POLL: Do you have a dedicated REIT allocation?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Do you have a dedicated REIT allocation?

Yes.
176
56%
No, I never have and likely never will.
73
23%
No, but I used to.
50
16%
No, but I plan to add one.
14
4%
 
Total votes: 313

Topic Author
berntson
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POLL: Do you have a dedicated REIT allocation?

Post by berntson »

REITs haven't gotten much press around here lately, so I thought a poll was in order. There were discussions suggesting that REITs were overvalued last year. Since then, REITs have had strong returns. In his recent book, Bill Bernstein again suggested that at current valuations, new investors should take a pass when it comes to REITs.

What are you doing? What do you think?
asif408
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Re: POLL: Do you have a dedicated REIT allocation?

Post by asif408 »

Essentially I have a 3 fund portfolio + a REIT fund (Rick Ferri's Core Four Portfolio). I've read the posts arguing whether or not REITs are a sector or an asset class, whether or not TSM represents the true % of REITs in the economy, etc. and I think there are good arguments on both sides. To me you could go either way and be ok as long as you don't overdo it.

I'm sure the arguing back and forth will never cease here about REITs, but I'm happy with my portfolio and plan to stick with it for the long haul.
chaz
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Re: POLL: Do you have a dedicated REIT allocation?

Post by chaz »

No REIT - only 3 funds.
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nisiprius
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Re: POLL: Do you have a dedicated REIT allocation?

Post by nisiprius »

1) I think I was seduced by Burton Malkiel's praise for REITs in A Random Walk Down Wall Street. Overall, my investments, first in TIAA Real Estate, then in Vanguard REIT Index Fund, did fine, but I don't think I'd do it again.

2) I think that it is a big mistake to lump
a) REIT stocks,
b) the TIAA Real Estate account,
c) One's personal house (if one owns a house), and
d) Rental property (if one owns rental property)
as if they were all a single asset class called "real estate."

3) Whether or not you choose to invest in REITs as a separate allocation (in addition to the small amount contained in Total Stock), this should be part of your mental furniture. In 2008-2009, over the time period shown:
Image
Stocks in general (Vanguard Total Stock Market Index Fund, VTSMX) lost 47%
Small-cap value (DFA US Small Cap Value I, DFSVX) lost 56%
REITS (Vanguard REIT Index, VGSIX) lost 64%.

Very roughly, then,
a) REITS are riskier than small-cap value
b) when stocks lost half their value, REITS lost two-thirds of their value

Certainly a sane person could choose to do that, but don't think that REITs have the same comfort and reliability as the house you live in.

P.S. I bet REITs would be less popular if they were customarily called "REIT stocks."
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Sbashore
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Sbashore »

I've been holding REITs first as an ETF and now as admiral shares, for a long time. My personal experience is that I like how it behaves differently than my total stk market and total international stocks. I'll continue to hold it.
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pennstater2005
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Re: POLL: Do you have a dedicated REIT allocation?

Post by pennstater2005 »

I voted for "never have and likely never will" because I haven't ruled it out completely. It is not part of my IPS presently.
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209south
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Re: POLL: Do you have a dedicated REIT allocation?

Post by 209south »

10% of total portfolio in REITs - half domestic, half international - I've sacrificed some simplicity for additional diversification and am fortunate to have adequate tax-sheltered room to house the REITs.

Nispirius, I haven't done the work, but suspect it's misleading to say 'REITs are riskier than small-value' when the only evidence presented relates to a real estate / mortgage-driven financial crisis. How did REITs do during the Asia crisis, or the OPEC crisis (did they exist?), or the 1987 Crash, or the leveraged loan melt-down in 1994, or the tech bubble? For the record, I don't know the answers, and love/hold abundant small/value.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Angst »

I keep a 6% allocation to "REITs", 3% domestic and 3% international - not a big commitment, I admit. It has generally been more volatile than the broad market, as well as small cap, as Nisi demonstrated graphically wrt 2008. I enjoy rebalancing.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by steve_14 »

Show me a guy with a 5% or 10% REIT allocation, and I'll show you someone who's read a couple of dated investing books, [OT comment removed by admin LadyGeek].

Not only will such a small allocation make no expected difference to your returns, the experts who did suggest such a bet were doing so when REITs were cheap, not now that they're expensive. While it may feel good to spice up your portfolio with a few extra funds, overweighting X while underweighting Y it's really a pointless activity, unless you know something the market doesn't.
Angst
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Angst »

steve_14 wrote:Show me a guy with a 5% or 10% REIT allocation, and I'll show you someone who's read a couple of dated investing books, [OT comment removed by admin LadyGeek].

Not only will such a small allocation make no expected difference to your returns, the experts who did suggest such a bet were doing so when REITs were cheap, not now that they're expensive. While it may feel good to spice up your portfolio with a few extra funds, overweighting X while underweighting Y it's really a pointless activity, unless you know something the market doesn't.
[Response to OT comment removed by admin LadyGeek]
markcoop
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Re: POLL: Do you have a dedicated REIT allocation?

Post by markcoop »

I believe Small Value contains a very healthy dose of REITs. So, many be holding more than they think.
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columbia
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Re: POLL: Do you have a dedicated REIT allocation?

Post by columbia »

Whenever I think about putting money into REITs, I take a look at their decline in 08-09 and feel satisfied with TSM.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Tom_T »

steve_14 wrote:Show me a guy with a 5% or 10% REIT allocation, and I'll show you someone who's read a couple of dated investing books, [OT comment removed by admin LadyGeek].

Not only will such a small allocation make no expected difference to your returns, the experts who did suggest such a bet were doing so when REITs were cheap, not now that they're expensive. While it may feel good to spice up your portfolio with a few extra funds, overweighting X while underweighting Y it's really a pointless activity, unless you know something the market doesn't.
That also sounds like an argument against any slicing-and-dicing.
livesoft
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Re: POLL: Do you have a dedicated REIT allocation?

Post by livesoft »

I don't have a dedicated REIT allocation and currently do not own any VNQ or VGSIX. I did own some shares this year, but sold them in the past few months. I will buy VNQ again if it has a RBD or has dropped significantly. I do not mind owning some shares most of the time.
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DFrank
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Re: POLL: Do you have a dedicated REIT allocation?

Post by DFrank »

I used to have a 5% allocation in REITs. It was based on a Boglehead-ish article I read many, many years ago that originally got me to see the the light with respect to low cost index fund investing. I don't recall who wrote the article, but his backtesting showed that a small allocation in REITs provided a small improvement to returns over the long haul, but the bigger affect was that it moderated volatility. He was recommending a 5 fund portfolio of low cost index funds - S&P 500, Small Cap, Foreign, Bonds, & REITs. Not as simple as some advocate here, but at the time that seemed like a marvel of simplicity compared to what I had been doing.

Over time I've dropped the REIT allocation as I've moved toward an even simpler portfolio.

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Sbashore
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Sbashore »

Angst wrote:
steve_14 wrote:Show me a guy with a 5% or 10% REIT allocation, and I'll show you someone who's read a couple of dated investing books, [OT comment removed by admin LadyGeek].

Not only will such a small allocation make no expected difference to your returns, the experts who did suggest such a bet were doing so when REITs were cheap, not now that they're expensive. While it may feel good to spice up your portfolio with a few extra funds, overweighting X while underweighting Y it's really a pointless activity, unless you know something the market doesn't.
[Response to OT comment removed by admin LadyGeek]
Despite Steve's "pronouncements", my opinion is informed by my decades long experience with Vanguard REIT holdings. It has not been pointless for me. I tend to view my holdings in the context of MPT not "spicing up my portfolio.
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midareff
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Re: POLL: Do you have a dedicated REIT allocation?

Post by midareff »

I slice and equally weight equities 6 ways @ 7.5% per slice... Total US, Total Int., SV, Small Int, Health and REITs. As Nisi pointed out REITs can be very volatile and I see that as an opportunity rather than a problem.
feh
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Re: POLL: Do you have a dedicated REIT allocation?

Post by feh »

I rebuilt my portfolio from scratch about 18 months ago...started with Rick Ferri's Core Four, which includes REIT.

After a few months of reading and pondering, I decided it wasn't necessary. I'm now a TSM/TBM/ex-US w/ SV tilt guy.
ks289
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Re: POLL: Do you have a dedicated REIT allocation?

Post by ks289 »

Tom_T wrote:
steve_14 wrote:Show me a guy with a 5% or 10% REIT allocation, and I'll show you someone who's read a couple of dated investing books, [OT comment removed by admin LadyGeek].

Not only will such a small allocation make no expected difference to your returns, the experts who did suggest such a bet were doing so when REITs were cheap, not now that they're expensive. While it may feel good to spice up your portfolio with a few extra funds, overweighting X while underweighting Y it's really a pointless activity, unless you know something the market doesn't.
That also sounds like an argument against any slicing-and-dicing.
Par for the course.
workingatit
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Re: POLL: Do you have a dedicated REIT allocation?

Post by workingatit »

i thought in 4 pillars, one of guidebooks for bogleheads, reits were generally recommended?
physicsgal
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Re: POLL: Do you have a dedicated REIT allocation?

Post by physicsgal »

I have ~$7k in an old TIAA-CREF account from grad school that I put into their real estate fund, which is supposedly less volatile than an REIT. I figure I'll just let it do it's thing since that's one fund that they have that you can't really mimic with Vanguard funds, from what I understand. I can't add to that account and I can't rollover and the TIAA stock funds aren't as good as VG funds so I figured I'd try it. Right now it's ~10% of my AA but since I'm not going to add to it eventually it will be a pretty small %age.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by steve_14 »

Angst wrote:
steve_14 wrote:Show me a guy with a 5% or 10% REIT allocation, and I'll show you someone who's read a couple of dated investing books, [OT comment removed by admin LadyGeek].

Not only will such a small allocation make no expected difference to your returns, the experts who did suggest such a bet were doing so when REITs were cheap, not now that they're expensive. While it may feel good to spice up your portfolio with a few extra funds, overweighting X while underweighting Y it's really a pointless activity, unless you know something the market doesn't.
[Response to OT comment removed by admin LadyGeek]
I should note that you're probably in the 95% percentile of investors education and portfolio-wise if you've even got to the 5% REIT allocation stage. But I'm expecting perfection from Bogleheads. :)

Push yourself to nail down those last few concepts and invest based on them. And note the recent words of folks like Dr. Bernstein and nisiprius, who already have them nailed down.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by IlliniDave »

I'm a yes, although I've only been establishing the position for a couple of months. Currently around 0.5%, headed maybe to 5% over the next 2 years or so.
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countmein
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Re: POLL: Do you have a dedicated REIT allocation?

Post by countmein »

International only.

Domestic REIT is on my "add if it crashes" list, along with junk bonds and gold.
Whatyear?
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Whatyear? »

I had a small amount of Inland American non-traded REIT until I was finally able to sell it a month or two ago, as part of their share repurchase program. Yay!!
rustymutt
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Re: POLL: Do you have a dedicated REIT allocation?

Post by rustymutt »

209south wrote:10% of total portfolio in REITs - half domestic, half international - I've sacrificed some simplicity for additional diversification and am fortunate to have adequate tax-sheltered room to house the REITs.

Nispirius, I haven't done the work, but suspect it's misleading to say 'REITs are riskier than small-value' when the only evidence presented relates to a real estate / mortgage-driven financial crisis. How did REITs do during the Asia crisis, or the OPEC crisis (did they exist?), or the 1987 Crash, or the leveraged loan melt-down in 1994, or the tech bubble? For the record, I don't know the answers, and love/hold abundant small/value.
I have had that exact asset in the same ratios of 5/5, and it's done well for me over years of up/down markets, even though the international REIT isn't that all old. I was 10% US REITs, before Vanguard gave us more diversification.
I too, like the way if reacts different at times to the rest of the market. It's one of the many asset classes I own in ETFs, and my best performer year to date in 14.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by 209south »

steve_14, respect your passion but count me among the ill-informed (Swensen, Swedroe, Ferri, Bridgewater...) who believe a little slicing-and-dicing can be beneficial, even in moderation
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Re: POLL: Do you have a dedicated REIT allocation?

Post by RyeWhiskey »

My dedicated REIT allocation is 3.51%. That is the allocation to REITs in the Vanguard Total World Stock Index fund. :beer
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Re: POLL: Do you have a dedicated REIT allocation?

Post by LateStarter1975 »

workingatit wrote:i thought in 4 pillars, one of guidebooks for bogleheads, reits were generally recommended?
Exactly...that's where I got convinced to add REITs to my portfolio
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tadamsmar
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Re: POLL: Do you have a dedicated REIT allocation?

Post by tadamsmar »

I have about 12.5% in the Vg REIT fund, influenced by the Life Cycle AA schedule in Random Walk Down Wall Street.

Interesting that more than half of those polled hold REIT. Probably not similar to a cross-section of all investors.

What is the capitalization of the REIT index small compared with the TSM?

Some gurus like Makiel recommend a REIT allocation, but if everyone did it wouldn't REITs be overvalued? Or maybe more real estate would be bought up by REITS. Not sure.
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Kenkat
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Kenkat »

I have had a 5% REIT allocation since 2000. It absolutely has had a positive effect on returns. Just for comparison, 15 year returns:

Vanguard REIT Admiral: 11.38%
Vanguard TSM Admiral: 5.02%

This is not to discount an all TSM approach; REIT started the time period at low valuations; TSM started at high valuations. But they can move in somewhat opposite directions at times and I think that is a good thing.
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tadamsmar
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Re: POLL: Do you have a dedicated REIT allocation?

Post by tadamsmar »

steve_14 wrote:Show me a guy with a 5% or 10% REIT allocation, and I'll show you someone who's read a couple of dated investing books, [OT comment removed by admin LadyGeek].

Not only will such a small allocation make no expected difference to your returns, the experts who did suggest such a bet were doing so when REITs were cheap, not now that they're expensive. While it may feel good to spice up your portfolio with a few extra funds, overweighting X while underweighting Y it's really a pointless activity, unless you know something the market doesn't.
Your observation does not fit the facts.

I think the latest edition (2011) of Random Walk Down Wall Street still recommends significant REIT allocations, and the overall AA seems to be updated in each edition.

Might be a bad idea, but it's not a dated idea by your measure.
livesoft
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Re: POLL: Do you have a dedicated REIT allocation?

Post by livesoft »

steve_14 wrote:Show me a guy with a 5% or 10% REIT allocation, and I'll show you someone who's read a couple of dated investing books, [OT comment removed by admin LadyGeek].

Not only will such a small allocation make no expected difference to your returns, ....
This is a statement that is easily proven false by recent history. TREA dropped 20% about 9 months after everything else dropped. So while everything else was going up, a 10% allocation to TREA made the entire portfolio fall 2% behind. And 2% behind is a big deal in the age of low-cost passively-managed index fund investing.
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Angst
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Angst »

steve_14 wrote:I should note that you're probably in the 95% percentile of investors education and portfolio-wise if you've even got to the 5% REIT allocation stage. But I'm expecting perfection from Bogleheads. :)

Push yourself to nail down those last few concepts and invest based on them. And note the recent words of folks like Dr. Bernstein and nisiprius, who already have them nailed down.
I'll give you the benefit of the doubt; you're probably young. Lose the pompous persona and you're more likely to be taken seriously.
freddie
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Re: POLL: Do you have a dedicated REIT allocation?

Post by freddie »

columbia wrote:Whenever I think about putting money into REITs, I take a look at their decline in 08-09 and feel satisfied with TSM.
Whenever I think of going 100% TSM, I think back to 2000-2002 and am pretty happy I stuck a lot of money into REITs :)
Tamales
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Tamales »

FWIW, here's a plot of the DJ REIT index since its inception (blue) vs MSCI emerging markets index (orange) and SP500 (green):

Image

So in terms of "spicing things up," adding SP500 is like adding Jalapenos. Adding REITs is like adding Habanero, and adding emerging markets is like adding Bhut Jalokia.
dickenjb
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Re: POLL: Do you have a dedicated REIT allocation?

Post by dickenjb »

I have a dedicated percentage in REITs. It is market weight and held within VTSAX.
Last edited by dickenjb on Wed Jul 16, 2014 2:37 pm, edited 1 time in total.
Bungo
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Bungo »

Tamales wrote: So in terms of "spicing things up," adding SP500 is like adding Jalapenos. Adding REITs is like adding Habanero, and adding emerging markets is like adding Bhut Jalokia.
Nice analogy. Indeed, one of the reasons I don't specifically allocate to REITs is that I am overweight in emerging markets. The other reason is I already have REITs covered (at market weight) through TSM, whereas I added the emerging markets to supplement "emerged market" holdings in my 401k.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Bracket »

10% of my portfolio. Just another ignorant fool here, right Steve_14?
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Re: POLL: Do you have a dedicated REIT allocation?

Post by pascalwager »

I would only add them as an inflation hedge (as per Bernstein, Swensen), but not at current high prices. So I remain TSM-TISM.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by TimeRunner »

REIT as 10% of equities holdings per Rick Ferri Core Four, see: http://www.bogleheads.org/blog/core-four-portfolios/
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Re: POLL: Do you have a dedicated REIT allocation?

Post by sschullo »

Use to own REITS. I already own REITS in the TSM. I don't see a reason to tilt more to real estate, not part of my IPS.
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whadyaknow
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Re: POLL: Do you have a dedicated REIT allocation?

Post by whadyaknow »

6% REITs. Half domestic. Half ex-US.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by BHCadet »

Including the amounts from Total Stock Market, Total Small Cap Value and Total International, REIT is about 10% of my equity allocation.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Kevin M »

Yes, I have had a fixed dollar allocation to REITs since 2009 or 2010. I increased the dollar amount about 10X betwen 2005 and 2009/2010 (I'd have to look more closely to see exact date). Currently it is about 14% of my US equities.

Since late 2010 I've been using a rebalancing band of about +25%/-10%, which has resulted in three sales and two purchases. Since I now hear that REITs are richly valued from Bill Bernstein, who I trust pretty much in these matters, I've changed my rebalancing band to +15%/-20%. I'm close to the upper limit now.

Since I prefer to stick roughly with my plan, I don't plan on eliminating my allocation to REITs, but since I don't mind modifying my plan as I learn more, I'm OK with changing the rebalancing bands.

Incidentally, my personal 5-year performance is a few points better than the 5-year performance shown for the fund by Vanguard (and both are pretty darn good--better than TSM). I assume this is because of ramping up my holding during 2008/2009, as well as maybe a bit of rebalancing bonus since then.

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steve_14
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Re: POLL: Do you have a dedicated REIT allocation?

Post by steve_14 »

livesoft wrote:
steve_14 wrote:Show me a guy with a 5% or 10% REIT allocation, and I'll show you someone who's read a couple of dated investing books, [OT comment removed by admin LadyGeek].

Not only will such a small allocation make no expected difference to your returns, ....
This is a statement that is easily proven false by recent history. TREA dropped 20% about 9 months after everything else dropped. So while everything else was going up, a 10% allocation to TREA made the entire portfolio fall 2% behind. And 2% behind is a big deal in the age of low-cost passively-managed index fund investing.
Oh, that's true of all sorts of companies and sectors and bits of the market at times. But you can't overweight everything. Most folks overweighting REITS are doing so based on a history where they had low volatility and were paying 7% yields. Those days are long behind us.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by hirlaw »

Yes. About 4% of total asset allocation.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by fourwedge »

I overweight REIT's by 8% with Vanguard adm shares. I like to find assets that are at times negatively corolated. (based off contributions alone.... Not including growth/decline) my reit allocation should move from 8% down to 5% over the next 20 years. But who know, the volatility alone could push it up drastically. But at only 5% it doesn't have far to go down. I wish it would tank hard so I could buy more.
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leonidas
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Re: POLL: Do you have a dedicated REIT allocation?

Post by leonidas »

I had a 5% allocation until last year. Sold it all and moved the money to TSM. I also own no SCV so I market weight REITs. I would be inclined to add a slice of this asset class but cannot at current valuations. I did see that vanguard now has an international REIT etf that seems interesting but as of now I am like the simpler portfolio I am building.
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Re: POLL: Do you have a dedicated REIT allocation?

Post by Clearly_Irrational »

I don't hold any REITs because I prefer direct investment for my real estate allocation.
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