My thoughts on REITs

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My thoughts on REITs

Postby Day9 » Thu Apr 04, 2013 12:02 am

Hi Bogleheads,

I started lurking over a year ago (I'm still new) but this is the first youtube video I have made:

Why own REITs?

I won't post any more videos here I just wanted to say that 3-fund portfolio is so elegant and I have converted a few of my fellow young coworkers.

REITs are one of many equity-like assets that sharply correlate in times like 2008 when there are crashes. There is no need to tilt your equity allocation toward REITs.
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Re: My thoughts on REITs

Postby Default User BR » Thu Apr 04, 2013 1:55 am

Day9 wrote:REITs are one of many equity-like assets that sharply correlate in times like 2008 when there are crashes. There is no need to tilt your equity allocation toward REITs.

Thanks for your opinion, but I'll keep my allocation just the same.


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Re: My thoughts on REITs

Postby bertilak » Thu Apr 04, 2013 6:32 am

Day9 wrote:REITs are one of many equity-like assets that sharply correlate in times like 2008 when there are crashes. There is no need to tilt your equity allocation toward REITs.

Not every investment needs to be a hedge against bad times. You want some investments to ride through the good times! If you aren't going to participate in the good times, there might as well not be any.

The advice to never buy a convertible because some day it will surely rain is not the best advice.
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Re: My thoughts on REITs

Postby pennstater2005 » Thu Apr 04, 2013 6:38 am

Am I the only one who saw a video of a shot of extra fancy mixed nuts?
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Re: My thoughts on REITs

Postby Random Musings » Thu Apr 04, 2013 11:09 am

I thought REIT's were okay as a diversifier in the 2000-2002 bear. The way I look at diversifiers is this, they correlate differently to my "core" holdings in the long-run, but there are no guarantees than in certain scenarios they correlate similarly in the short run.

Currently, I like int'l REIT's over domestic REIT's due to valuations.

I'm not adverse to people who hold 3-fund portfolio's, but I think adding diversifiers is beneficial in the long-run.

RM
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Re: My thoughts on REITs

Postby FinancialDave » Thu Apr 04, 2013 12:41 pm

Here is the problem with getting investment advice from a U-tube video. The guy makes a very general comment that REIT's don't offer qualified dividends, and thus offer no tax efficiency. While this is true that no qualified dividends are typically paid, that does not mean that some of the income paid does not qualify as a long term capital gain or also return on capital, which is not taxed at all in the year received but only taxed in the year the investment is sold. I have at least one REIT that is spitting off at least 30% of it's income as return of capital, that won't be taxed at all until I sell and then it will be taxed at the LT rate and if I keep my income down (in 15% bracket) in retirement during that year of sale, there is a good chance the LT gain won't be taxed at all.

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Re: My thoughts on REITs

Postby Default User BR » Thu Apr 04, 2013 1:10 pm

pennstater2005 wrote: extra fancy mixed nuts

Bogleheads in a nutshell[1]!


1. Sorry.

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Re: My thoughts on REITs

Postby tetractys » Thu Apr 04, 2013 1:18 pm

REITs have been my best diversifying, non-correlating asset, ever since I started investing in them near the market top just before the great recession. And on top of that, they have been my best performing asset, period. Two birds with one stone no less! The data on REITs diversification benefit and classification as a separate asset class has certainly held up well over the last several years. -- Tet
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Re: My thoughts on REITs

Postby staythecourse » Thu Apr 04, 2013 2:14 pm

claiming any asset/ subasset has no need is just as narrow minded as one saying any asset has to be inlcluded. Investing, like life, has many "it depends".

REITS just like the 3 funds has its merits and demerits. There are not perfect portfolios (except those in retrospect). Goal of every investor is to look at all the available asset classes and decide which ones to include after weighing the advantages and disadvantages of each asset.

Good luck.
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Re: My thoughts on REITs

Postby kenyan » Thu Apr 04, 2013 2:24 pm

Day9 wrote:
REITs are one of many equity-like assets that sharply correlate in times like 2008 when there are crashes. There is no need to tilt your equity allocation toward REITs.


Small caps, Value stocks, international stocks, emerging markets, etc. all were strongly correlated during the crash. Does that mean that you shouldn't buy any of those assets? I suppose, using your specific rationale, that means you shouldn't tilt to any of those areas. That's a reasonable suggestion (and the three-fund portfolio is fine), but there are also reasonable arguments to hold/tilt to various subclasses of assets.

As you suggest, it's not prudent to believe that diversifying among equity-like assets will provide a safe haven during a crash...but that's what bonds are for. That doesn't mean that diversifying your risky assets is undesirable.
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Re: My thoughts on REITs

Postby abuss368 » Thu Apr 04, 2013 2:34 pm

Own the businesses.
Own the buildings.
Loan out money to others.

In other words: stocks, bonds, real estate, and cash.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + REITs
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Re: My thoughts on REITs

Postby InvestorNewb » Thu Apr 04, 2013 4:33 pm

It was a good day for REITs today. :beer

I only started investing in February. I have 4x the amount invested in VTI and VXUS (combined) than I do in REITS, but yet the gains in my REITs account surpasses those of my other investments.
Current Holdings: VTI, VXUS, VNQ, VCE (largest to smallest)
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Re: My thoughts on REITs

Postby noyopacific » Thu Apr 04, 2013 4:34 pm

I've had a REIT fund in (& maintained at 7% of) my portfolio for nearly 20 years. While I have been happy with it, I have also noticed a significant increase in interest in the REIT sector lately. I am curious about the number of people considering REIT's now that might be tempted by the recent high returns.
Regression to mean?
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Re: My thoughts on REITs

Postby abuss368 » Thu Apr 04, 2013 6:46 pm

noyopacific wrote:I've had a REIT fund in (& maintained at 7% of) my portfolio for nearly 20 years. While I have been happy with it, I have also noticed a significant increase in interest in the REIT sector lately. I am curious about the number of people considering REIT's now that might be tempted by the recent high returns.
Regression to mean?


That is the thing. I have been a REIT investor for many years. First, individual REITs unfortunately and then the index fund! I have no regrets.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + REITs
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Re: My thoughts on REITs

Postby fidelio » Fri Apr 05, 2013 2:29 am

i have a rental property and a little bit of a roth in a reit index. it's a long-haul thing ....
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Re: My thoughts on REITs

Postby abuss368 » Fri Apr 05, 2013 4:42 pm

Just stay out of the international REIT / Real Estate market until costs come down!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + REITs
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Re: My thoughts on REITs

Postby petrico » Fri Apr 05, 2013 6:40 pm

abuss368 wrote:Just stay out of the international REIT / Real Estate market until costs come down!

What, and miss out on the huge valuation advantage over its US counterpart that Larry Swedroe marvels at?

See his recent comments here: Re: International REITs anyone?

Besides, with an ER for VNQI already down to 0.32% what's not to like?

(You had to have known that was coming, abuss368) :wink:

--Pete
Last edited by petrico on Fri Apr 05, 2013 6:47 pm, edited 1 time in total.
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Re: My thoughts on REITs

Postby billjohnson » Fri Apr 05, 2013 6:47 pm

abuss368 wrote:Just stay out of the international REIT market until costs come down!

Just stay out of the domestic REIT market until prices come down!
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Re: My thoughts on REITs

Postby zaboomafoozarg » Sun Apr 14, 2013 10:02 am

billjohnson wrote:
abuss368 wrote:Just stay out of the international REIT market until costs come down!

Just stay out of the domestic REIT market until prices come down!


Or just buy both according to your AA and rebalance as necessary!
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Re: My thoughts on REITs

Postby abuss368 » Sun Apr 14, 2013 5:48 pm

zaboomafoozarg wrote:
billjohnson wrote:
abuss368 wrote:Just stay out of the international REIT market until costs come down!

Just stay out of the domestic REIT market until prices come down!


Or just buy both according to your AA and rebalance as necessary!


Now hopefully that expense ratio keeps declining! .45 now!

The purchase fee is paid to shareholders and not the fund correct?
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + REITs
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Re: My thoughts on REITs

Postby zaboomafoozarg » Sun Apr 14, 2013 10:46 pm

abuss368 wrote:Now hopefully that expense ratio keeps declining! .45 now!

The purchase fee is paid to shareholders and not the fund correct?


Not sure, I think it does. I had a brokerage IRA opened up so I just bought VNQI, .32% ER with the NAV premium which was just about as much as the fees.
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