Should Take to Build a Sizable Retirement Nest Egg

REITs are attractive income vehicles that can build the foundation of a long-term financial planning strategy.

Aug 10, 2014 at 11:45AM


Planning for retirement can appear to be a daunting task, especially if you don't have a background in finance or accounting. However, despite the seeming complexity of the task, building a sizable nest egg for retirement is a not as difficult as it seems.

In fact, investors who want to build a retirement portfolio have a lot of instruments and tools at hand in order to take charge. Real estate investment trusts, or REITs, are particularly suitable for income investors who need to build a portfolio of dividend paying stocks in order to fund monthly living expenses later on in life.

Building a REIT-based retirement portfolio makes a lot of sense: REITs, by law, are required to pay out most of their earnings to shareholders. They are often highly diversified and offer investors some form of inflation protection due to rent indexing and increasing property values over the long run.

Investors who are determined to follow through with a rigorous, long-term financial plan and are persistently making their investment contributions have a good chance of building a strong and resilient REIT-based retirement portfolio as long as they follow five basic steps to build wealth:

1. Start young
By starting young you are gaining a tremendous advantage over people who start with their retirement plan later in life: The power of compounding will work its magic for you sooner and for a longer period of time.

Saving just $50 a month can make a hell of difference when accumulated over many years.
2. Automatic savings
Automatic savings plans are the best way to save money on a regular basis without really perceiving it as saving. Have 5-15% of your monthly paycheck automatically deposited into a savings or investment account.

That way you build up a sizable nest egg without being tempted to spend your money on things you don't really need.
3. Invest
That's right. When you want to make a difference for your retirement you must invest and let your capital work for you.

As a general rule, the younger you are, the higher the allocation to risky equities can be. As you age and transition into your 50s, you should gradually move your assets into low risk bonds.

Mutual funds are a good start to conceptualize your financial planning.
4. REITs as income vehicles
An alternative to mutual finds are real estate investment trusts, or REITs, which invest in different property types and can put building a retirement portfolio on auto pilot.

High quality REITs such as Realty Income (NYSE:O) or Omega Healthcare Investors (NYSE:OHI) provide investors with recurring income while offering exposure to convincing long-term trends in real estate and senior health care demand.

These REITs have outstanding shareholder remuneration records, top management, and strong property portfolios generating recurring cash flow. Both REITs invest in real estate for the long-term and have proven over many business cycles that they can consistently deliver value for shareholders. And as we all know: A constant, reliable stream of cash is most valuable in times of market uncertainty.

5. Reinvest dividends
Probably the most undervalued theme for building a sizable retirement nest egg relates to reinvesting dividends. Reinvesting dividends or bond income allows investors to utilize the power of compounding and to smooth out the inherent fluctuations in the stock market.

 Whenever possible, investors should utilize dividend reinvestment plans which are offered by a variety of publicly traded REITs.
The Foolish Bottom Line
Building a retirement nest egg is relatively straightforward and not as difficult as it seems: Start young, live below your means, save a small percentage of your monthly paycheck, regularly invest money in REITs and reinvest your cash flows.

If you do all of this on a persistent basis, your retirement nest egg will grow quickly and may even allow you to retire early.

How to get even more income during retirement
These actions play a key role in your financial security, but it’s not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Kingkarn Amjaroen owns shares of Realty Income. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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