Question:
I am interested in using the Vanguard REIT Index Fund (VGSIX) to help diversify my portfolio. My current portfolio consists primarily of U.S. and foreign stock index funds. Can you give me your thoughts regarding the pros and cons of owning REIT funds in general and this fund in particular? It would remain less than 5% of my total portfolio. It is also my understanding that due to tax issues, REITs should be owned within an IRA or similar retirement vehicle.
Answer:
Real Estate Investment Trusts (REITs) provide exposure to real estate directly, either through properties or mortgages, and certainly have a place in some portfolios. They are considered income vehicles, as REITs are required to pay 90% of their income to owners as dividends. However, REITs can be volatile. There have been years when REITs are down 40%, so be aware that they are not considered a “safe” investment.
As long-term capital gains rates increase, the high dividends of REITs may become more attractive. The Vanguard REIT Index Fund (VGSIX) is designed to track the performance of the MSCI U.S. REIT Index. It yields a dividend of 3.45%, which in our opinion is not good. We generally see REITs much higher near 6%. We generally recommend REITs that are focused on single and multi-family housing, rather than one designed to track an index.
Question:
I wanted to ask you about AstraZeneca. I think drug companies will do OK in the next year, and I like their dividend. Their P/E looks good but not great when I look at other pharmaceutical companies. I’m getting my info from Yahoo Finance, so any insight you can provide would be great. Is this one a buy?
Answer:
We do not recommend buying AstraZeneca plc (NYSE: AZN). Recently, the drug manufacturer has lost the patent on several drugs, including Crestor and Nexium. We also consider their pipeline weak.
While the company does not pay a dividend, we prefer Celgene Corp. (NASDAQ: CELG) as the biotechnology company has some leading drugs for cancer treatments. The company trades at 20 times earnings, but has a growth rate of more than 23%. If you were looking for a dividend, you may consider Pfizer, Inc. (NYSE: PFE), but Pfizer’s pipeline is not as strong as we’d like to see it. If you were interested in a generic play, we recommend Teva Pharmaceutical Industries, Ltd. ADR (NYSE: TEVA).
Question:
My father is a bit of a wise-guy and insisted on purchasing his children stocks, as a college graduation present, that would hold our interest. I’m looking at a portfolio with investments in Boston Beer, Altria Group and Buffalo Wild Wings. I graduated in 2006, and feel I should do something more with this. Where do I start?
Answer:
All three stocks, Boston Beer Co. Inc., (NYSE: SAM), Altria Group, Inc. (NYSE: MO) and Buffalo Wild Wings (NASDAQ: BWLD) are all strong companies. If you’ve held them since 2006, they’ve performed well for you. Altria is generally held as a dividend play as it yields more than 5%. For a young investor, we would recommend holdings that would give you more capital growth, rather than income. Boston Beer used to be a microbrewery, but since you’ve held it, it has grown into a mature growth company. Buffalo Wild Wings operates trendy restaurants, and in our opinion, there is a lot of competition in that space. Both Buffalo Wild Wings and Boston Beer are expensive on a P/E basis. We recommend selling the bulk of your shares and maxing out your IRA and 401(k) while you are young to take advantage of tax deferred growth. You may consider initiating positions in an index fund, as you are quite concentrated in what could be considered an “entertainment” industry.
Question:
I’m looking at iShares Morningstar Small Value as a way to get more Small Cap exposure. What can you tell me about this?
Answer:
The iShares Morningstar Small Value ETF (NYSEARCA: JKL) is a great Small Cap index fund; however, we tend to view Small-Caps as something more centered on growth. If you were looking for value—companies with cash flow that pay a dividend—we recommend looking at Mid and Large Cap companies. Small Cap companies tend to keep their cash to reinvest for growth. If you are just looking for Small Cap exposure in an otherwise diversified portfolio, this ETF is a good place to start.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
