Bad day for REITs

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Bad day for REITs

Postby InvestorNewb » Wed May 22, 2013 3:35 pm

VNQ is down about 3% today. :shock:

I guess this makes it a RBD?
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Re: Bad day for REITs

Postby Ged » Wed May 22, 2013 3:45 pm

VNQ has been a massive cash cow over the past 4 years. It seemed like every time I re-balanced I was collecting milk.

I guess it's time for some bag balm.
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Re: Bad day for REITs

Postby Kevin M » Wed May 22, 2013 3:46 pm

Could be, but I recently rebalanced (again) out of my REIT fund to bring it back to its target allocation (as part of raising cash for another CD purchase), and since then it looks like it went up about 5%. So after today's drop, the fund value will still be above what it was a few weeks ago. To rebalance back into my REIT fund, it would have to drop at least another 12% or so.

This is an example of why I ignore RBDs unless they are preceded by RBW (Really Bad Weeks) or RBMs (Really Bad Months).

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Re: Bad day for REITs

Postby Investing is boring » Wed May 22, 2013 3:47 pm

Just demonstrates that REIT's are likely the most sensitive asset class to a more dovish Fed.
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Re: Bad day for REITs

Postby Kevin M » Wed May 22, 2013 3:52 pm

Ged wrote:VNQ has been a massive cash cow over the past 4 years. It seemed like every time I re-balanced I was collecting milk.

I guess it's time for some bag balm.

There was a day within the last couple of years, IIRC, when it dropped about 10% in one day. I bought that day, attempting to bring my allocation back to target (I fell a little short, because the NAV of the fund fell more than the market value of VNQ that day). The next day it regained most of its losses, again, IIRC. Now that was a RBD that paid off :happy

Since then the only rebalancing has been out of the fund, which I believe has been three times. The first two times were after gains of 25%. The last time only 20%, because of the need to raise cash for the CD. It looks like if I had been a bit more patient, it would have hit the 25% gain target.

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Re: Bad day for REITs

Postby matjen » Wed May 22, 2013 4:07 pm

This morning I decided to dump all my REITs which is held in a 401(k). Based decision on it being a fairly small position (roughly 2-3%) and on really feeling like I just didn't have enough bonds/fixed income (10-11%). William Bernstein's (Wbern)recent post certainly gave me food for thought as well. So I sold it all and put it into PIMCO which is the best bond option I have in that account. Made me wish my 401(k) was like my regular accounts which are mostly ETFs. The fund went down probably 1.5% after I made the decision. :annoyed
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Re: Bad day for REITs

Postby EmergDoc » Wed May 22, 2013 5:29 pm

REITS can be volatile. Take a look at 2008. 3% is nothing. I remember swings of over 10% a day.
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Re: Bad day for REITs

Postby investnoob13 » Wed May 22, 2013 8:50 pm

Whenever it drops more than 1%, I will just added more shares.

I consider this is a "on sale" event. The more it drop, the more shares I will own.
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Re: Bad day for REITs

Postby Kevin M » Wed May 22, 2013 9:03 pm

investnoob13 wrote:Whenever it drops more than 1%, I will just added more shares.

I consider this is a "on sale" event. The more it drop, the more shares I will own.

So your rebalancing band is 1% on the downside. What about the upside? How much does the REIT fund have to increase for you to sell shares?

Did you do this through the 2008/2009 meltdown? You bought every 1% drop all the way down? What did you do on days when it went down 1% after having gone up 5%-10% the day (or week) before?

No, I just don't think this makes sense to me without some more context.

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Re: Bad day for REITs

Postby Johm221122 » Wed May 22, 2013 9:16 pm

Kevin M wrote:
investnoob13 wrote:Whenever it drops more than 1%, I will just added more shares.

I consider this is a "on sale" event. The more it drop, the more shares I will own.

So your rebalancing band is 1% on the downside. What about the upside? How much does the REIT fund have to increase for you to sell shares?

Did you do this through the 2008/2009 meltdown? You bought every 1% drop all the way down? What did you do on days when it went down 1% after having gone up 5%-10% the day (or week) before?

No, I just don't think this makes sense to me without some more context.

Kevin

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Re: Bad day for REITs

Postby investnoob13 » Wed May 22, 2013 9:23 pm

Kevin M wrote:
investnoob13 wrote:Whenever it drops more than 1%, I will just added more shares.

I consider this is a "on sale" event. The more it drop, the more shares I will own.

So your rebalancing band is 1% on the downside. What about the upside? How much does the REIT fund have to increase for you to sell shares?

Did you do this through the 2008/2009 meltdown? You bought every 1% drop all the way down? What did you do on days when it went down 1% after having gone up 5%-10% the day (or week) before?

No, I just don't think this makes sense to me without some more context.

Kevin


I don't plan to sell any shares any time soon... Whenever I see any of my holding drops 1%, I just systematically increase my share positions. If it goes down tomorrow again, I will increase my share again. I have cash/MM ready for these Bad Days.. I will rebalance the whole portfolio by year-end for tax purpose, if I have any losses.
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Re: Bad day for REITs

Postby letsgobobby » Wed May 22, 2013 9:40 pm

investnoob13 wrote:
Kevin M wrote:
investnoob13 wrote:Whenever it drops more than 1%, I will just added more shares.

I consider this is a "on sale" event. The more it drop, the more shares I will own.

So your rebalancing band is 1% on the downside. What about the upside? How much does the REIT fund have to increase for you to sell shares?

Did you do this through the 2008/2009 meltdown? You bought every 1% drop all the way down? What did you do on days when it went down 1% after having gone up 5%-10% the day (or week) before?

No, I just don't think this makes sense to me without some more context.

Kevin


I don't plan to sell any shares any time soon... Whenever I see any of my holding drops 1%, I just systematically increase my share positions. If it goes down tomorrow again, I will increase my share again. I have cash/MM ready for these Bad Days.. I will rebalance the whole portfolio by year-end for tax purpose, if I have any losses.

How much have you lost in opportunity cost over the last four years by having cash/MM ready but not deployed?
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Re: Bad day for REITs

Postby investnoob13 » Wed May 22, 2013 10:04 pm

letsgobobby wrote:
investnoob13 wrote:
Kevin M wrote:
investnoob13 wrote:Whenever it drops more than 1%, I will just added more shares.

I consider this is a "on sale" event. The more it drop, the more shares I will own.

So your rebalancing band is 1% on the downside. What about the upside? How much does the REIT fund have to increase for you to sell shares?

Did you do this through the 2008/2009 meltdown? You bought every 1% drop all the way down? What did you do on days when it went down 1% after having gone up 5%-10% the day (or week) before?

No, I just don't think this makes sense to me without some more context.

Kevin


I don't plan to sell any shares any time soon... Whenever I see any of my holding drops 1%, I just systematically increase my share positions. If it goes down tomorrow again, I will increase my share again. I have cash/MM ready for these Bad Days.. I will rebalance the whole portfolio by year-end for tax purpose, if I have any losses.

How much have you lost in opportunity cost over the last four years by having cash/MM ready but not deployed?


I was actively involved with individual stocks last few years. I didn't come up with my long-term IPS until last year. I followed Livesoft recommendation and slowly DCA getting back into the market. I use the 1% drop as a signal to DCA into my portfolio. As bonds on-going concerns, I am holding more cash in my CD/ 1% high interest saving account..
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Re: Bad day for REITs

Postby Kevin M » Thu May 23, 2013 3:41 pm

Johm221122 wrote:You should have target allocation for your portfolio. Example 5% of total portfolio
John

Agreed--with rebalancing bands or some other rebalancing strategy.

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Re: Bad day for REITs

Postby Kevin M » Thu May 23, 2013 4:02 pm

investnoob13 wrote:[
I don't plan to sell any shares any time soon... Whenever I see any of my holding drops 1%, I just systematically increase my share positions. If it goes down tomorrow again, I will increase my share again. I have cash/MM ready for these Bad Days.. I will rebalance the whole portfolio by year-end for tax purpose, if I have any losses.

I still question whether you've thought this through thoroughly. I might help to consider my questions; if REITs go up 5% or 10% one day, then drop 1% the next, do you buy on the 1% drop?

I think part of the issue is that you've only been doing this since REITs have been going up pretty steadily, so a relatively small drop seems like a bad day. A few years ago REITs were much more volatile, on the downside and upside. Daily moves of 5%-10% were not uncommon. If this kind of volatility returns, I think your strategy will be sorely tested.

In general, your inclination to add to your positions after declines is a good thing. It helps condition you to go against the fear reaction that tends to motivate you to do the opposite. I just think your 1% drop in a single day criterion is too narrowly focused.

Just look at the last month. Before yesterday, REIT fund was up about 5.5%. After yesterday's drop, it was still up about 3%. After today's drop, it looks like it will be up about 1%.So as of today, you would have been better off adding to your fund a month ago, rather than waiting for a 3% drop after a 5.5% gain.

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Re: Bad day for REITs

Postby ofcmetz » Thu May 23, 2013 4:42 pm

InvestorNewb wrote:VNQ is down about 3% today. :shock:

I guess this makes it a RBD?


I would just stick to your investment policy statement and rebalance according to your plan. I think a 3% movement in REITS during an individual day is really no bid deal. Now if it was my Intermediate Bond Index Fund, then yes that would impress me.
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Re: Bad day for REITs

Postby InvestorNewb » Wed May 29, 2013 12:31 pm

What's going on with REITs lately? Losing all my gains. :annoyed
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Re: Bad day for REITs

Postby Scooter57 » Wed May 29, 2013 12:35 pm

People are waking up to the realization that rates are going up sooner, not later. When rates go up, it puts pressure on real estate prices and organizations that buy real estate, making them less profitable.
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Re: Bad day for REITs

Postby InvestorNewb » Wed May 29, 2013 12:51 pm

Scooter57 wrote:People are waking up to the realization that rates are going up sooner, not later. When rates go up, it puts pressure on real estate prices and organizations that buy real estate, making them less profitable.


I wonder if I should sell... I won't "lose" any of my original principle if I do.
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Re: Bad day for REITs

Postby Scooter57 » Wed May 29, 2013 1:06 pm

Newb,

Did you set up an allocation percent for REITs when you first bought in? Did you have a reason for owning the REIT fund other than a hope it would continue to rise, without cease, for the rest of your life?

If not, then you probably should read up on the principles of portfolio construction so that you have a better idea of what role that particular kind of investment could be expected to play in your portfolio.

You would also want to sanity check how much of your investable assets are in that asset class. The usual recommendation is that it should be 5-10% of your portfolio, max. Dr. Bill Bernstein's recent post here on the forward projections for the class's performance might cause you to stick to the low end of that spectrum. Some people don't invest in it at all.

If you have too much of your investable assets invested in REITs, this might be a good time to rearrange your portfolio so that it is allocated in a better way. But before you do that, you might have to do some serious studying. I recommend Bill Bernstein's book, The Four Pillars of Investing. But Bernstein has since downgraded his recommendations about REITs because their abnormally low returns forecast longterm mediocre performance due to the nature of how REITs work.
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Re: Bad day for REITs

Postby Ged » Wed May 29, 2013 2:22 pm

Well, I was as high as 15% US REIT (VNQ) in 2010, but after reading some of the recommendations on a range of 5-10% I started reducing allocation. By Feb of this year I was down to 8%. Yesterday I took it to 4%.

In Feb I also allocated 2% to Intl (VNQI) REIT. Next time I rebalance (Oct) I'll probably make it 3% Intl and 3% US. Maybe by then that will mean buying both more VNQI and VNQ.
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Re: Bad day for REITs

Postby Investing is boring » Wed May 29, 2013 2:37 pm

REIT's are volatile. They also pass 90% of profit through in dividends. With a 3% dividend, and a historical 6%-8% dividend, its an easy argument to make that they are over-valued. At the same time, they are hard-assets and should have a positive, non-perfect, correlation with inflation. And they have provided nice diversification benefits in the past relative to stocks. The answer is, pick an allocation and stick to it. Mine is 10% split between US and Intl. I got as high as 12.5% a couple of weeks ago, and rebalanced out of REIT's. Right now, they are 9.5% and so I am a long ways from any rebalancing bands.

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Re: Bad day for REITs

Postby InvestorNewb » Wed May 29, 2013 2:54 pm

Scooter57 wrote:Newb,

Did you set up an allocation percent for REITs when you first bought in? Did you have a reason for owning the REIT fund other than a hope it would continue to rise, without cease, for the rest of your life?

If not, then you probably should read up on the principles of portfolio construction so that you have a better idea of what role that particular kind of investment could be expected to play in your portfolio.

You would also want to sanity check how much of your investable assets are in that asset class. The usual recommendation is that it should be 5-10% of your portfolio, max. Dr. Bill Bernstein's recent post here on the forward projections for the class's performance might cause you to stick to the low end of that spectrum. Some people don't invest in it at all.

If you have too much of your investable assets invested in REITs, this might be a good time to rearrange your portfolio so that it is allocated in a better way. But before you do that, you might have to do some serious studying. I recommend Bill Bernstein's book, The Four Pillars of Investing. But Bernstein has since downgraded his recommendations about REITs because their abnormally low returns forecast longterm mediocre performance due to the nature of how REITs work.


I'm at about 20% REITs. I decided this based on David Swenson's recommendation a few years back, and what some of the other "die-hard" REIT fans on this board suggested. I did do my research, but now I'm starting to second guess the allocation based on what W. Bernstein wrote.

My understanding is that over the long-haul, REITs actually outperform the S&P 500 index. This is what I read on fool.com. I also bought into REITs because of their high dividend yield and to take advantage of my tax-deferred space. Also: If you look at the history of the REIT index, it just seems to go up over time - with the exception of 2008 of course.

Should I split my REITs into Vanguard's Small-Cap fund? i.e. Hold 50% REITs (VNQ) and 50% Small-Cap index fund (VB).

If so, does VB make sense in a tax-deferred account?

FYI: My tax-deferred account has a 41 year time horizon, so I want to hold the funds that are most likely to outperform the S&P 500 over the long haul. I can't withdraw the money until then without being heavily taxed.
Last edited by InvestorNewb on Wed May 29, 2013 3:15 pm, edited 1 time in total.
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Re: Bad day for REITs

Postby Investing is boring » Wed May 29, 2013 2:59 pm

`Newb - Seems to me you need to take a more holistic look at your portfolio volatility and personal rick tolerance... If you suddenly get skiddish after a minor drop in one of your holdings you are in a lot of trouble from an investing psychology perspective... You also have a problem with an expectation of out-performing the market. If I were you, I would put everything into a Target Date fund, until I felt comfortable writing an IPS.

You should expect a 50% decline in stock and REIT prices at somepoint within your horizion...
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Re: Bad day for REITs

Postby telemark » Wed May 29, 2013 3:04 pm

With a forty-one year time horizon there's no reason to worry about what happened last Wednesday.
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Re: Bad day for REITs

Postby Kevin M » Wed May 29, 2013 3:09 pm

InvestorNewb wrote:What's going on with REITs lately? Losing all my gains. :annoyed

I am sticking with my allocation to REITs. As of today, I'm a little less than 3% below target, which is nothing. But remember, I've rebalanced out of REITs (back to target) a couple of times in the last few months, so I love the volatility.

I would love to see my REIT fund drop another 7%, at which point I'll consider rebalancing back into it. I may wait until the 60 day round-trip time limit imposed by Vanguard has expired, even if we drop below 10%, although there are ways around that limit. I've been using 10% on the downside for rebalancing in, and 25% on the upside for rebalancing out, although my last out was only about 17% up (IIRC) because I was raising cash for another CD.

What would be ideal for me would be to approach the 10% limit on the downside, then have a big down day of 5% or more. I definitely would rebalance back to target then.

This is the way sliced and diced portfolios are supposed to work. You gotta love the downside as well as the upside.

Can you provide a link to the Bernstein thoughts you're referencing? Don't think he can predict the future any better than anyone else, but always love to read his writing.

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Re: Bad day for REITs

Postby InvestorNewb » Wed May 29, 2013 3:14 pm

Investing is boring wrote:`Newb - Seems to me you need to take a more holistic look at your portfolio volatility and personal rick tolerance... If you suddenly get skiddish after a minor drop in one of your holdings you are in a lot of trouble from an investing psychology perspective... You also have a problem with an expectation of out-performing the market. If I were you, I would put everything into a Target Date fund, until I felt comfortable writing an IPS.

You should expect a 50% decline in stock and REIT prices at somepoint within your horizion...


Maybe I am panicking a little. But it's because I'm down 6k in a few days. The TR funds aren't available to me because I am in Canada.

It's just critical that this account grows by A LOT by retirement because I may not have a pension.


Kevin M wrote:Can you provide a link to the Bernstein thoughts you're referencing? Don't think he can predict the future any better than anyone else, but always love to read his writing.


The link I was referring to can be found here: viewtopic.php?f=10&t=115965&newpost=1706630
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Re: Bad day for REITs

Postby bottomfisher » Wed May 29, 2013 3:18 pm

InvestorNewb wrote:

I'm at about 20% REITs. I decided this based on David Swenson's recommendation a few years back, and what some of the other "die-hard" REIT fans on this board suggested. I did do my research, but now I'm starting to second guess the allocation based on what W. Bernstein wrote.

My understanding is that over the long-haul, REITs actually outperform the S&P 500 index. This is what I read on fool.com. I also bought into REITs because of their high dividend yield and to take advantage of my tax-deferred space. Also: If you look at the history of the REIT index, it just seems to go up over time - with the exception of 2008 of course.

Should I split my REITs into Vanguard's Small-Cap fund? i.e. Hold 50% REITs (VNQ) and 50% Small-Cap index fund (VB).

If so, does VB make sense in a tax-deferred account?

FYI: My tax-deferred account and has a 41 year time horizon, so I want to hold the funds that are most likely to outperform the S&P 500 over the long haul. I can't withdraw the money until then without being heavily taxed.


REIT have outperformed the S&P 500 index. But past performance does not indicate future performance. If REITs outperforming was guaranteed, then few would invest in S&P 500 over REIT. But there are no guarantees.

Before, making any implusive decisions you should determin why you hold REIT's in your portfolio in the first place. Many hold them for their income producing characteristics, varying correlations/diversification and real estate's relative underrepresentation in the total stock market. If this is why you hold 20% REIT, then splitting half the holding to 50% Small Cap index is not a good idea. If you want small cap index because you feel strongly about Fama-French research as discussed on this forum, then its a good idea.

telemark wrote:With a forty-one year time horizon there's no reason to worry about what happened last Wednesday.


Most will agree on this
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Re: Bad day for REITs

Postby Investing is boring » Wed May 29, 2013 3:19 pm

InvestorNewb wrote:Maybe I am panicking a little. But it's because I'm down 6k in a few days. The TR funds aren't available to me because I am in Canada.

It's just critical that this account grows by A LOT by retirement because I may not have a pension.



So you want a "safe" way to grow your accounts by A LOT, with low volatility? Let me consult Big Foot... be right back.
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Re: Bad day for REITs

Postby Code Commit » Wed May 29, 2013 3:21 pm

InvestorNewb,

Hope you re-read these earlier posts, where other posters questioned whether it was prudent to substitue bonds with REITs and you seemed to be pretty clear with your rationale. Has anything changed?

viewtopic.php?f=1&t=109785&p=1596543
viewtopic.php?f=1&t=110866&p=1611917#p1611917

Good luck.
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Re: Bad day for REITs

Postby InvestorNewb » Wed May 29, 2013 3:53 pm

^ Thanks for these reminders. I'm just going to stick with REITs at 20% of my portfolio.

I'll try not to let the allocation get any higher than this with new contributions.
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Re: Bad day for REITs

Postby Kevin M » Wed May 29, 2013 4:01 pm

InvestorNewb wrote:^ Thanks for these reminders. I'm just going to stick with REITs at 20% of my portfolio.

I'll try not to let the allocation get any higher than this with new contributions.

20% of portfolio seems high to me. Even 20% of stocks is higher than I'd go; I'd keep it at 10%-15% of stocks. I currently am at 7.7% of stocks and 2.4% of portfolio. In some other portfolios I help manage, REITs are at 10% to 15% of stocks, and in others they are at 0%.

Personally, I would prefer to reduce my allocation when REITs have been doing really well lately, for example, when I hit my upper rebalancing band. I wouldn't reduce the allocation out of fear after a drop. Same goes for any other asset class.

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Re: Bad day for REITs

Postby ge1 » Wed May 29, 2013 4:24 pm

InvestorNewb
I have to admit reading the thread makes me cringe. You are in my view completely overexposed to a fairly small sector of the economy, which admittely had a great run over the last few years. Since the March 2009 lows REITs are up a staggering 240%! And now after a small drop you are already getting nervous, even though YTD your are still up 10%.

So given both the enormous run REITs had and your nervousness after a small decline, should you reduce your exposure? Absolutely! With that mindset there is no way you would handle the next inevitable big decline in REITs well. I would suggest you reduce your exposure to 10% of your portfolio.

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Re: Bad day for REITs

Postby Kevin M » Wed May 29, 2013 4:27 pm

InvestorNewb wrote:The link I was referring to can be found here: viewtopic.php?f=10&t=115965&newpost=1706630

Thanks! As usual, great stuff from wbern. For me, he made the most important point at the end:

wbern wrote:We’re all long-term investors on this board, and I’m certainly not recommending that we all run out and sell all our REITs. But I think that anyone not experienced with the asset class who’s thinking of going out and establishing a new position in it at this time should pay less attention to its recent returns and consider the above data.

Always good advice for any asset class and one's portfolio. Stick with your long-term plan, and don't let recency bias influence your decisions.

In your case, it's just a tad late, since you already established your position. If it's going to freak you out and you're going to bail if REITs drop 50%, then you might be better off bailing now. But that goes for any asset class.

As I said, I would prefer to wait until they've done well recently (according to your timeframe), and then perhaps reduce my allocation if I had learned something new that I was convinced was a good reason to change my allocation. You won't do well if you change your AA ever time you learn something new, especially if you are jumping out of something that's done poor lately, or jumping into something that's done well lately.

Note that later in that thread Larry Swedroe described how he changed his plan in 1998, going to small-value only for equities, and reducing his overall equity allocation. He did that toward the end of one of the great equity bull markets (although as he said, a couple of years early), not after stocks had dropped a lot.

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Re: Bad day for REITs

Postby ge1 » Wed May 29, 2013 4:35 pm

Kevin M wrote:Note that later in that thread Larry Swedroe described how he changed his plan in 1998, going to small-value only for equities, and reducing his overall equity allocation. He did that toward the end of one of the great equity bull markets (although as he said, a couple of years early), not after stocks had dropped a lot.

Kevin


Just curious, which drop are you referring to? REITs may be 8% lower than the high mid May, but that only gets them back to where they were in early April, which in itself was the highest level since October 2007.
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Re: Bad day for REITs

Postby swaption » Wed May 29, 2013 4:53 pm

InvestorNewb wrote:Maybe I am panicking a little. But it's because I'm down 6k in a few days. The TR funds aren't available to me because I am in Canada.

It's just critical that this account grows by A LOT by retirement because I may not have a pension.


The red warning lights are flashing. If you're getting cold feet after your first little quarrel, then this may not be the right long term relationship for you! The market doesn't really care how much your portfolio needs to grow. It can be brutal at times. If not now, then at some point in the future when there is likely far more at on the line. Didn't really follow the prior thread, but why 20% allocation to REITs? I agree it seems high. Is there any rationale? You might need to think about your overall allocation in terms of the bond mix as well. I know some have argued a bond-like view of REITs, but my personal view is that is a toxic perspective merely rationalizing more risk.

Fixing things now may seem a bit reactive. Better a small price for a big lesson. Many here have taken much bigger lumps.
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Re: Bad day for REITs

Postby Kevin M » Wed May 29, 2013 5:09 pm

ge1 wrote:
Kevin M wrote:Note that later in that thread Larry Swedroe described how he changed his plan in 1998, going to small-value only for equities, and reducing his overall equity allocation. He did that toward the end of one of the great equity bull markets (although as he said, a couple of years early), not after stocks had dropped a lot.

Kevin


Just curious, which drop are you referring to? REITs may be 8% lower than the high mid May, but that only gets them back to where they were in early April, which in itself was the highest level since October 2007.

In that particular comment, I wasn't referring to REITs at all, but I think your question is about what time period to look at in considering whether something has gone up or down a lot, and that's a good question.

In that same post I used the phrase "according to your timeframe". What I was thinking was that InvestorNewb's timeframe is much shorter than mine, since he just recently established his position in REITs, whereas I've had mine for a number of years. I was talking about a behavioral issue.

I think the recent declines seem significant to InvestorNewb because he established his position recently at relatively high levels, and has not lived through a lot of volatility with REITs yet. So from a behavioral perspective, I think it might be counterproductive to eliminate or reduce his allocation to REITs now.

Even though I still wouldn't reduce my target allocation to REITs after a relatively small, recent decline, if I did, it would be from the perspective of much larger gains over the last few years. If you saw my other posts above, you know that I've rebalanced out of REITs twice recently (before the latest drop), but I have not changed my target allocation.

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Re: Bad day for REITs

Postby gkaplan » Wed May 29, 2013 5:23 pm

InvestorNewb, do you have an ISP? Just judging from all your posts, I don't think so.
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Re: Bad day for REITs

Postby ge1 » Wed May 29, 2013 5:28 pm

Kevin M wrote:
ge1 wrote:
Kevin M wrote:Note that later in that thread Larry Swedroe described how he changed his plan in 1998, going to small-value only for equities, and reducing his overall equity allocation. He did that toward the end of one of the great equity bull markets (although as he said, a couple of years early), not after stocks had dropped a lot.

Kevin


Just curious, which drop are you referring to? REITs may be 8% lower than the high mid May, but that only gets them back to where they were in early April, which in itself was the highest level since October 2007.

In that particular comment, I wasn't referring to REITs at all, but I think your question is about what time period to look at in considering whether something has gone up or down a lot, and that's a good question.

In that same post I used the phrase "according to your timeframe". What I was thinking was that InvestorNewb's timeframe is much shorter than mine, since he just recently established his position in REITs, whereas I've had mine for a number of years. I was talking about a behavioral issue.

I think the recent declines seem significant to InvestorNewb because he established his position recently at relatively high levels, and has not lived through a lot of volatility with REITs yet. So from a behavioral perspective, I think it might be counterproductive to eliminate or reduce his allocation to REITs now.

Even though I still wouldn't reduce my target allocation to REITs after a relatively small, recent decline, if I did, it would be from the perspective of much larger gains over the last few years. If you saw my other posts above, you know that I've rebalanced out of REITs twice recently (before the latest drop), but I have not changed my target allocation.

Kevin


Ok, get your situation and agree with your comments.

I think in his case it doesn't really matter why he is reducing the positions, his comments seem to clearly indicate that he shouldn't own 20% REITs and better in my view to fix an incorrect asset allocation when you are up a bit (since February up maybe 5%) than wait any longer.
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Re: Bad day for REITs

Postby Valuethinker » Wed May 29, 2013 5:53 pm

InvestorNewb wrote:VNQ is down about 3% today. :shock:

I guess this makes it a RBD?


If you look at the volatility of REIT prices 2008-09 then you need to consider what you would feel like, and how it would affect your financial plans, if you went through that *again*. That precipitate drop.

In the long run, Commercial Real Estate should produce returns higher than bonds, but lower than stocks. With volatility between the 2. There's no direct way of investing in CRE for US individual investors *except* TIAA RE annuity (basically US university teachers and university staff). The TIAA Forum on Morningstar has many interesting threads on same.

HOWEVER REITs are not just commercial RE. They also have an important component of being quoted stocks, small cap, with significant financial leverage. This gives them a volatility which is greater than that of the underlying asset class.

As the result of the 2008-09 events, many here decided that large weightings in REITs are not something they could stomache, due to volatility in price which reached +/- 10% per day.
Broader equity indices like VG Total Stock Market give you enough volatility, without adding to that.

If you had 20% in REITs say, you could lose 2% of your total portfolio *in one day*. Something to know that you can stomache, before it occurs.

If you are Canadian as I think you said?, then there are a couple of issues with REITs:

- very different tax issues
- big difference on same between US REITs and Canadian REITs (I understand, not sure)
- the Canadian REIT index is skewed, most funds 'track' with a capped index, keeping Rio-Can to 20%. It is not a large number of stocks, nor widely diversified, compared to US REITs

Many wise souls I know with Canadian REITs own directly in rough proportion to the underlying index (capped) thus avoiding management expense ratios.

DFA, if you have access to their funds through an advisor, has a global REIT fund (about 66% US) which looks good-- but you can only access through an advisor.
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Re: Bad day for REITs

Postby xram » Wed May 29, 2013 7:49 pm

InvestorNewb wrote:
Scooter57 wrote:People are waking up to the realization that rates are going up sooner, not later. When rates go up, it puts pressure on real estate prices and organizations that buy real estate, making them less profitable.


I wonder if I should sell... I won't "lose" any of my original principle if I do.


I bought a little SCHH today. Why would u sell? Why not buy?
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Re: Bad day for REITs

Postby LakeTravis » Wed May 29, 2013 8:43 pm

I've got 2,000 shares of AGNC that have taken a substantial hit this month and depending on what article you read it could get worse or it could get better.

I added 500 shares this week when it hit an annual low - that helped reduce my overall cost basis by a few dollars. At this point, I'm holding, not panic selling, not adding more. Past dividends of $1.25 per quarter yielding upwards of 18% were the big attraction. Even if they drop the dividend to $1.00 that's still more than a 10% return.
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Re: Bad day for REITs

Postby Allan » Wed May 29, 2013 8:59 pm

So, does anyone know why REIT's have dropped lately?

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Re: Bad day for REITs

Postby bottomfisher » Wed May 29, 2013 9:14 pm

Allan wrote:So, does anyone know why REIT's have dropped lately?

Allan


Not an expert, but here's my guess - mortgage REITs affected by rising interest rates. Other REIT affected by rising interest rates and some who fled to REITs seeking higher yield cashed in on their REIT gains and returning earlier than others to slightly higher yielding bonds.
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Re: Bad day for REITs

Postby livesoft » Wed May 29, 2013 9:15 pm

The reason REITs dropped is that Jason Zweig wrote in the WSJ that REITs were going to drop. He also said so on WSJ TV.
Furthermore REITs were the best performing asset class in 2013. They were up more than 20% were they not? So it was time to rebalance anyways, so folks sold.
Last edited by livesoft on Wed May 29, 2013 9:17 pm, edited 1 time in total.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Bad day for REITs

Postby swaption » Wed May 29, 2013 9:17 pm

Allan wrote:So, does anyone know why REIT's have dropped lately?

Allan


My guess, look at real yields as measured by 10 yr TIPS. Been sprinting higher approx 50 bps since beginning of May. I suspect REITs might be particularly vulnerable at these low levels. This would be the speculative return unwind :happy
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Re: Bad day for REITs

Postby Kevin M » Wed May 29, 2013 9:22 pm

Allan wrote:So, does anyone know why REIT's have dropped lately?

I don't know, but I don't really care. Whatever the reason, it's already baked into the price, and there's no rational action we can take based on it. Mr. Market often gets emotional.

You're aware of the Boglehead tenet of "tuning out the noise"? Explanations about why the market did this or that, or what it's going to do, or why it's going to do it are all noise. Perhaps entertaining if you don't take it seriously, but otherwise, could be dangerous to your financial health.

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Re: Bad day for REITs

Postby Johm221122 » Wed May 29, 2013 9:50 pm

This conversation makes me think it is time to reread boglehead philosophy
http://www.bogleheads.org/wiki/Boglehea ... philosophy
"Beyond that, there is no need to watch the markets or follow financial news. Even better, it works. Although Bogleheads investing may seem strangely simple, it is based on decades of comprehensive research showing that buying and holding the whole market consistently outperforms many of the alternatives."
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Re: Bad day for REITs

Postby zaboomafoozarg » Wed May 29, 2013 10:04 pm

InvestorNewb wrote:My understanding is that over the long-haul, REITs actually outperform the S&P 500 index. This is what I read on fool.com. I also bought into REITs because of their high dividend yield and to take advantage of my tax-deferred space. Also: If you look at the history of the REIT index, it just seems to go up over time - with the exception of 2008 of course.


I think that understanding is incorrect. From what I'd seen, their returns have been comparable to the S&P 500, maybe a little less. The main reason for holding them is for diversification. At times they have behaved differently than the rest of the market, which has lessened overall volatility and improved returns.

Will that be the case in the future? Check back in 30 years and I'll let you know :D

As for me, I'm at 10% of US stocks in VNQ and 10% of international stocks in VNQI, and plan on staying that way throughout my accumulation years.
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Re: Bad day for REITs

Postby xram » Wed May 29, 2013 10:04 pm

livesoft wrote:?.....So it was time to rebalance anyways, so folks sold.



Perhaps a stupid question. But when someone sells, someone has to buy, right?

So were people selling off or buying up today?
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