These Passive Income Investments Can Help You Prepare For a Bear Market

The market has been surprisingly resilient lately against the many global challenges the world has been facing, but even some of the most optimistic investors are starting to brace themselves as a bear market becomes increasingly likely.

Savvy investors have found a number of ways to profit in a down market, but a lot of these strategies involve a high level of risk and require near-perfect timing.

A better strategy for most retail investors is to load up on assets that provide passive income regardless of how the market is performing. The passive income will help protect the overall returns in a portfolio while waiting for the market to rebound and lessen the urge to panic sell in the meantime.

If you’re looking for a way to protect your portfolio in a bear market, these three investment options are worth checking out:

Publicly Traded REITs

Real estate investment trusts (REITs) are companies that generate the majority of their income from real estate and many pay an attractive dividend to shareholders.

An economic recession could definitely impact the performance of REITs, so it’s important to find companies that primarily invest in more “recession-proof” property types like multifamily, industrial and health care, or are diversified across multiple property types.

It’s also important to choose REITs that have a well-protected dividend yield, or else even a small dip in revenue could result in a dividend cut and throw off your entire strategy.

Two high-dividend REITs worth looking at are:

• Medical Properties Trust Inc. MPW: This company owns hospitals across the United States, Europe, Australia and South America. It currently pays an attractive dividend yield of 5.79% that’s well covered at an FFO payout ratio of only 60%. 
• W.P. Carey Inc. WPC: W.P. Carey is a diversified REIT with its largest allocation to industrial and warehouse properties. The company currently has a 5.58% dividend yield with a FFO payout ratio of 84%.

Non-Traded REITs

Aside from these publicly-traded REITs, there are a number of private and non-traded REITs that can provide more stability since share prices of these companies don’t fluctuate with the stock market. Instead, the price is directly tied to the REIT’s net asset value (NAV).

Shares of private REITs are typically purchased through a Regulation D private placement offering and the shares usually have to be held for the full length of the investment term. Typical investment terms can range from five to 10 years.

Non-Traded REITs are public companies whose shares aren’t traded on a major stock exchange. Many of these REITs sell shares through a Regulation A+ offering and several have liquidity options after a minimum holding period of one year.

See also: 4 Non-Traded REITs to Consider Adding to Your Portfolio

Fractional Real Estate

Real estate crowdfunding has become one of the most popular ways for retail investors to start generating passive income with their investments and hedge their portfolios against inflation and market volatility.

There are several real estate crowdfunding platforms available and many offer access to institutional quality real estate investments that have historically only been available to large private equity funds and the ultra-wealthy.

There are even a number of platforms available now that offer investment options for non-accredited investors and have a wide range of offerings.

Minimum investments range anywhere from $10 to $100,000 depending on the types of deals you want to fund, and projected annual returns can vary between 5% to 30% depending on the level of risk you want to take on.

Instead of browsing the multiple crowdfunding websites to search for offerings, you can use Benzinga’s Alternative Investment Screener to filter currently available investment opportunities based on investor type, minimum investment, potential returns and even property type.

Browse real estate investment opportunities

Photo by Mark Basarab on Unsplash