tj-longterm wrote:We have a 403(b) that has a number of good Vanguard and TIAA-CREF options. However, our IPS calls for a percentage of our allocation to TIPS (no inflation protected securities available in 403(b)) and REITs (but only Real Estate Account available). Both of these options we'd like to have in tax-advantaged space.
The TIAA-CREF prospectus describes the Real Estate Account as a variable annuity that is directly invested in real estate, so it is substantially different from an REIT fund.
We have some IRAs, but not enough to hold the TIPS and REITs together. Basically, we can put one in our IRAs and the other in our 403(b). Since TIPS are not an option in the 403(b), we're considering the Real Estate Account. Is this an acceptable substitute for an REIT fund in our allocation? Reading the forum the biggest difference is that the net asset value lags real estate prices because the properties have to be re-assessed/re-valued in order to update the NAV. But, I'm not sure the significance of that for our allocation.
tj-longterm wrote:The main reason to hold REITs in my mind is the low correlation to stocks, which suggests that owning them should have a diversification benefit.
My only options in tax advantaged space are:
1) Vanguard inflation protected securities + TIAA CREF Real Estate Account
2) Vanguard REIT Fund only + something else (probably total bond market to replace TIPS)
3) Vanguard inflation protected securities + something else (probably total stock allocation to replace REITs)
If Real Estate Account is more like a bond than an REIT, I suppose it's not what I want and I should choose option 2 or 3 and adjust my IPS accordingly.
Valuethinker wrote: I gather that TIAA has imposed liquidity restrictions because of this.
ProspectusEffective March 31, 2011 (or such later date as indicated in the contract or contract endorsement), individual participants are limited from making internal funding vehicle transfers into their Account accumulation if, after giving effect to such transfer, the total value of such participant’s Account accumulation (under all contracts issued to such participant) would exceed $150,000.
This limitation does not apply to most types of premium contributions and certain group contracts recordkept on non-TIAA platforms.
Valuethinker wrote:If you can live with the liquidity characteristics, then I would hold your Commercial RE allocation in this, over a REIT fund. The latter will be more volatile and will not 'track' Commercial RE characteristics (income the major factor in returns, lower volatility than stocks, lower returns, higher correlation with inflation) as well.
Note Morningstar has a TIAA Forum where they disucss this fund to death. Some there have been adept at 'front running' the whole NAV increase/ decrease thing.
Willy wrote:Sounds like most folks posting on this thread so far believe that the TIAA-CREF Real Estate fund is superior to REITS, such as Vanguard's. Does anyone see any advantages to Vanguard's REIT over the TIAA Real Estate fund?
JRA wrote:Not too long ago Larry Swedroe commented on the Reit vs. RE issue http://www.bogleheads.org/forum/viewtopic.php?f=10&t=105509. He said he preferred Vanguard's Reit fund over TIAA RE but, other than citing the high costs of the fund, was not real specific. My wife owns the RE fund in a 403B account with a former employer. We decided to keep the money at TIAA-Cref to have access to the Traditional account for her GSRA funds during this low interest rate period (guaranteed 3% rate with no limitations on liquidity). We bought the Real Estate Annuity with her RA funds because the other bond and stock options were so expensive (over 40 basis points). I certainly wouldn't stay at TIAA-Cref simply to get access to the Real Estate Annuity, but it is currently serving its purpose.
Overall REITS and private RE must be highly correlated because they own the same assets. What can seem to cause low correlation is that if you own one or a small number of properties or even a lot but in one sector or geographical region you can have low correlation just as you can have low correlation with TSM when you own one or a small number of stocks.
Also with REITS you have the daily volatility of the market being priced in, with private RE people don't mark to market daily so it appears they don't have high correlation. But that is phony, just failure to mark to market. This happens with illiquid stocks that don't trade often.
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