Investing in Hotel Stocks: How and Where to Begin

Investing in hotel stocks offers a way to participate in the travel and hospitality industry. These investments represent fractional ownership in companies that manage, own, or franchise hotel properties. This sector is influenced by economic trends, consumer travel behaviors, and global events. Understanding this investment area can help align financial goals with lodging market opportunities.

Investing in Individual Hotel Company Stocks

Investing in individual hotel companies means acquiring a share of a business operating within the hospitality sector. These publicly traded companies, such as Marriott International, Hilton Worldwide Holdings, and Hyatt Hotels Corporation, derive revenue from managing, franchising, or owning hotels. An investment in these stocks provides direct exposure to a single company’s performance.

Evaluating individual hotel stocks involves looking at several factors. Investors consider brand strength, market positioning, and overall financial health. The hotel industry’s performance is closely tied to economic conditions, as stable economies generally lead to increased travel demand. Seasonality also plays a role, with travel patterns fluctuating throughout the year, which can impact occupancy rates and revenue.

Changes in consumer trends, such as a growing preference for sustainable accommodations or unique experiences, can influence a company’s success. Geopolitical events, like political instability or travel restrictions, can also affect tourism rates and hotel stock performance. While individual stocks offer the potential for higher returns, they also carry increased risk due to their direct exposure to a single company’s fortunes and market volatility.

Investing in Hotel-Focused Funds

Beyond individual stocks, hotel-focused funds offer diversified exposure to the hospitality industry. Two primary types of funds are Real Estate Investment Trusts (REITs) and Exchange Traded Funds (ETFs) or mutual funds.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-producing real estate, including hotels. They are often compared to mutual funds, allowing individuals to invest in large-scale real estate without directly purchasing or managing properties. A significant characteristic of REITs is their requirement to distribute at least 90% of their taxable income to shareholders annually as dividends. This pass-through entity structure means the REIT itself typically avoids corporate income tax, as the income is taxed at the shareholder level.

Exchange Traded Funds (ETFs) and Mutual Funds

Exchange Traded Funds (ETFs) and mutual funds provide another avenue for investing in the hotel sector by holding a collection of securities. These funds might focus specifically on hospitality companies, broader travel and tourism, or even include real estate components. For example, some ETFs track hotel, airline, and cruise companies, offering a diversified approach to the travel industry. This diversification helps mitigate the impact if one particular holding performs poorly, as its effect is spread across many other assets within the fund. These funds are professionally managed, reducing the need for individual investors to conduct extensive research on each underlying security.

Choosing and Opening a Brokerage Account

To invest in hotel stocks or funds, establishing a brokerage account is a necessary first step. These accounts serve as the gateway to purchasing various investment assets, including stocks, bonds, mutual funds, and ETFs. Two common types of accounts suitable for individual investors are taxable brokerage accounts and Individual Retirement Accounts (IRAs).

Taxable vs. Retirement Accounts

A taxable brokerage account offers flexibility, allowing investors to deposit and withdraw funds without specific age restrictions or contribution limits, though any capital gains, dividends, or interest earned are subject to annual taxation. In contrast, IRAs, such as Traditional or Roth IRAs, provide tax advantages for long-term retirement savings. Contributions to a Traditional IRA may be tax-deductible, and earnings grow tax-deferred until withdrawal in retirement, when they are taxed as ordinary income. Roth IRAs are funded with after-tax money, allowing for tax-free growth and tax-free withdrawals in retirement, provided certain conditions are met. IRAs typically have annual contribution limits, which for 2024 are $7,000, or $8,000 for those aged 50 or older, and they have specific rules regarding withdrawals.

Selecting a Brokerage Firm

Selecting a brokerage firm involves considering several criteria to match an investor’s needs. Fees are an important consideration, including commissions for trades, potential annual account maintenance fees, and expense ratios for mutual funds or ETFs. Many online brokers offer commission-free trading for stocks and ETFs, though fees may apply for options or mutual funds not on a no-transaction-fee list. Other factors include the platform’s usability, the quality of customer service, and the range of investment options available.

Funding Your Account

Opening an account typically requires personal information and documentation, such as a valid identification, Social Security number, and bank account details. Common methods for depositing money include electronic transfers (ACH), which can take a few business days to clear, or wire transfers, which are generally faster but may incur fees ranging from $10 to $30.

Executing Your Investment

After a brokerage account is opened and funded, the next step involves the actual purchase of hotel stocks or funds. This process typically begins with navigating the brokerage firm’s online platform or mobile application. Investors can search for specific stocks or funds using their ticker symbols, which are unique abbreviations identifying publicly traded securities. For example, Marriott International trades under “MAR” and Hilton Worldwide Holdings under “HLT.”

Placing an Order

Once the desired security is located, an investor can proceed to place a buy order. This involves specifying the number of shares to purchase or a total dollar amount to invest. There are generally two common types of orders for buying securities: a market order and a limit order. A market order instructs the brokerage to execute the trade immediately at the best available current market price. This ensures prompt execution but does not guarantee a specific price.

Alternatively, a limit order allows an investor to set a maximum price they are willing to pay for a security. The order will only be executed if the stock or fund can be bought at that specified price or lower. This provides price control but means the order may not be filled if the market price does not reach the set limit. After placing an order, the brokerage platform will typically provide a confirmation of the transaction, detailing the price, number of shares, and any associated fees.