I was reading an article lately about Farmland Partners (FPI). The article was centered around whether or not FPI would be able to cover its future dividends or not because so many of their land leases were being terminated despite the fact that they have a 25% penalty for early termination. One of the commenters on the article stated that maybe people should consider owning (CUT) Guggenheim MSCI Global Timber ETF instead. Get real ! First of all you are paying middle men (which my readers know I despise) and second it has a yield of less than 2% !
This got me to thinking in an entirely different direction. Why would I want to own this REIT sub segment at all ? The fact is there are lots of areas that I shy away from in the markets. Some examples are most Retail, Airline Stocks, Railroad Stocks, Banks, and many others. I avoid these areas because I have learned for various reasons not to trust them as they can be very volatile, subject to high Bankruptcy rates, have below average dividend yields etc.
It seems many investors are in the mindset that in order to be properly diversified you have to own stocks in every single corner or subset of the market. This is not true. My advice is to give as much thought to the types of stocks you are investing in as to which stocks you are investing in. By avoiding segments that are traditionally low performing areas you can help to avoid potential losses in the markets. There are no rules saying you have to buy these stocks just because someone dreamt them up.
While it is wise to invest in a diverse area of stocks it is equally unwise to invest in all areas of the stock market just to be in them. Only invest in areas that you believe will not only pay good dividends abut will continue to thrive. Be selective and cautious about your investments.
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