Real Estate Investing For Retirement

Transcript:

 Intro: For most Americans wealth is obtained through the purchase or sale of personal property. Your decision to purchase a home transcends your immediate need for comfort; it’s a way to build wealth.

 David Scranton: For many people buying their first home is their first major investment and although buying a house and property is technically an investment in real estate, it’s not exactly the same thing as using real estate as an investment. Real estate investing, in general, is getting a lot of attention right now but the question becomes, is it a sound retirement strategy ten years after the collapse of the housing market. It’s time to tune out the hype and focus on the facts once again facts that matter to you, The Income Generation. Let’s get started, get ready to separate reality from myths.

Commercial

David Scranton: How does it affect the market, how does affect the economy. Thanks to efficiencies and new technology and a staff of veteran analysts and portfolio managers, sound income strategies strive to set new standards and bring institutional style investing to your portfolio.

David Scranton: Hello I’m David Scranton, real estate investing yes it is indeed a hot topic these days and not just because the current president is a real estate mogul, it’s hot because a lot of the forces that influence the real estate markets are shifting or currently influx. Interest rates demographics and the economy, just to name a few. There’s a lot of speculation going on and there’s also a lot of hype and whenever hype starts building around any investment sector that’s when you want to be cautious and especially to get educated. Helping us bring you up to speed on this topic today is Paul Bishop, senior economist with the National Association of Realtors but first let’s take a look at some of the key factors that influence the real estate market and where those stand today. There are four factors in particular that influence the real estate market and the first one has to do with you. By you I mean baby boomers, Americans born between 1945 and 1964, those members of the income generation. Why, because one of the key factors influence in real estate is demographics and as I’ve discussed on the show a few weeks ago a major demographic shift is occurring right now in America. As even the youngest baby boomers near retirement age this shift will have social and economic impacts across the board some of which we’re already feeling. The influence of demographics on the real estate market is fairly obvious. It’s tied to such questions such as, who’s most likely to buy property, what kind and how much. Retiring baby boomers might mean that they’ll be an increased demand for smaller homes and second homes and an increase in the supply of available business properties for example as they retire. Another possible impact of this demographic shift that I discussed a few weeks ago is interest rates and it just so happens that’s another of the four major factors that influence this real estate market.

Now as most people know as interest rates rise the cost of obtaining a mortgage increases. This can lower the demand for real estate and therefore lower the prices in the real estate market. Investing in real estate is very interest sensitive also as I’ll explain further in just a bit. But for now please be aware that rising interest rates generally work against the real estate market as they do in many other areas of investing. So does that mean that all the fearful talk you’ve been hearing lately about rising interest rates makes real estate a bad investment choice? Well it depends on whether you believe interest rates will keep rising. And also again it’s not that simple, why because interest rates are just one of the factors that could influence a particular market including real estate. Another factor of course is the economy in general and yes generally speaking when the economy slows or stalls so does real estate and vice versa. With that said different sections of the real estate market are affected differently by economic ups and downs. Investment in a hotel for instance might take a harder hit during an economic downturn than investment in office building. Right now the economy is widely thought to be moving in the right direction. GDP growth is still lagging, we’ve been discussing that a lot lately but there are other indicators such as jobs and wage growth that appear strong. As you may have read February actually added 313,000 jobs and the unemployment rate held steady at 4.1% its lowest level since the year 2000 for the fifth straight month. So does all that mean real estate’s a good investment for retirees and near-retirees, again it depends on whether you believe this apparent economic momentum is real and it’s here to say. And as with interest rates it’s not that simple.

The other main factor influencing real estate in the real estate market in general like all the financial markets is, yes the U.S. government. Legislation around tax credits, deductions and subsidies can have major impacts on real estate demand. You probably recall the first time homebuyers’ tax credit approved by the Obama administration following the financial crisis. According to the National Association of Realtors, it alone led to 900,000 home purchases. Under the new Trump tax plan the mortgage interest rate deduction doesn’t change for existing homeowners, however, if you buy a house under the new tax law you’re interested options limit now shrinks from the level of a $1 million mortgage to a level of only $750,000. So waive all these factors together, is real estate once again a good investment option right now, or as I said at the top of the show the optimism of some of the analysts and investors toward real States today in particularly the housing sector, borders on hype. Overall standard poor’s 500 index of homebuilders increased by 75% last year about four times as much as the overall stock market and looking at the factors we just discussed a case for optimism could be made. In terms of demographics baby boomers in search of new retirement homes along with millennials buying their first homes are hoped to fuel demand for houses for years to come. In fact one of the big stories from last year was a shortage of supply that couldn’t meet the growing demand in the real estate market and that being the case the confidence gauge from the National Association of Home Builders has risen to its highest level since the year 2000, and in November starts of single-family homes were the strongest in a decade.

We already discussed the economy as a friendly factor and despite some worries about the half percent spike in interest rates since the beginning of the year, many housing market forecasters foresee of a banner year ahead. But it’s important realize that amid all this hype other analysts are preaching caution. Some believe the shifting baby boomer demographic could have a negative impact on real estate as baby boomers downside, in essence take money out of the real estate market. And market analyst James Stock recently told Bloomberg that he sees numerous signs and other unsustainable housing bubbles may be growing. He said quote, “its 2005 all over again in terms of the valuation extreme the psychological excess and the dial”. If that sounds familiar you may recall that on last week’s show I talked about the fact that a lot of the warning signs that appeared before the 2007 and 2009 stock market crash are in place once again for the stock market. And of course the main factor behind that crash was indeed the collapse of the real estate particularly the housing market. So the question becomes could the same scenario play out again despite all that we supposedly learned. If so how might it affect other sectors if you will of the real estate market? We’ll talk a lot more about that in just a bit. But right now I’d like to welcome my first guest, Paul Bishop. Paul C. Bishop is a senior economist with the National Association of Realtors. He’s the vice president of research and leads the research division’s market research activities including analysis of real estate business and policy issues. Paul thanks for joining us.

Paul Bishop: Glad to be with you.

David Scranton: OK So first of all, they put Paul C. in the prompter, so I always need to know when they put a middle initial in there does that come from you or is that just our people in our backroom being extra anal retentive.

Paul Bishop: No, that one comes from me. That’s how I usually identify myself.

David Scranton: OK sounds good. What does the C. stand for by the way, I need to know.

Paul Bishop: Charles.

David Scranton: Charles OK. So Paul, first let’s talk about the real estate market in general, what do you see happening over the last several months, the early parts of 2018 and what does it mean.

Paul Bishop: The real estate market for home buyers and sellers is really pretty challenging right now. One of the defining characteristics in the market right now from the perspective of home buyers is there just aren’t nearly enough homes on the market to purchase, so we have very low level of inventory something we haven’t seen in a very long time. I’ll just give you an example when we consider a balanced market of homes on the market would be about a six months’ supply and right now we’re about half that, about three months’ supply so that alone suggests there’s just very few homes available for sale on the market and.

David Scranton: And most of that has to do with what happened during the financial crisis, where people weren’t building spec homes anymore so the supply didn’t grow at the same pace as it had historically, correct.

Paul Bishop: That’s correct. If you look back over the last several years home builders were not able to build nearly as many homes as needed and so they are just now trying to catch up after years of really subpar building levels and where the results of that is they’re just too few homes available for sale on the market and virtually all price points and so it’s putting a lot of stress in different areas the market and most buyers and just about every part of the country are seeing and feeling that.

David Scranton: So the demand is continuing to go up which is good but mortgage rates are also going up so which one is winning out so far in 2018.

Paul Bishop: Well we’ve seen over the past several years home prices increase at roughly a 6% annual rate and so that has put a lot of stress on affordability and it has now for the last several years as we’ve come out of the financial crisis what we’ve seen especially over the last few weeks is that mortgage rates really ticked up by the start of the year they’re roughly 4% for a 30 year fixed rate mortgage and right now we’re looking at 30 year fixed rate at 4 ½  percent, so that’s a pretty significant jump over a short period of time so that’s also one of the factors that is adding to an affordability squeeze that buyers and especially first time buyers are feeling when they’re looking to purchase their first home.

David Scranton: Are the bank loosening up credit lines for builders again, is that starting to get easier for them.

 Paul Bishop: Yes, from the perspective of builders, credit is much more available than it was several years ago coming out of the financial crisis but there are a lot of other headwinds builders are facing and one of the most frequent ones that we hear about is the fact that there is just a lack of skilled labor in the building trade so builders are really limited in terms of how fast they can build homes simply because they don’t have skilled labor necessary, in terms of  carpenters, masons and so forth to build homes, so that’s one factor that’s holding back builders and in addition to the fact that just the process of getting zoning approvals and so forth always has taken a long time but there’s evidence that it’s actually taking longer and it’s more costly that it has been in the past as well.

David Scranton: Now my concern is always that things lag so when things start heating up again builder typically over built because they keep going, they keep going banks are willing to over lend and then ultimately there is another, I want to use the word crash because what happened in 2018 was more significant than we’ve seen in a long time but you see another major real estate downturn. Do you think that cycle is going to continue to repeat itself or you think maybe with these other factors you’d mention that it might slow down the builders just enough so maybe their supply doesn’t overshoot demand.

Paul Bishop: At this point I don’t think we’re in much danger over building and the reason I say that is we’ve had several years coming out of this financial crisis of pinned up demand, for example we can see that with the millennial home buyers. We recently released a report where we show that about a third of all home sales are going to millenials at this point and that’s only a small segment of the millennials that are out there not yet in the housing market who by all indications and the data we’ve collected want to be a homeowner at some point in the future but just haven’t been able to make that transition yet so unlike what we’ve seen in maybe previous cycles that with a bubble and so forth the demand really seems to be there not just from the traditional segments of move up buyers or also from first time buyers who are anxious to get into the market as well.

David Scranton: You know Paul it’s interesting. We need to take a quick commercial break, when we come back I want to talk to you about those first time home buyers and millennials and their appetite for real estate so stay with us we’ll be right back with a lot more here from my good friend Paul Charles on The Income Generation. We’ll be right back. As I mentioned economic cycles have different impacts on different sectors of the real estate market but at the end of the day no sector is immune from recession or a major financial downturn. Real estate investing is generally considered a high risk, high reward strategy that’s why it’s most popular among experienced and wealthy investors who can afford to take those kinds of risks. However, if you have a high-risk tolerance level there are a variety of ways to invest in real estate. Of course one of the most trendy real estate investment strategies these days thanks to reality T.V. is real estate trading commonly known as “Flip It”. Basically you make an investment in a piece of property typically a house make improvements and then quickly resell it at a higher price. The keyword is quickly so that you minimize the costs such as taxes, maintenance and so on that come with home ownership. The more common and direct approach and perhaps a more conservative approach to real estate investing is purchasing ownership interest in a house for commercial property and gaining income from it in the form of rent. Ownership interest is when take full control and responsibility for the land and buildings is different from let’s say a leasehold interest for example. When you purchase real estate directly whether it’s commercial or residential you are by definition investing in equity, much like when you own a stock. You may also be investing your own sweat equity though because you have to actively manage the property and if you don’t want to do that then you have to hire a manager which would obviously cut in your rental income. Now the less direct approach to real estate investing is to buy shares of a publicly traded real estate company. Often this means putting money into real estate investment trust or a REIT, which owns many different properties. And traditionally REITS have been a tool favored by financial advisors specializing in income and dividend in generating strategies. We’ll talk more about them a bit later in the show but whichever approach you decide, your degree of success will be highly dependent upon what happens with interest rates. Again investment real estate is very interest rate sensitive why because the investments value is based to a large extent on discounted cash flows just like we discussed last week regarding the valuation of stocks in the stock market.

The difference though is that now instead of discounting earnings with a stock, you’re discounting a net operating income with a piece of real estate. So if interest rates rise and your future cash flow projections are then discounted at a higher interest rate thus lowering the present value of your investment. Of course another important decision that goes in the real estate investing is a type of property in which you want to invest, be it residential homes, office buildings, retail operations, warehouses or whatever you’d like. Whichever your choice always remember the importance of location, location, location. Office properties are among some of the most popular for investors, they’re the largest and highest profile properties and typically have the best locations and demand for them always seems to be growing. Retail properties are also popular whether they’re single buildings or shopping malls and your return can sometimes be more stable from these offices. Why, because retail leases tend to be a little longer and retails are less inclined than office tenants to relocate. Demand for retail space depends upon many factors which you need to keep in mind when considering your investment including; location like we said before, population density its prospects for future growth for population, visibility of the property and income levels. Now while not especially glamorous, industrial properties can also be a good choice and sometimes they can actually require a smaller investment and can be easier to operate and manage than so many other options. But again real estate investing in any form is considered a high risk high reward strategy even for experienced real estate investors. It may seem like a simple concept but as an option for most everyday investors who are retired or those within ten years of retirement, when trying to protect your assets as we know should be your top priority at that stage, it may not be practical for many especially with so much uncertainty in today’s economy and financial markets.

Certainly most people wouldn’t want to attempt it without the advice and guidance of someone who has walked that road before them. But what about the less direct approach I mentioned, buying shares of a publicly trading real estate investment trust. I’ll talk you more about that in just a bit. Right now it’s time to welcome back Paul Charles Bishop. So the millennials you know people say that millennials don’t have that 1950’s American type dream that everyone needs to buy a home and there’s concern that the demand won’t be growing at the pace adequate enough to maybe replace the fact that baby boomers to some extent are downsizing. What are your thoughts about that?

Paul Bishop: Well we’ve certainly seen a lot of headline in the press suggesting that the millennial generation has a different view of home ownerships, that they’re just not as into all that home ownership as let’s say the baby boomers have been. But I think there’s a way to look at this that maybe brings the current housing market into focus a little bit better. One of the things that we have done over the last several years and other organizations have done it as well is we survey millennials on a regular basis and among the things we ask them is their views about home ownership and whether buying a home is a good financial decision. Most recently, when we asked millennial renters so those who have not yet purchased their first home, if they would like to be a homeowner at some point in the future 90% of those millennial renters said ‘Yes I’d like to be a homeowner in the future even if I can’t yet do it today”. So there seems to be a lot of desire to be a homeowner but at same time there’s a number of hurdles in terms of acquiring, accumulating the down payment, keeping up with the rent payments that they’re currently paying as well as just finding the right home for them that are limiting their ability to purchase that first home.

David Scranton: Well maybe it’s just as simple as millennials are getting married a little later in life and they’re buying homes later in life so hopefully that demand will stay at the level that you’re describing but how about the concern about baby boomers, about our generation starting to downsize. Now I know that there are some wealthy individuals who are saying, fine I want to buy a second home, a vacation property maybe a place in a warmer climate or a ski resort but at the end of the day most average folks if anything had bought their dream homes and might be downsizing. Money coming out of the real estate market, how do you think that demographic will affect real estate prices in years to come?

 Paul Bishop: Well we started to see over the last few years is that most homeowners are staying in their home for a longer period of time and certainly that would include the baby boomers. Now at some point of course, most older baby boomers and the generations that follow will probably downsize and move to a desirable location to retire but at this point it doesn’t seem like there’s much urgency on baby boomers part to make their transition. In fact there’s a lot of discussion and a lot of analysis done on this concept of aging in place so how can baby boomers make their home more accessible even as they do get older because a number of baby boomers who have bought that Dream Home are maybe reluctant to trade it in for a much smaller home or move out of the community where they’ve built a lot of social connections, so I don’t have no doubt that at some point most baby boomers will make that tradition but at this point I think there is some evidence that suggest that they’re actually pushing that decision further down the line that maybe previous generations have.

David Scranton: OK, of course who knows what the new Trump tax plan you’ll never know some the higher tax states such as Connecticut where I’m from, they could actually do the opposite could probably push people out the door sooner just because like I was talking to somebody yesterday, a client of mine in Connecticut who with the taxes he was actually thinking you know I was going to retire here, now I may not so we’ll see what effect that has. But tell us with maybe the millennials not having quite the appetite to buy homes right now with it being harder and harder to come up with a down payment maybe mortgages being more restrictive than they were a decade ago, is there a great opportunity today in home rental properties as an investment.

Paul Bishop: Well we see now over the last several years is the number of renter households continue to grow. Part of that is a result of the millennials not being able to make that transition into homeownership but there’s also a lot of demand for rental properties and being a renter household among older generations as well. So from an investor standpoint what we’ve seen is a lot of investment activity over the last several early years especially coming out of the financial crisis and by our estimate about 20% of the residential property that sold each year is sold to investors, so it’s more difficult to find properties that make sense from an investor standpoint but I think that the demand–

David Scranton: that it could be a good opportunity.

Paul Bishop: — could be there at some time.

David Scranton: Well I hear the music in the background we need to take another commercial break. Paul, don’t go away we’ll be back with more and we’ll talk more with Paul Bishop about other types of investment property. Stay with us we’ll be right back. What about those real estate investment trusts, well as you might already know a REIT as they’re commonly known is actually the stock of a company that owns rental property, income producing real estate. The types of real estate in a REIT include all those that I discussed earlier and more. Office properties, retail buildings, apartments, warehouses, malls, hotels and even hospitals or convalescent homes in fact most REIT specialize in a specific real estate sector such as office REITS or health care facilities. And REITS have been around since 1960 and operate in a manner similar to mutual funds. As I mentioned they are often a tool offered for by financial advisors who specialize in income and dividend in generating options. But they’re typically only used with clients who feel comfortable with a higher level of risk in their portfolio. Why, because unlike individual bonds for example and other fixed income options, REITS do not protect the investor against potential loss of principle, that risk is as great as with any stock based investment depending upon market conditions. So where do you REITS stand as an investment option in today’s market, well despite that rosy real estate forecast some analysts are projecting many REIT sectors are experiencing significant headwinds right now and those headwinds could very possibly be likely to continue for several reasons. The main one is interest rates or at least perception of the direction of change in interest rates. See the relationship between REITS interest rates is similar to the one between bonds that interest rates, it’s inverse. So when interest rates decline in the interest rate market, REITS high yields become more attractive and their values tend to go up. When interest rates increase in the market then yields on a REIT typically become less attractive it pushes their value down, it’s really that simple.

Now as we mentioned, rates have only increased about a half percent since the beginning of the year. Once more I honestly don’t believe they’re going to increase much further despite the Federal Reserve efforts to drive them up with the unwinding of quantitative easing. But as far as their impact on REITS is concerned that may not matter. Why, investors are already pulling away from REITS based upon the media’s speculation that interest rates will in fact continue to climb. And even if REITS do level off as yours truly is predicting that fear already driving investors could have the same effect as if rates actually did continue to rise. In other words it could shrink the demand for and thus the value of REITS even further. It’s another good example of something we discussed on last week’s show the fact that emotion can impact the markets in a very real way by affecting supply and demand forces. The good news is that the same media inspired fear about interest rates is unlikely to have the same impact on individual bonds and other bond like instruments. Why, well again because of the shifting of the baby boomer demographic we’ve already discussed. I believe boomers in near retirement are going to continue to focus on secure income generating investment options and they know that most bonds unlike the real estate investment trusts are secured against a loss of principle if they’re held to maturity. That’s true even if the media is right and long term rates and do keep rising. Investors know that any temporary drop in Bond value is caused by that rise is only a paper loss because their principal again if held to maturity is promised to be repaid to the investor and just as importantly they don’t know it doesn’t adversely affect their income. The final irony regarding REITS is this, I believe that the continued demand for bonds among retiring baby boomers is one of the main things that will help hold long term interest rates in check. Even as the government floods the market with nearly a trillion dollars’ worth of additional bonds being issued this year the demand among boomers will offset the increase supply. The result I believe is that bond prices won’t shrink significantly and force long term interest rates to rise, like the Fed is hoping but again that probably won’t help where REITS are concerned because the emotion alone has already swung in the opposite direction and is having a negative impact.

Now it’s time once again to welcome back Paul Charles Bishop. Paul sorry to cut you off there before the break but our producer you see she’s a fourth degree black belt in martial arts so when I hear the music I know enough that I need to just stop talking go right to commercial. So rental properties you’re saying for residential at least are getting harder to get good deals on them from a buyer’s standpoint but if you can get the right deal you think the demand is going to be here for a long time to make it a reasonable investment is that your summation for the most part.

 Paul Bishop: That is correct. There are a lot of renter households out there and so the demand for rental properties is probably going to be strong for at least the short term, the foreseeable future in the next years and few years.

David Scranton: So let’s talk about other types of investment property then. We have office; we have retail, industrial, even health care although most of those who don’t invest in health care individually but through a real estate investment trust they may. How do you feel some of those sectors are going to be, which ones are going to be stronger which one’s going to be weaker and why.

Paul Bishop: Well I think looking over the near term like I said over the next year or so that some stronger commercial property sectors are going to be in the industrial and distribution area you know all of the online shopping that takes place these days requires a lot of industrial distribution space and most retailers, online retailers are trying to get closer and closer to the consumer so there’s going to be I think some investment opportunities in the industrial sector. The multifamily sector I think apartments, as we’ve talked about earlier the demand for rental properties, is going to continue to be fairly strong. We have the millennials who are just making their presence known in the housing market at this point and then generations to follow which is also another large generation so the outlook for multifamily is probably fairly strong as well maybe not as strong as it was a couple years ago since builders have been able to catch up with the demand in the multifamily sector and look to the office sector really that’s about it what we see in terms of the job sector overall. We’ve seen fairly strong job growth for the last couple months and consistent job grows over the several years so there’s continuing opportunities in the office sector but a lot of that is really regional and probably very much depending on the particular market that you’re looking in you know midsize savings versus large savings–.

David Scranton: How about smaller offices for the people that are not in that 4.1% unemployment rate anymore, the people who are maybe discouraged workers that have stopped looking, that have taken up consulting position, how about some of those.

Paul Bishop: Well certainly a lot of businesses out there they’re trying to cater to that segment of the population looking for that short term office rental space so I think that is going to evolve over time as we see more of the baby boomers perhaps moving toward a kind of consulting or more freelance type work, so I think there are some opportunities there as well.

David Scranton: And I cut you off, I know you’re working into retail, so if industrial is you think could be hot coming up in the future because a lot of the online purchases and the storage and shipping and so on then does that mean retail for lack of better way to put it is kind of sort of the redheaded stepchild.

Paul Bishop: Well retail is certainly going through a transition there are many number of the store closings we’ve heard of over us few years as retailers struggle to make that transition even though a lot of people are doing their shopping online and we know there are a lot of malls many of which were built in the 1980’s they’re trying to repurpose themselves into the area to types of experience based malls, they don’t just cater to people going there on Saturday afternoon just to do a shopping. So there’s a lot of uncertainty in the retail sector and I think probably overall the retail sector is largely overbuilt at this point so until retail sector really finds its footing again whatever that might mean in the world of online shopping where most of us are comfortable buying a lot of things online I think there is some uncertainty in terms of how the retail sector is going to work out or how it’s going to play out over the next probably two to three years especially.

David Scranton: Yea you see it’s so weird because I know traditionally real estate says OK we’ve got longer term leases here so it seems to be more stable on the retail side but I agree with you right now we’re in this changing world so Paul thanks so much for your time today, stay with us we’ll be right back. So in light of today’s topic I wanted to touch just briefly on one more popular retirement strategy that I’m asked about frequently and that is reverse mortgages. As most people know reverse mortgage is essentially a type of home equity loan that’s available to older homeowner’s age sixty two and over. If you’re a homeowner you know that with a standard forward mortgage you make monthly payments to a lender paying down the balance on your house and building equity. A reverse mortgage as the name implies is just the opposite. A lender makes payments to you based upon a percentage of your home’s value and based upon your age. You can choose to be paid in a lump sum in monthly installments or in the form of a line of credit available to you or through some combination of these different options. As a strategy for retirement income reverse mortgages have become fairly popular but they’re often considered a last resort and I believe they should be for a number of reasons. One is the cost, all mortgages have costs but reverse mortgages have fees that can be extremely high compared to standard mortgage fees. They can include fees for the appraisal, mortgage insurance, title insurance and a loan itself as well as closing costs. These costs are rolled into the loan it can really add up. Another potential downside is the requirement to pay back the loan if you should move out of the house. Usually no one who gets a reverse mortgage intends to move out but circumstances can change. For example if you ended up having to move into a nursing home for example the loan would be due in full within a year of you leaving your house. Another big drawback can be how the reverse mortgage affects your estate; it almost always decreases the equity in your home which means that you may end up having a lot less money to leave to your heirs. So to stay with us we’ll be right back with a lot more here on The Income Generation.

 

Commercial

Miranda Khan: Hello I’m Miranda Khan, alright let’s take a look at some of the stories that move the markets this week, Broadcom withdrew its more than $115 billion dollars bid to acquire Qualcomm today this comes just two days after the Trump administration blocked that deal. Broadcom says it’s disappointed with the ruling but will now move its headquarters from Singapore to the US. That will cost about $500 mil per year. Ford recalls nearly one a half million of its cars because its steering wheels could fall off. The recall applies to 2014 through 2018 Ford focus models and Lincoln MKZ’s. And retail sales drop for the third month in a row it was the first time also since April of 2012 that retail sales have declined for three straight months, consumer spending is also going down at the start of the year after going up nearly 4% in the fourth quarter of last year. For much more on these stories visit Newsmax.com/finance. Now let’s get back to The Income Generation Show with David Scranton.

Male Voice: Read David J. Scranton’s groundbreaking new book Return on Principle; seven core values to help protect your money in good times and bad. Discover practical solutions to the financial challenges facing today’s generation of retirees and near-retirees. Learn the truth about Wall Street, the financial media and the secrets they try to hide from everyday investors. This isn’t just another book about investing, working Americans who have lived through two major stock market crashes and the worst financial crisis since the Great Depression in the past 16 years don’t need another book about investing. David’s Scranton’s approach to financial planning is a holistic system designed for maximum protection, strategic growth and reliable income regardless of market conditions. Stop planning for retirement with your fingers crossed. Read Returned on Principle; seven core values to help protect your money in good times and bad, available now.

Corey Baban: When it comes to an investment strategy many people get caught up in the next big thing or intrigued by a friends can’t miss stock tip. But before you take the dive ask yourself does this pass the “What versus the Why test”.

Monte Rebnick: Imagine you’re at the supermarket someone approaches and says, “Hey what are you making tonight”, to which you reply, “Not sure could be a cake could be a casserole”. Unfortunately, this is an example of “What Investing”. This is how most individuals invest getting so focused on the ingredients we lose sight of the absolute objective and goal. In contrast “Why Investing” asks three fundamental questions that should guide all of your decisions: Number one, what are your absolute needs? Number two, what are your desirable wants and number three if there’s any money left over what are your aspirational legacy ideas?

Corey Baban: Talk to your financial advisor about your goals and objectives. If you’re focused on income, a dividend stock or bond strategy may be best. If appreciation is important growth stocks in emerging areas like tech and biotech may be the way to go and remember you can diversify your risk by investing in Sector indexes.

David Scranton: If you’re not using someone who’s well trained in fixed income and you were born before 1966 it may just be time for you to break up with that advisor and move on. I would suggest someone who will care for you through these important years of your life. If you need help finding someone call or write us. I’d also like to remind you of the special report entitled The Income Generation. It’s available free to you our loyal viewers online. If you haven’t downloaded your report pick it up after the show. If you’re near or in retirement, head over to The Income Generation.com and download your special report written specifically for the needs of the income generation, again those born before 1966. I’m David Scranton and you’ve been watching The Income Generation, we’ll see you all next Sunday.

Hana Ostapchuk: We never know when interest rates will shoot up but they can stay near record lows forever so if you are investing in bonds now is a good time to start thinking about playing defense and making changes to your financial future.

Monte Resnick: Well we all hear now is a great time to buy a home because interest rates are so low but we all know that at some point down the road in the future we don’t know when interest rates are going to rise. Interest rates and bonds have an inverse relationship. As interest rates go up the value of the bond goes down so the reason you really want to look at the bonds in your portfolio right now is to understand how your position for a rising interest rate environment.

Hana Ostapchuk: If retirement is around the corner be careful with your bond selection, understand what individual bonds you own as well as bond mutual funds then talk with your financial advisor to figure out the best strategy for you and your family. I’m Hana Ostapchuk.

David Scranton: I would like to take this opportunity to thank both our guests for joining us for another episode of The Income Generation and equally as important if not more I’d like to thank you our new and returning viewers. You know as you saw on today’s show Real estate investing is all the rage right now in certain circles. With a celebrity real estate mogul in the White House and the economy currently moving in the right direction some analysts see a very bright future for housing and for the real estate market in general. But please don’t ever forget it’s precisely when hype starts building around a particular type of investment strategy that you should probably exercise extra caution. While the economy, demographics and the current political climate all appear to favor real estate please remember some other important details that we discussed today. Remember that interest rates remain a question mark and that real estate investing is extremely interest rate sensitive. Also remember that real estate investment trusts may continue to experience a headwind regardless of whether interest rates keep rising or level off, only time will tell for sure. But also remember that despite all the hype so many analysts see warning signs that the real estate market may again be a huge bubble as it is destined to burst just as it did back in 2007. Remember that as a strategy for retirement income a reverse mortgage could be considered, I believe is a last resort but certainly is something on the list of possibilities and remember that real estate investing is generally considered a high risk high reward strategy which is why it’s most popular among wealthy investors who can better afford to take big gambles. And of course it’s always best to consult with a qualified professional particularly one who specializes in retirement income before making any major investment decisions. In other words don’t try this at home. Once again thanks for watching if you’re close to retirement and you really want to know how to protect and maximize your money, it’s absolutely essential that you stay informed and up to date and right here is where you can do it on The Income Generation. I’m David Scranton, thanks again and we’ll see you next week.