Photo by Scott Graham on Unsplash

Every week, I tackle some of the most pressing questions from your fellow readers. While we can’t give personalized investment advice, my team and I read every piece of feedback that comes in.

This week, I know there may be many readers who are feeling tense amidst the grating midterm election news. With four days till the midterms, tensions are high between opposing political parties – from angry TV ad campaigns to a score of recent assaults on political leaders from both sides…

It’s not pretty. That’s why I’d like to de-escalate the tensions this afternoon… and remind everyone that when we can see each other’s humanity, the best is yet to come.

Yes, I am an optimist at heart. I’ve been accused of being a Pollyanna… but I have noticed that when you choose to see the good around you, it usually finds you. And when you harness that optimism with good financial research and critical thinking, the sky is the limit for your portfolio!

That’s why I was thrilled to find the following message when I opened the Reader Mailbag this morning. First-time investors are still filled with that hope and excitement that I try never to lose sight of.

Let’s dive into it and more questions from you…

I am new to investing and have a question.

How many shares of a stock is a good amount to create good passive income from any one of your SWAN REITs?

I own about 12 REITs that you have suggested and have bought them all at incredible prices due to the market dive but own anywhere from 50 to 300 shares per REIT.

I am also on a dividend reinvestment plan and was wondering if this is a good idea as the market goes back up? Anyways, my best performing REIT so far has been Innovative Industrial Properties (IIPR). I definitely plan on buying more Realty (O) as well. Thanks for any feedback you give me! – John C.

First off, great job with owning 12 REITs. You’re well on your way to creating a diversified portfolio! In terms of asset allocation, as you know, every investor has his or her own risk tolerance levels, so I cannot offer individual advice.

However, in general terms, I recommend that most investors own between 10% and 20% in REITs, and this does not include owning rental properties or your primary residence.

So, let’s assume hypothetically (and to make the math easier) that you have a $1 million retirement portfolio, and you are targeting 15% REIT exposure. This means that your targeted exposure in REITs should be about $150,000.

I always like recommending responsible diversification, and my rule of thumb is to limit positions to 5% each. So, this would mean that $7,500 (5% x $150,000) is the most to invest in one REIT (using my hypothetical example).

Now, remember that investing all boils down to buying the best quality companies with the widest margin of safety. So, I would allocate the capital when you see the best opportunities.

Finally, remember that there are over 150 equity REITs to choose from that represent almost every property sector imaginable. Make sure to diversify your REIT holdings so that you don’t have all of your capital in one property category.

Thanks for your question and happy SWAN investing! I am thrilled to be a part of this journey with you.

Do I buy SWAN stocks the same way I buy other stocks or is there a different process? – Rebecca M.

That is a great question, Rebecca. Of course, to best answer it, I’d have to know “the way [you, in particular] buy other stocks.” However, I hope what I share with you helps you in your decision-making.

If you want to understand my methodology, keep reading!

SWAN means “sleep well at night.” If a stock isn’t a SWAN, it doesn’t enter my portfolio. I won’t consider having any sort of relationship with it.

That may sound simple… but the whole reason why I now focus 100% of my time on following the SWAN blueprint is because of the losses I suffered when I didn’t.

In 2009, I had a big pivot in my life that forever changed me, as both an investor and CEO. It took tremendous losses for me to grasp the concept of protecting principals at ALL costs.

What I mean, Rebecca, is that before the Great Recession of 2008-2009, I was speculating, giving no thought to risk management or diversification. After taking some big losses, I decided to read The Intelligent Investor by the famous investor, Benjamin Graham.

In his book, Graham explained:

“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

As I read that book, a light went off. I knew the only way to restore my wealth was to understand the difference between investing and speculating.

So I hope that, compared to how you buy other stocks, with SWANs you are truly investing, not speculating. That like myself, you can sleep well at night because you practice financial discipline and steer clear of the so-called sucker yields and value traps.

Thank you to all who shared their thoughts and questions with me this week. Nothing brings me more delight than sharing my research and watching the bottom line of my readers’ portfolios increase.

Remember to keep your head up these next four days and focus on the good, no matter what the party leaders are saying. We all want the best for the economy and our finances, so remember to focus on SWAN stocks and remind yourself that the best is yet to come.

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