Portfolio Advice: Especially with TIAA Real Estate

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bprof
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Portfolio Advice: Especially with TIAA Real Estate

Post by bprof » Mon May 11, 2015 7:12 pm

Long Time reader- and I have only posted a couple of times. Figured it was time to have my portfolio reviewed by the forum. Please let me know if I missed anything

Emergency Funds: 6 months
Debt: 0
Tax Filing Status: Married filing jointly, 2 kids ages 1 and 3
Tax Rate: 0% Fed, 0% state (low fed rate due to 403B and 457B yearly contributions)
New Hampshire
38 years old (both of us)
Desired Asset Allocation: 28% Bonds/72% Stocks
(Bonds will become 29% when we turn 39)
Stock Breakdown: 60% Domestic/30% International/10% Real Estate

Portfolio Size: Low- Mid Six figures

Current Retirement Assets:

His 403 B @ Fidelity
15.4%: Fidelity Spartan Total US Market (FSTVX)
4.1%: Fidelity Spartan International Index(FSIVX) (FSGDX is not available)
3 %: Fidelity Spartan U.S. Bond (FSITX)

His Roth @ Fidelity
8.5 %: Fidelity Spartan U.S. Bond (FSITX)
5.2%: Fidelity Spartan Global ex US Index (FSGDX)
4.3%: Fidelity Spartan Total US Market (FSTVX)

His Rollover @ Fidelity

12.2% Fidelity Spartan Total US Market (FSTVX)
8.1%: Fidelity Spartan Global ex US Index(FSGDX)

His 457B @ Tiaa-Cref
10.7% : CREF Stock - r3 (QCSTIX) Expense: 0.37%

His Roth @ Tiaa-Cref
6.2%: TIAA Real Estate Expense: 0.87 %

Her Roth @ Tiaa Cref

3.7%: CREF Stock – r1 (QCSTIX) Expense: 0.65%
3.7%: CREF Bond Market –r1 Expense: 0.65%
1% : TIAA Real Estate Expense: 0.87 %

Her Roth @ Credit Union
4%: CD earning 4%; matures in April, 2017

Her Defined Benefit Pension Plans (current cash value)
8.7 % (treated as part of the Bond allocation)

Taxable:

1%: Fidelity Spartan Total US Market (FSTVX)


Current Contributions:

His 403 B @ Fidelity: Maximum yearly amount, 5% employee match
10%: Fidelity Spartan U.S. Bond (FSITX)
60%: Fidelity Spartan Total US Market (FSTVX)
30%:Fidelity Spartan International Index(FSIVX)

His 457B @ Tiaa Cref
Currently 5- 7 K per year
100%: Cref Stock Account

Roth IRA:
Max out yearly amount to his and her accounts

Contribute monthly to 529 Plan for Kids

Other Assets not included in retirement portfolio

529 Plan for both kids- low –mid 4 figures for both
Low 5 figures set aside for possible house down payment- invested in CDs (some of this is in Roth accounts not listed here)

Questions

1. Any feedback? If something is missing/does not add up, please let me know.

2.I am following the Rick Ferri Assett Allocation described both in his book and on this forum. I am not sure what to do with TIAA Real Estate. Does it make sense to have this as part of my stock allocation? His allocation discusses REIT’s as part of this 10%, but TREA is very different from these. I’m starting to think I have less of an exposure to stocks than I should, given that 10% of my stocks are in TIAA Real Estate. Thoughts?

3. I have put aside money for a possible house down payment. Part of this money is in Roth accounts- since both my wife and I can withdraw $10,000 for our first home purchase. For the sake of simplicity, I am starting to think I should include this within my overall A.A. Thoughts? We would keep the money invested in CDs, and just buy more stocks in our other accounts. Currently- this account is in the low-mid 5 figures.

4. Should I include our kids 529 Plans as part of our overall A.A. ?

JimInIllinois
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by JimInIllinois » Mon May 11, 2015 10:43 pm

The defined benefit pension cash value should be excluded from your asset allocation calculation unless you are planning to cash it in during the next market crash to buy stocks. Treat the pension (and social security) as reducing your income needs during retirement.

The only funds I would consider from TIAA-CREF are the Traditional Account and the Real Estate Account (REA). The REA has such low short-term volatility and smooth (but sometimes negative) returns that you could treat it as part of your bond allocation. Just check on it every month or so.

Assuming you want to buy the house before retirement your down payment savings has a shorter time horizon and should be considered a different and more conservative portfolio. If you invest in something that mirrors housing prices then you would avoid some of the risk of housing prices inflating while you save.

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Garco
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by Garco » Tue May 12, 2015 12:03 am

I also treat TREA as if it was not equities, though technically it involves ownership shares (units) in real estate property -- I.e., it's not a bond. Nonetheless TREA behaves differently from stocks and has a low correlation with stock market performance.

In your reckoning I wouldn't include TREA in the 72% of your portfolio identified as stocks. Also you will see in your TIAA-CREF asset lists, including the webpage, that TREA is regarded as a distinct asset class.

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sdsailing
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by sdsailing » Tue May 12, 2015 12:09 am

There is very little not to like about TREA (the exception being the high fees), especially in the current bond environment. Disclaimer: I also like REITS and SFRs.

Levett
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by Levett » Tue May 12, 2015 6:12 am

"I’m starting to think I have less of an exposure to stocks than I should, given that 10% of my stocks are in TIAA Real Estate. Thoughts?"

As others have commented, the TIAA Real Estate Account is not "stock."

But, speaking as one who owns the Account, I treated it as roughly 50% equity/50% bond as Larry Swedroe once recommended.

I'm glad to see that your allocation doesn't treat the Account as a "magic carpet ride," as some enthusiasts do. :thumbsup

Lev

Eric76
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by Eric76 » Tue May 12, 2015 6:24 am

sdsailing wrote:There is very little not to like about TREA (the exception being the high fees), especially in the current bond environment. Disclaimer: I also like REITS and SFRs.
I've become more enamored with TREA the more I research it. One thing I've learned about TREA from bogleheads is that the expense ratio can't be compared to anything and thus it is impossible to know if it is high, low, or otherwise, nor is it relevant.

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abuss368
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by abuss368 » Tue May 12, 2015 6:28 am

1) I would look into (if possible) consolidating any accounts for simplicity.

2) Real estate is fine but not needed. If you chose to invest in real estate, I would include it with stocks. They are not bonds.

3) I do not include 529 Plans as they are very short term. I keep retirement separate.

Best.
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bprof
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by bprof » Tue May 12, 2015 8:06 am

JimInIllinois wrote:The defined benefit pension cash value should be excluded from your asset allocation calculation unless you are planning to cash it in during the next market crash to buy stocks. Treat the pension (and social security) as reducing your income needs during retirement.

The only funds I would consider from TIAA-CREF are the Traditional Account and the Real Estate Account (REA). The REA has such low short-term volatility and smooth (but sometimes negative) returns that you could treat it as part of your bond allocation. Just check on it every month or so.

Assuming you want to buy the house before retirement your down payment savings has a shorter time horizon and should be considered a different and more conservative portfolio. If you invest in something that mirrors housing prices then you would avoid some of the risk of housing prices inflating while you save.
Thank you for the feedback.The defined benefit pension has always bothered me in terms of how to allocate it within my portfolio. I am going to consider removing it form the overall A.A.

The only reason I have kept my DW Tiaa Cref account is for TREA, especially with the new expense increases @ T-Cref. I have just been having a hard time determining where it fits in within the overall A.A. Either bond, or a partially stocks as noted in another post, does seem to make more sense to me. Would Trea fit your definition as something that mirrors housing prices? Depending on the purchase price of the house, my wife and I could use the $10,000 withdrawal from a roth account towards a downpayment.

bprof
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by bprof » Tue May 12, 2015 8:09 am

Garco wrote:I also treat TREA as if it was not equities, though technically it involves ownership shares (units) in real estate property -- I.e., it's not a bond. Nonetheless TREA behaves differently from stocks and has a low correlation with stock market performance.

In your reckoning I wouldn't include TREA in the 72% of your portfolio identified as stocks. Also you will see in your TIAA-CREF asset lists, including the webpage, that TREA is regarded as a distinct asset class.
Thanks for the feedback- the consensus does seem to be moving TREA out stocks- or at a minimum splitting it 50/50 between stocks and bonds. Perhaps I should determine how much TREA will be a part of the portfolio, and just label it other?

bprof
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by bprof » Tue May 12, 2015 8:10 am

sdsailing wrote:There is very little not to like about TREA (the exception being the high fees), especially in the current bond environment. Disclaimer: I also like REITS and SFRs.

Thanks- I am inclined to agree. It is just a matter of figuring out how it fits into the "big picture." The feedback from this board is starting to help. :D

bprof
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by bprof » Tue May 12, 2015 8:11 am

Levett wrote:"I’m starting to think I have less of an exposure to stocks than I should, given that 10% of my stocks are in TIAA Real Estate. Thoughts?"

As others have commented, the TIAA Real Estate Account is not "stock."

But, speaking as one who owns the Account, I treated it as roughly 50% equity/50% bond as Larry Swedroe once recommended.

I'm glad to see that your allocation doesn't treat the Account as a "magic carpet ride," as some enthusiasts do. :thumbsup

Lev
This is really helpful. I have read one of Swedroe's books, and certainly respect his opinion. Having it represent 50/50 could be a way to simplify the portfolio.

bprof
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by bprof » Tue May 12, 2015 8:13 am

abuss368 wrote:1) I would look into (if possible) consolidating any accounts for simplicity.

2) Real estate is fine but not needed. If you chose to invest in real estate, I would include it with stocks. They are not bonds.

3) I do not include 529 Plans as they are very short term. I keep retirement separate.

Best.

Thanks for the feedback. I am working on simplifying the accounts- I agree that it does feel as if they are all over the place.

JimInIllinois
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by JimInIllinois » Tue May 12, 2015 9:09 am

bprof wrote:Would Trea fit your definition as something that mirrors housing prices? Depending on the purchase price of the house, my wife and I could use the $10,000 withdrawal from a roth account towards a downpayment.
TREA is commercial real estate, not residential, but it's the closest thing I can think of. I vaguely recall that REITs are highly leveraged so they are sensitive to interest rates, and according to http://www.thinkadvisor.com/2014/05/27/ ... -for-reits "There is no correlation between REITs and residential housing prices." TREA is not a REIT.

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boo-yah
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by boo-yah » Tue May 12, 2015 10:32 am

I have 10% of my portfolio in TREA, and divvy it up 5% bonds/5% equities, as others have suggested. If your bonds are for stability, then it certainly reduces your volatility in the short term. However, the longer-term volatility can be much greater, much more equity-like, as we saw in 2008-9:

http://quote.morningstar.com/fund/chart ... FVUSA04B8Y

In the event of another crisis, due to it's lagging the real estate indices we will likely have warning (as we did in 2008), and there are some on this forum who have suggested that one shouldn't be in this fund unless you're aware of this and monitor it. While it is a unique asset class, it's perhaps not a simplification.

ResearchMed
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by ResearchMed » Tue May 12, 2015 10:45 am

boo-yah wrote:I have 10% of my portfolio in TREA, and divvy it up 5% bonds/5% equities, as others have suggested. If your bonds are for stability, then it certainly reduces your volatility in the short term. However, the longer-term volatility can be much greater, much more equity-like, as we saw in 2008-9:

http://quote.morningstar.com/fund/chart ... FVUSA04B8Y

In the event of another crisis, due to it's lagging the real estate indices we will likely have warning (as we did in 2008), and there are some on this forum who have suggested that one shouldn't be in this fund unless you're aware of this and monitor it. While it is a unique asset class, it's perhaps not a simplification.
Also stay aware of the withdrawal restriction such that only one per quarter is allowed.
So IF you ever want to remove money from TREA, you might want to try to do it close to the end of a quarter, so you aren't "forced" to stay for a few more months if your situation changes, etc.

This isn't a problem for long-term holdings, although DO keep in mind the above caveat about watching for it to lag if there is a major disruption to the more general real estate holdings, such as REITs.

RM
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livesoft
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by livesoft » Tue May 12, 2015 11:06 am

All the love for TREA in this thread just leads to confirmation bias. Here are a couple of threads about TREA that are less one-sided:

http://www.bogleheads.org/forum/viewtop ... &p=1804346
http://www.bogleheads.org/forum/viewtop ... 0&t=132079

Full disclosure: I own a mid-6-figure amount of TREA shares.
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bprof
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by bprof » Tue May 12, 2015 12:56 pm

JimInIllinois wrote:
bprof wrote:Would Trea fit your definition as something that mirrors housing prices? Depending on the purchase price of the house, my wife and I could use the $10,000 withdrawal from a roth account towards a downpayment.
TREA is commercial real estate, not residential, but it's the closest thing I can think of. I vaguely recall that REITs are highly leveraged so they are sensitive to interest rates, and according to http://www.thinkadvisor.com/2014/05/27/ ... -for-reits "There is no correlation between REITs and residential housing prices." TREA is not a REIT.
Thanks for your feedback and for the article.

bprof
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by bprof » Tue May 12, 2015 1:03 pm

ResearchMed wrote:
boo-yah wrote:I have 10% of my portfolio in TREA, and divvy it up 5% bonds/5% equities, as others have suggested. If your bonds are for stability, then it certainly reduces your volatility in the short term. However, the longer-term volatility can be much greater, much more equity-like, as we saw in 2008-9:

http://quote.morningstar.com/fund/chart ... FVUSA04B8Y

In the event of another crisis, due to it's lagging the real estate indices we will likely have warning (as we did in 2008), and there are some on this forum who have suggested that one shouldn't be in this fund unless you're aware of this and monitor it. While it is a unique asset class, it's perhaps not a simplification.
Also stay aware of the withdrawal restriction such that only one per quarter is allowed.
So IF you ever want to remove money from TREA, you might want to try to do it close to the end of a quarter, so you aren't "forced" to stay for a few more months if your situation changes, etc.

This isn't a problem for long-term holdings, although DO keep in mind the above caveat about watching for it to lag if there is a major disruption to the more general real estate holdings, such as REITs.

RM
Thanks both to boo-yah and ResearchMed for your thoughts. I am aware of the restrictions in moving TREA on a quarterly basis. What may help- is that TREA will be in 2 different accounts: a roth IRA for both me and my wife. In theory, this would allow me to make 2 withdrawals a quarter. I have read about how it lags the REIT indices, and present the opportunity to be "timed". I'm starting to lean towards treating it as 50/50 stock/bond as part of the overall allocation. I still have more reading to do on this.

livesoft
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by livesoft » Tue May 12, 2015 1:15 pm

I treat TREA as "Other" because if bonds tank, then TREA will not tank right away. And if equities tank, then TREA will not tank right away. The consequences of this is that it is not obviously when one should use TREA in any rebalancing moves. When TREA tanks, other things may already be recovering. Thus one cannot watch bonds and equities and get any guidance on what to do with TREA.

TREA really is in a class by itself and should be managed that way, too.
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bprof
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by bprof » Tue May 12, 2015 1:27 pm

livesoft wrote:I treat TREA as "Other" because if bonds tank, then TREA will not tank right away. And if equities tank, then TREA will not tank right away. The consequences of this is that it is not obviously when one should use TREA in any rebalancing moves. When TREA tanks, other things may already be recovering. Thus one cannot watch bonds and equities and get any guidance on what to do with TREA.

TREA really is in a class by itself and should be managed that way, too.
Thanks livesoft.

I have been spending time reading the previous links that you shared. It is apparent that TREA is indeed a very different class, and perhaps "other" is the best approach for this fund. Right now, TREA is about 7% of my Retirement portfolio. Thinking of this as separate from stocks certainly makes a lot more sense. Next step, I will need to revisit the IPS, since my current bond/stock allocation is built on the model of including real estate as part of stocks.

MN Finance
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by MN Finance » Tue May 12, 2015 6:44 pm

We allocate a defined position to real estate separate from stocks or bonds, but effectively weight it as a blend. For example a 50/50 portfolio would actually be 45/7 with the 7 being real estate (either 7 TIAA or 5/2 TIAA/REITS.) You may not want the monitor it that tightly yourself. If TIAA was not a choice then 50/50 would be 50 stocks and RE, with REITS accounting for 3 or 4 of that.

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Garco
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Re: Portfolio Advice: Especially with TIAA Real Estate

Post by Garco » Wed May 13, 2015 11:12 am

Because of TREA's special characteristics I also treat it (as does TIAA-CREF) as a distinct asset class -- no matter that, as I wrote earlier on this thread -- it is technically a form of equity holding. I think the idea of assuming that TREA is 50-50 stocks vs. fixed income is OK if you're trying to account for its riskiness. Because TREA is about 20% of my core portfolio -- in which stocks are 50%, TREA is 20%, and fixed income and stable value funds are 30% -- I sometimes think of my portfolio as "60% equities."

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