20% In REITS?

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munemaker
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Re: 20% In REITS?

Post by munemaker » Thu Aug 10, 2017 6:48 pm

soboggled wrote:About 0%. If you own a house you have more than enough in the real estate sector.
Most don't consider their primary residence as part of their investment portfolio.

munemaker
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Re: 20% In REITS?

Post by munemaker » Thu Aug 10, 2017 6:51 pm

nedsaid wrote:
staythecourse wrote:
nedsaid wrote:
rattlenap wrote:Is 20% of your stock portfolio to much to have in REITS? I am trying to figure out what the sweet spot/percentage is to allocate of your stock portion to REITS. This is if you solely hold the Vanguard Total U.S. Stock Market Index and no international.
You are late to the party. REITs have done fantastic, in large part because of all the yield chasing. Larry Swedroe has calculated the future expected returns of REITs to be 0.3% after inflation. Bill Bernstein has issued similar warnings.

I have in recent months trimmed about 20% from my REITs. Not giving up on them but doing some prudent rebalancing. Take a look at International Real Estate. I sure would not rush into domestic REITs at this time.
Just curious what the data is supporting the prognostic abilities of Mr. Swedroe OR Dr. Bernstein? Do they have a track record of making calls and being right? If so, then how do we know it is luck and not skill?

I would think unless there is STRONG evidence that supports their correct ability to make calls then their advice is no different then mine or the psychic down the street.

Good luck.
It is not that I am attributing infallibility to Swedroe or Bernstein. What I am saying is that valuations matter. REITs historically yielded 6%-8% and now the yield is a bit over 3%. That should tell you something. What we do know from history is that cheap beats expensive. Pretty much it is an attempt to avoid performance chasing. Since the 2008-2009 financial crisis, investors have chased yield like crazy. Do you suggest that we chase yields even harder? I have read here is that some Bogleheads have cashed out their REIT position. What I did was to cut back on my REIT allocation by 20% and then buy no more. It is similar to my comments about the low volatility stocks and particularly consumer staples stocks which are quite expensive. Pretty much, I am saying stop piling into these things. Chasing hot performance often ends in tears.
Couldn't the same (performance chasing) be said about buying stocks and bonds at current prices?

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nedsaid
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Re: 20% In REITS?

Post by nedsaid » Thu Aug 10, 2017 7:07 pm

munemaker wrote: Couldn't the same (performance chasing) be said about buying stocks and bonds at current prices?
Yes, you could. But notice that I did not abandon REITs, I just trimmed them back. I have not sold my bonds, indeed as I rebalance, I keep adding to them. I am still a few years from retirement and am reinvesting my dividends in my bond funds so I am not so concerned about bond prices. I have also said that my opinion is that US Stock valuations are stretched but not irrationally so, particularly in light of low interest rates. So just as I would not abandon REITs, I would not abandon US Stocks. What could be done is to increase weightings to International Developed and Emerging Markets Stocks.

If you are young, I wouldn't worry too much about valuations. Just keep investing and over long periods of time, things should even themselves out. If you are an older investor, you should pay more attention to this. The point about bonds is well taken but I am not willing to pile into alternatives like the AQR and Stone Ridge Funds talked about in other threads, plus many of the recommended Alternative Funds require an advisor for access. So I hold my nose and buy bonds.

Pretty much, I look for cheaper assets and de-emphasize a bit expensive assets. A critic would say that I am market timing, and yes, in reality I am practicing it in a mild form but based upon valuations and not market predictions.
A fool and his money are good for business.

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Pajamas
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Re: 20% In REITS?

Post by Pajamas » Thu Aug 10, 2017 8:25 pm

munemaker wrote:
Most don't consider their primary residence as part of their investment portfolio.
+1

Have to live somewhere.

jbolden1517
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Re: 20% In REITS?

Post by jbolden1517 » Fri Aug 11, 2017 4:11 am

staythecourse wrote: Just curious what the data is supporting the prognostic abilities of Mr. Swedroe OR Dr. Bernstein? Do they have a track record of making calls and being right? If so, then how do we know it is luck and not skill?
Well I've known Bill for close to 20 years. Talked to him a lot when he was starting to write the notes that would become Intelligent Asset Allocator. Larry I met several years alter. Here are Bill's calls from 20 years ago, and Larry's from around 2000:

a) Tech stocks were heavily overvalued and the returns a decade out would be dreadful. Confirmed.
b) Stock volatility would normalize at a level to adjust the risk adjusted returns of bonds and stocks to similar levels. Confirmed.
c) A heavily diversified portfolio would outperform concentration over the next generation. Confirmed
d) Indexing and passive would become more popular because there would be greater concern about fees. Confirmed
e) Momentum strategies would fall out of favor. Refuted.

Larry:
a) Smarter passive indexes (what is today called smart beta) would justify costs vs. cheaper to manage indexes (i.e. DFA vs. Vanguard). Confirmed
b) Short term bonds would provide more safety and better returns than longer maturities. Refuted.
c) Commodities would provide strong diversification. Confirmed.
d) Gold funds would not act as good proxies for physical gold. Confirmed
e) The value premium would remain. Confirmed
f) Carry trades would play a larger role in bond pricing especially for European bonds. Confirmed.
g) Hedging international exposure would not justify its costs over the next 2 decades. Confirmed.

I could go on. But those guys do have good track records.

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Re: 20% In REITS?

Post by KyleAAA » Fri Aug 11, 2017 6:52 am

If you include all the REITs in SCV and TSM I'm at roughly 13%. 20% isn't unreasonable if you're prepared for the volatility and commit to owning them for a looooooong time.

danaht
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Re: 20% In REITS?

Post by danaht » Fri Aug 11, 2017 7:08 am

I really like REITs in tax advantaged accounts. The main advantage of a REIT are the tax savings because the REIT pays very little corporate tax. These tax savings can really add up (just like the expense savings from low cost funds). This will help your Roth, and IRA grow. So, I am in favor of a very high diversified REIT allocation in retirement accounts. In fact, I would not be opposed to putting 10 to 20% of my IRA funds in something like VNQ.

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topper1296
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Re: 20% In REITS?

Post by topper1296 » Fri Aug 11, 2017 7:50 am

I have 5% in a domestic REIT index and 5% in an int'l REIT index in tax differed accounts. I want more diversification than just my house that I don't even consider as part of my portfolio like others have said.

rattlenap
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Re: 20% In REITS?

Post by rattlenap » Fri Aug 11, 2017 8:01 am

10% of your stock portfolio in REITS seems to be about the sweet spot. Rick Ferri recommends this and does so with his own portfolio.

Gadget
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Re: 20% In REITS?

Post by Gadget » Fri Aug 11, 2017 8:25 am

For those who invest specifically in REITs, why not get them from a small Cap value fund instead? Does anyone investing in REITs also separately tilt to SCV?

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Re: 20% In REITS?

Post by KyleAAA » Fri Aug 11, 2017 8:56 am

Gadget wrote:For those who invest specifically in REITs, why not get them from a small Cap value fund instead? Does anyone investing in REITs also separately tilt to SCV?
I do. But I tilt using IJS/VIOV which has less than half the REITs compared to the Vanguard small-cap value fun (4.3% vs 9.2%). Given that domestic SCV is only 15% of my overall portfolio, it's not terribly significant.

staythecourse
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Re: 20% In REITS?

Post by staythecourse » Fri Aug 11, 2017 2:48 pm

jbolden1517 wrote:
staythecourse wrote: Just curious what the data is supporting the prognostic abilities of Mr. Swedroe OR Dr. Bernstein? Do they have a track record of making calls and being right? If so, then how do we know it is luck and not skill?
Well I've known Bill for close to 20 years. Talked to him a lot when he was starting to write the notes that would become Intelligent Asset Allocator. Larry I met several years alter. Here are Bill's calls from 20 years ago, and Larry's from around 2000:

a) Tech stocks were heavily overvalued and the returns a decade out would be dreadful. Confirmed.
b) Stock volatility would normalize at a level to adjust the risk adjusted returns of bonds and stocks to similar levels. Confirmed.
c) A heavily diversified portfolio would outperform concentration over the next generation. Confirmed
d) Indexing and passive would become more popular because there would be greater concern about fees. Confirmed
e) Momentum strategies would fall out of favor. Refuted.

Larry:
a) Smarter passive indexes (what is today called smart beta) would justify costs vs. cheaper to manage indexes (i.e. DFA vs. Vanguard). Confirmed
b) Short term bonds would provide more safety and better returns than longer maturities. Refuted.
c) Commodities would provide strong diversification. Confirmed.
d) Gold funds would not act as good proxies for physical gold. Confirmed
e) The value premium would remain. Confirmed
f) Carry trades would play a larger role in bond pricing especially for European bonds. Confirmed.
g) Hedging international exposure would not justify its costs over the next 2 decades. Confirmed.

I could go on. But those guys do have good track records.
Sorry, but most of those have NOTHNG to do with valuation predictions. I am not questioning their insight. I would have more faith in their or ANYONE's prognostication if they said, "Buy REITS when yield is X and sell when yield is Y". Don't see any evidence either have made or have been correct on a consistent basis on those calls.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

jbolden1517
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Re: 20% In REITS?

Post by jbolden1517 » Fri Aug 11, 2017 7:39 pm

staythecourse wrote:
jbolden1517 wrote: [
a) Tech stocks were heavily overvalued and the returns a decade out would be dreadful. Confirmed.
b) Stock volatility would normalize at a level to adjust the risk adjusted returns of bonds and stocks to similar levels. Confirmed.

Larry:
a) Smarter passive indexes (what is today called smart beta) would justify costs vs. cheaper to manage indexes (i.e. DFA vs. Vanguard). Confirmed
e) The value premium would remain. Confirmed
f) Carry trades would play a larger role in bond pricing especially for European bonds. Confirmed.
g) Hedging international exposure would not justify its costs over the next 2 decades. Confirmed.

I could go on. But those guys do have good track records.
Sorry, but most of those have NOTHNG to do with valuation predictions. I am not questioning their insight. I would have more faith in their or ANYONE's prognostication if they said, "Buy REITS when yield is X and sell when yield is Y". Don't see any evidence either have made or have been correct on a consistent basis on those calls.

Good luck.
I snipped out the non valuation predictions. Some of those were clearly valuation predictions. Larry and Bill don't talk in terms of buy and sell signals, but if they did those were buy and sell calls.

staythecourse
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Re: 20% In REITS?

Post by staythecourse » Fri Aug 11, 2017 8:46 pm

jbolden1517 wrote:
staythecourse wrote:
jbolden1517 wrote: [
a) Tech stocks were heavily overvalued and the returns a decade out would be dreadful. Confirmed.
b) Stock volatility would normalize at a level to adjust the risk adjusted returns of bonds and stocks to similar levels. Confirmed.

Larry:
a) Smarter passive indexes (what is today called smart beta) would justify costs vs. cheaper to manage indexes (i.e. DFA vs. Vanguard). Confirmed
e) The value premium would remain. Confirmed
f) Carry trades would play a larger role in bond pricing especially for European bonds. Confirmed.
g) Hedging international exposure would not justify its costs over the next 2 decades. Confirmed.

I could go on. But those guys do have good track records.
Sorry, but most of those have NOTHNG to do with valuation predictions. I am not questioning their insight. I would have more faith in their or ANYONE's prognostication if they said, "Buy REITS when yield is X and sell when yield is Y". Don't see any evidence either have made or have been correct on a consistent basis on those calls.

Good luck.
I snipped out the non valuation predictions. Some of those were clearly valuation predictions. Larry and Bill don't talk in terms of buy and sell signals, but if they did those were buy and sell calls.
Those are general evaluations, but none of it is actionable. The ONLY valuation metrics that would be actionable if one said, "Buy at X and sell on Y". Now if they said, "When REITS yield is 2% stop buying and buy again when it hits 4%" that is exact and actionable. Also, it allows itself to be evaluated in the future as an accurate call or not. Without being EXACT on buy and sell it does not lend itself to being easily measured as being a right or wrong call. In my opinion, I would be surprised if either did so as it starts sounding like market timing/ active management which overall has been shown as a loser's game with the BHB and BSB studies. If the BEST money managers during included in those studies could not do better then the return of the asset allocation themselves then don't see anybody consistently being able to judge in advance if one should be heavy in x security or light due to current market conditions.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

jbolden1517
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Re: 20% In REITS?

Post by jbolden1517 » Sat Aug 12, 2017 4:01 am

staythecourse wrote: Those are general evaluations, but none of it is actionable. The ONLY valuation metrics that would be actionable if one said, "Buy at X and sell on Y". Now if they said, "When REITS yield is 2% stop buying and buy again when it hits 4%" that is exact and actionable. Also, it allows itself to be evaluated in the future as an accurate call or not. Without being EXACT on buy and sell it does not lend itself to being easily measured as being a right or wrong call.
I'm not sure if I agree with you here. If you say "maintain a 60/40 stock/bond allocation rebalance annually" that forces a sell and a buy at the start of each year. If you say, "hold DFA value which uses P/B" that forces sales of a stock when its P/B is above 120% of the bottom 1/5th of the market and buys at say 80%. Etc.... Those are actionable.
staythecourse wrote: In my opinion, I would be surprised if either did so as it starts sounding like market timing/ active management which overall has been shown as a loser's game with the BHB and BSB studies. If the BEST money managers during included in those studies could not do better then the return of the asset allocation themselves
That's not quite true and it is a bit circular. Generally when a method is found that achieves higher return its classified as a "factor" and thus considered part of the asset allocation. Value investors outperform their asset allocation because of value factors. But one can also just consider that a buy sell method. When investments can be split from one another to achieve a higher return due to some negative correlation they are considered different assets and thus part of the asset allocation. Classic sector rotation based on economic cycles tend to beat the SP500. There most certainly are TAA managers who have achieved the same return with lower risk, which means:
a) serial returns are higher
b) you could hold risk constant and hold the portfolio on leverage thus achieving higher returns

The returns on currencies are 0, yet the initial success of hedge funds came from currency investments.

staythecourse
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Re: 20% In REITS?

Post by staythecourse » Sat Aug 12, 2017 7:11 am

jbolden1517 wrote:
staythecourse wrote: Those are general evaluations, but none of it is actionable. The ONLY valuation metrics that would be actionable if one said, "Buy at X and sell on Y". Now if they said, "When REITS yield is 2% stop buying and buy again when it hits 4%" that is exact and actionable. Also, it allows itself to be evaluated in the future as an accurate call or not. Without being EXACT on buy and sell it does not lend itself to being easily measured as being a right or wrong call.
I'm not sure if I agree with you here. If you say "maintain a 60/40 stock/bond allocation rebalance annually" that forces a sell and a buy at the start of each year. If you say, "hold DFA value which uses P/B" that forces sales of a stock when its P/B is above 120% of the bottom 1/5th of the market and buys at say 80%. Etc.... Those are actionable.
staythecourse wrote: In my opinion, I would be surprised if either did so as it starts sounding like market timing/ active management which overall has been shown as a loser's game with the BHB and BSB studies. If the BEST money managers during included in those studies could not do better then the return of the asset allocation themselves
That's not quite true and it is a bit circular. Generally when a method is found that achieves higher return its classified as a "factor" and thus considered part of the asset allocation. Value investors outperform their asset allocation because of value factors. But one can also just consider that a buy sell method. When investments can be split from one another to achieve a higher return due to some negative correlation they are considered different assets and thus part of the asset allocation. Classic sector rotation based on economic cycles tend to beat the SP500. There most certainly are TAA managers who have achieved the same return with lower risk, which means:
a) serial returns are higher
b) you could hold risk constant and hold the portfolio on leverage thus achieving higher returns

The returns on currencies are 0, yet the initial success of hedge funds came from currency investments.
Honesty, I don't agree with most of what you said. No big deal we will have to agree to disagree. :D

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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