Exchange-traded fund Archives - The Free Financial Advisor

Investing In Commercial Real Estate: A Different Breed Than Residential Real Estate

September 13, 2013 by Average Joe 7 Comments

When I first heard of commercial real estate investing, I envisioned concrete and strip malls…the type of stuff that’s killed the unique atmosphere of American cities. However, imagine my surprise when I actually dug into commercial real estate and found that along with the occasional ugly strip mall, there are unique opportunities, provided you know how to evaluate properties.

Commercial Real Estate In A Nutshell

Commercial real estate invests in places where businesses operate. While you may think of retail shops or restaurants, there are huge opportunities in office buildings, doctor’s offices and other specialty properties.

Should I Buy Individual Properties?

This argument is similar to a stock vs. a mutual fund. If you want the opportunity for a larger return, purchase an individual property. However, if you’re looking for steady returns that gravitate toward the NAREIT Index average, you’re better off with a fund, ETF, or REIT.

How Is Commercial Real Estate Different than Residential?

You can diversify your risk with commercial real estate – Because in most cases you’ll have multiple tenants, you’ll only lose a portion of your income if one breaks the lease.

Commercial leases are much longer – While residential leases may go a year or two, commercial leases may be three, five, or longer.

You’ll need more cash up front – First, you’ll need the right lender who understands commercial real estate. Second, they’re probably going to demand 30 percent or more of the cost upfront as a down payment.

You’ll receive more ongoing cash – Commercial properties are bigger income generators than residential properties.

How to Buy Individual Properties

As with anything, the key to picking the right properties lies in working with the right team of professionals (such as Elena Vlasyuk in Los Angeles). If you have a good team in your corner, you’ll be able to more quickly identify top opportunities and spring on them.

There are many websites that aggregate news about real estate, such as National Real Estate Investor. By staying on top of current trends, you can begin to understand the world of commercial real estate.

Want Commercial Real Estate Without The Hassle?

You’re probably better off looking for a mutual fund, ETF, or closed REIT. Of the three, closed REITs can give you the most unique opportunities but are also fraught with fees and risk. Unless you know the details of the pool you’re stepping into, non-traded REITs should be avoided. Instead, by finding a good commercial REIT fund or ETF, you can invest less money, receive competitive real estate returns, and liquidate a portion whenever you need cash.

Still not sure if you’ve decided which is right for you? Start off with your plan and you’ll avoid making a bone-headed financial move.

Photo: MoneyBlogNewz

Investors Beware: What the 3 Biggest Brokerages Really Do With Investor Money

October 28, 2012 by Average Joe 17 Comments

Today’s guest post comes from Susan Lyon, financial analyst with NerdWallet. Thanks, Susan!

What do E-trade, Schwab, and TD Ameritrade all have in common? Aside from being the three largest online brokerages and some of the biggest brand names in investing, they also all charge investors upwards of $7.99 or more on the typical stock trade.

Think this doesn’t sound so bad? Think again. A recent study by NerdWallet found that over 17 million investors are overpaying $1.8 billion every year on unnecessary (and sometimes very complicated or hidden) fees with the largest brokerages.

In light of the ongoing ETF price wars, you’d think a little of this competitive spirit would trickle down into the trading sphere – but this remains to be seen.

Where Is My Money Really Going?

Brokerages all make money by charging commission: that much is plain and simple. But how much is too much, and is the peace of mind that comes from trading with a brand name broker worth it, NerdWallet asks? The data says otherwise.

It’s easy to assume that a brand name brokerage is giving you top-notch treatment and the best money can buy, but NerdWallet’s study breaks down the top 3 brokerages’ financial statements to question this assumption. The key findings:

The big 3 online brokers spend a smaller percentage of their money on trade execution – what benefits the investor – compared to the little guys.
The big 3 spend far more on advertising and overhead expenses.

This data breaks down expenses at major brokerages by trade execution (what matters to the investor the most) versus advertising, employees, physical, legal and indirect costs:

Lesson learned: active traders can meet their needs just as well by bringing their business to a new firm. The average investor doesn’t need most of the “extras” offered by the big 3 anyways. Why pay for something you aren’t even using?

Investors Can Avoid Fees By Shopping Around

The typical investor with these companies makes between 1 and 2 trades per month, so while a one off expense might not seem like a lot, we did the math and it really adds up. If the typical investor makes only one stock trade per month, of approximately 100 shares, their annual fees at the largest 3 brokers come out to be:

E-trade $119.88
TD Ameritrade $119.88
Schwab $107.40

To make shopping around for better deals quicker and easier, NerdWallet’s new brokerage comparison tool allows investors to compare their many options side-by-side to find the right fit for them.

How Do I Decide on the Best Fit for Me?

NerdWallet’s new tool allows users to do their research before they invest, so they are made aware of all hidden and unpublished fees upfront to avoid unpleasant surprises later on. Investors can search among the 74 brokerage accounts in the search tool by price, research, or data tools – whichever matters most to them personally.

The takeaway: just like in all personal finance situations, make sure to explore all your options before transferring your money.

Photo credit: Joybot

A Shaky Earnings Season Might Be Your Wallet’s Best Friend

July 10, 2012 by Average Joe 11 Comments

There’s baseball season, football season, the holiday season and, of course, earnings season. While the first three may fill you with happiness and (in the holiday case) good cheer, earnings season fills new investors with confusion.

Why do I bring this up?

I woke yesterday morning to a nerve-wracking CNBC.com headline: Investors Brace for Shaky U.S. Earnings Season.

What is Earnings Season? Is It Contagious?

The good news: earnings season affects you directly, but not in the harmful way you may think.

Earnings season is the time (quarterly) when the majority of companies that move financial markets with their results declare how well they’ve performed recently. This news is for the prior quarter.

It’s important, when listening to reports about earnings, to listen for any future forecasting and to also determine what might have been the culprit behind a great or lousy prior quarter. If it’s increased sales on the same-old widget the company’s always sold, fantastic! If the company had a one-time mistake, things might still be looking up. If products just aren’t selling or management is quitting, it might spell bad news.

What Do I Need to Know?

Corporate earnings reports drive the stock market. Sure, financial markets respond to other pressures, but over time the stock market is simply a reflection of the economy. So, if you reread the headline above, Investors Brace for Shaky U.S. Earnings Season, what does that really mean?

Based on the information I told you above, it means this: companies didn’t have stellar profits last quarter.

That’s not nearly as shocking a headline, is it? In fact, I’ll bet you already knew that.

Move On, Nothing to See Here…..

Many investors read the CNBC headline above and think: I’ve gotta sell right now! If you’ve read my ramblings before, you’ll know that I think the opposite. I’m looking to buy when prices are low and sell when they’re high.

Here’s what I recommend instead of having a panic attack:

1) Rebalance your portfolio. Here’s how it works: if you’ve determined how much stock and bond exposure you want (among other asset classes), skim off the areas that have done well to fill in non-performing areas. Low markets are ideal times to rebalance because you’ll reaffirm your long term strategy, take gains from performing spots and redeploy in assets you already own that are low today. Smart move. Then, schedule another rebalance six months from now on your calendar.

2) Look for buying opportunities. If you’re interested in investing, shaky markets are a great place to place your first buys. Make your list of stocks to watch. Wait for earnings reports. Read what companies report, and make your move! Don’t make a common mistake and go whole-hog on a “can’t lose” investment. I’ve been involved with too many “can’t lose” things. I also told my dad I couldn’t lose my hair like he did. Glad I didn’t bet on that….

Not excited to make your own stock picks? Read our pieces on how to evaluate mutual funds and how Exchange-Traded Funds work.

3) If you’re nervous, put defensive measures in place. Use stop losses on individual stocks and exchange traded funds. Monitor fund results more frequently and establish a “worst case scenario” strategy. Remember this: never buy or sell everything on one day or at one time. It’s safer to march in slowly and march out slowly. An orderly walk toward the exit beats a panicked race to the door. Often, down markets rebound quickly.

CNBC, like other publications, is in the business of selling advertising. If the elevator is labeled “Up” or “Down” it’ll be a smooth and steady ride, but I’m sure CNBC knows that “Soar” and “Plummet” garner readers…and then advertiser dollars.