Should I invest in individual REITs?
I already maxed out my employee 401k and 457b. My money in these is invested in index funds consisting of 60% stocks and 40% bonds/fixed income.
I have a few thousand dollars left over at the end of every year.
Initially, I was considering putting half that money into a REIT index fund (Vanguard REIT Index Fund: VGSIX), and half into a commodities index fund (Rogers International Commodities Index: RJI).
However, I was looking at the history of both indexes, and I discovered that they are VERY volatile. I would hate to retire when I need to draw money from these investments in a year where they are down 40%!
So, instead, I thought of purchasing a couple of individual REIT companies that pay a high dividend. So, even if the stock price of these individual companies is very volatile, at least the high dividend will cushion the ride.
I just opened up a Roth IRA with Scottrade, and I plan on investing $2,500 a year in 2 REIT companies from the following list:
American Capital Agency Corp (AGNC); dividend yield 15.52%
Sabra Health Care (SBRA); dividend 9.90%
Annaly Capital Management (NYL); dividend 15.11%
Two Harbors (TWO) dividend 16.8%
What do you think of this? It seems too good to be true that these companies pay double digit dividends, and yet their stock price has appreciated over time, too. What's the catch? Am I missing any risks and pitfalls?
FYI: I am 42 years-old, and I will be retiring in the next 8-10 years. My tolerance for risk is low to moderate.