Avoid Taxes! Buy REITs!

“REITs do not beat the Index Funds on total return,” complain many traditional investors.

But, many financially independent investors use REITs (Real Estate Investment Trusts) as a major block of their yearly income.

What are the reasons for this?

First, REITs pay a higher dividend than most companies, due to their legal structure. If you’re not familiar with the tax status of REITs I’d suggest Investopedia.

Second, and less well-known. REITs function as pseudo-Roth IRA accounts. They accumulate value, you pay taxes up front, and then if you need to cash out you may have very little tax burden.

This grants REITS an advantage in asset-building performance over index funds.

An index fund, let’s say IVV (iShares SP 500 Core ETF), might gain 10% per year.

Compounded over ten years?

Let’s pretend IVV compounds for ten years from it’s December 2020 price:

These are good gains, but look at the taxes!

If I must sell IVV after 10 years, I’ll be forced to pay long-term capital gains. Almost $1,200!

Now, let’s consider a well-known, and stable, high-dividend REIT.

GOOD (Gladstone Commercial Commercial Corporation) pays me 8.32% (I do hold a substantial holding in GOOD).

Let’s consider the growth of a single share at 1% per year, AND the growth of 200 shares at 1% a year with an 8.32% dividend.

As you can see, the tax burden if you sell after 10 years – assuming good only grows at 1% a year, is very minimal (this is a very rough estimate of the taxes, but it assume the cost basis grew minimally).

How did the stock grow in value? The dividends came each year. Yes, you must pay taxes on those dividends. But two key factors make this taxation less onerous.

1. You’ll only pay taxes on NEW dividends, and you can take the pass-thru exemption, but that’s for a later article. You’d pay, probably, around $30-70 a year on GOOD’s dividends each year.

But, the real secret to tax “savings” lies in the cost basis.

2. You invested $3,600. The IRS assumes you BOUGHT (you did actually) the additional $5,000 in GOOD over 10 years. This means your cost basis, the amount that you “originally” spent, rises each year. You only pay capital gains taxes on the DIFFERENCE between your cost basis and sales price.

IVV, or any stock that grows and has a low (or no) dividend, leaves you with a huge income bump if you sell it. This looks great on paper when you log into your account.

You might exclaim “my money tripled.” It did, but so did your tax burden when you sell the shares.

When you see an REIT’s cost basis over the long term, you’ll notice IT GROWS.

You only “spent” $3,600, but your broker tells you that you spent $8,500. This is why “low growth” stocks with high dividends often provide the same wealth bump as index funds, but leave you with zero tax burden if you decide to sell in the future.

A growing cost basis creates a major reason owning REIT or other dividend-focused stocks worthwhile long term.

If you must sell it in an emergency, or to buy a different asset, you’ll take MOST of the sale price with you as cash.

If you sell those index funds, you WILL pay taxes.

A Common Lie About Credit Scores

One of the biggest myths about credit scores makes me laugh.

A manager of mine, with two college degrees stated this lie.

Recently a major twitter account re-stated the same lie.

What is this lie? I’ll tell you at the end of this article.

But first, let’s consider what comprises your credit score.

This image comes directly from one of the major credit bureaus.

What do you need to build your credit, based on this list?

You require consistent payments over a long period of time, with few recent accounts, in a variety of credit types.

You will only reach the HIGHEST credit scores if you have multiple credit types, such as credit cards and revolving loans (car loans), as well as a mortgage.

And that LAST point is where people start to believe that lie.

You may be guessing what the lie is, when I tell you that my credit score refutes their lie.

My credit sits above 780 in every single month, without fail. This places me in the top percentage of Americans and allows me access to the best credit products.

I possess ZERO loans to my name, and I pay my credit cards in full each month.

My credit score, which usually sits above 800, earns me the lowest rates at every bank, and allows me very deep lines of credit. In emergencies I have used 0% interest from credit cards to finance my short-term needs.

Yet, what is this lie?

The lie told about credit: “you must BE IN DEBT to obtain a high credit score.”

No. You must be consistent in payments, and have more than one credit card over a long period of time, in order to earn a credit score worthy of the best loans and highest lines of credit.

That’s it. It’s that simple.

In a future post I’ll explain why the multiple credit cards matter to your credit score, and ability to obtain the loan of your dreams.


Who are we?

Richmond Trading is a trading and investing company.

We specialize in Price Action Trading of the futures market. We mainly focus on the ES Mini markets, but we monitor other markets to determine macro and micro-economic trends.

We also focus on swing-trading blue-chip securities in order to generate long-term passive income for the company.

Finally, the company engages in an active social media presence to find new trading opportunities, and also to reach out to newer traders in need of education. While our social media presence does not create active income, the leads it generates allow our profits to multiply in a synergy.

This social aspect of our company, and for other reasonably sized companies in the same market provides a depth and accuracy of market information historically available only to “market-movers.” Therefore the non-generative social-media presence we maintain stands as a core feature of our company’s profitability and revenue generation.

The Importance of the Futures Market to Find Trends

Ever wonder HOW the market will move from Friday to Monday morning?

No one perfectly predicts market movement, but the futures market operates 24 hours a day from Sunday at 5PM Central time until Friday night’s close.

By tracking the futures market for the SP 500 and the Nasdaq on a Sunday night, you have a good idea where the premarket/early hours of the Monday stock market will move.

Not all websites offer this information, but MarketWatch does allow you to monitor the ES and NQ.



Trades: Week of 11/16

This past week I sold shares in Nordstrom (JWN), Baba (Alibaba), and Kimberly-Clark Corporation (KMR).

These trades upped my monthly profit percentage to 11% on realized gains. I bought at support and sold before the stock reached full resistance.

This is a skill that I practiced for months while trading the ES mini futures market. However, some people lack this skill due to a desire to fulfill greater profit.

My most recent strategy is to hold stocks that move from resistance until they no longer display a 1-2%/day growth rate. This often means that I sell just before a profit target, but it also means I do not suffer on a reversal.