Solo 401k for small business owners: Why REITs?

Being a small business owner gives you the freedom to pursue your ideas and start a business from scratch. While it could be really adventurous to be your own boss, you still need to ensure financial security in the long run. A Solo 401k for small business owners is one of the best ways to save for future needs.

The Solo 401k is a retirement plan for small business owners. The interesting feature of this retirement plan is the ability to invest in any asset class of your choice. If you are a real estate investor, it makes perfect sense to include real estate in your investment portfolio. There are several ways of investing in real estate but if you are already overwhelmed with work, investing in a real estate investment trust (REIT) could be the answer for you.

What makes REITs perfect for a Solo 401k for small business owners?

When we compare real estate with other asset classes, the low liquidity is one of the biggest setbacks of this investment class. Unlike real estate, stocks and bonds offer higher liquidity along with regular income in the form of dividends and returns. One can add the maintenance cost of real estate among other setbacks.

REITs overcome all of these issues. Most of the primary REITs trade on the stock market much like other asset classes, giving them sufficient liquidity. At the same time, these trusts offer regular dividends to their investors.

As a passive investment, REITs does not come with landlord responsibilities. This makes it a perfect choice for retirement plans such as the self-directed Solo 401k. Investing in REITs can allow Solo 401k plan owner to avoid engaging in a prohibited transaction while allowing them to focus on their main business.

Diversification

• Largely unaffected by other market events
• Controls risk exposure while increasing returns
• Offers better exposure to your investments

Regular stream of income

• Regular dividends offer predictable income
• Higher reliability over income returns
• Controls portfolio volatility

Offers liquidity as that of stocks

• Traded like other equities
• Offers portfolio rebalancing features
• Allows strategic investment allocation

Robust performance

• Exceed S&P returns at maximum occasions
• Combination of growth as well as income
• Outperform corporate bonds consistently

Investing in REITs with a Solo 401k for small business owners allows you to liquidate your investments as per your requirements. Solo 401k retirement plans are known for their financial flexibility and among other features, they offer participants loan. It means you borrow up to $50,000 or 50% of total funds from your Solo 401k plan during a financial crisis. 

Adding REITs ensure that you do not have to deal with physical real estate during your hour of need. All you need to do is liquidate your REIT investments and use the borrowed funds as per your requirements.