TIAA Real Estate

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Kathys
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TIAA Real Estate

Post by Kathys » Thu May 10, 2018 3:12 pm

What do you guys think of investing in TIAA Real Estate (QREARX)? I have access to it through a plan from my former employer and was going to transfer all the funds from it to Vanguard IRA but if I do that I will not have access to TIAA Real Estate and if I understand it correctly it's a unique product that no one else offers. Would you leave some funds in that account in case you wanted to invest in TIAA Real Estate?

ResearchMed
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Re: TIAA Real Estate

Post by ResearchMed » Thu May 10, 2018 3:20 pm

Kathys wrote:
Thu May 10, 2018 3:12 pm
What do you guys think of investing in TIAA Real Estate (QREARX)? I have access to it through a plan from my former employer and was going to transfer all the funds from it to Vanguard IRA but if I do that I will not have access to TIAA Real Estate and if I understand it correctly it's a unique product that no one else offers. Would you leave some funds in that account in case you wanted to invest in TIAA Real Estate?
There is a complete sub-forum on www.Morningstar.com ("discuss" topics) about TIAA, with *lots* of discussion about TREA.

We have a moderately substantial amount in TREA, and plan to just hold it, unless things go totally south...

Note that we were among those who "timed it" back in the 2008, and got out, and then got back in a couple of years later.
But that was a very dramatic time.

TREA did very well for us, before and after that time.

Right now, it's about even with Trad Ann.

RM
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livesoft
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Re: TIAA Real Estate

Post by livesoft » Thu May 10, 2018 3:38 pm

I guess that if you ever wanted to invest in TREA, then you should leave some funds at TIAA.org.
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oldzey
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Re: TIAA Real Estate

Post by oldzey » Thu May 10, 2018 3:39 pm

Be sure to also consider TIAA Traditional.
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Kathys
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Re: TIAA Real Estate

Post by Kathys » Thu May 10, 2018 3:43 pm

ResearchMed wrote:
Thu May 10, 2018 3:20 pm
Kathys wrote:
Thu May 10, 2018 3:12 pm
What do you guys think of investing in TIAA Real Estate (QREARX)? I have access to it through a plan from my former employer and was going to transfer all the funds from it to Vanguard IRA but if I do that I will not have access to TIAA Real Estate and if I understand it correctly it's a unique product that no one else offers. Would you leave some funds in that account in case you wanted to invest in TIAA Real Estate?
There is a complete sub-forum on www.Morningstar.com ("discuss" topics) about TIAA, with *lots* of discussion about TREA.

We have a moderately substantial amount in TREA, and plan to just hold it, unless things go totally south...

Note that we were among those who "timed it" back in the 2008, and got out, and then got back in a couple of years later.
But that was a very dramatic time.

TREA did very well for us, before and after that time.

Right now, it's about even with Trad Ann.

RM
How much of overall portfolio do you have in TREA? Do you count this is fixed income or part of stock allocation?


I've been unable to post anything on morningstar forum despite of being logged in. I get a message that I need to creatine posting name and when I try to create one I get this:
Create a username that will display when you comment on posts and articles. Please use alphanumeric characters only.
Username: Kathys1 (I tried many different names)
but it always comes back with this:
Please choose a name that’s between six and fifteen characters long, starts with a letter, and contains only numbers and letters.

When I click on "help", the link is broken. So I can't really participate in the discussion there other than read.

Kathys
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Re: TIAA Real Estate

Post by Kathys » Thu May 10, 2018 3:45 pm

oldzey wrote:
Thu May 10, 2018 3:39 pm
Be sure to also consider TIAA Traditional.
I'm already in TIAA Traditional (20% of my overall portfolio)

Kathys
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Re: TIAA Real Estate

Post by Kathys » Thu May 10, 2018 3:45 pm

livesoft wrote:
Thu May 10, 2018 3:38 pm
I guess that if you ever wanted to invest in TREA, then you should leave some funds at TIAA.org.
The question is whether it is a good investment or not.

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oldzey
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Re: TIAA Real Estate

Post by oldzey » Thu May 10, 2018 4:12 pm

Kathys wrote:
Thu May 10, 2018 3:45 pm
livesoft wrote:
Thu May 10, 2018 3:38 pm
I guess that if you ever wanted to invest in TREA, then you should leave some funds at TIAA.org.
The question is whether it is a good investment or not.
The TREA prospectus is 190 pages long, so it's not light reading: http://connect.rightprospectus.com/TIAA ... A&SPV=true

I used to own TREA. I thought it was really neat to directly own commercial real estate and that it helped to diversify my portfolio. At one point in time, I had about 15% of my portfolio in TREA.

However, I traded all of my TREA shares in for index funds for the following reasons:

TREA has a 0.85% ER, while index funds have a 0.04% ER.
I think index funds will tend to do better over the long run.
TREA is more vulnerable to sector risk than an index fund (one could also argue manager and company risk as well).
TREA is not as diversified as an index fund.
TREA can be converted to an annuity, but I don't need that feature.

Note that there are many posts on this forum about QREARX that can be found by searching for TREA or TIAA Real Estate.
Last edited by oldzey on Thu May 10, 2018 4:13 pm, edited 1 time in total.
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The Wizard
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Re: TIAA Real Estate

Post by The Wizard » Thu May 10, 2018 4:13 pm

Kathys wrote:
Thu May 10, 2018 3:45 pm
livesoft wrote:
Thu May 10, 2018 3:38 pm
I guess that if you ever wanted to invest in TREA, then you should leave some funds at TIAA.org.
The question is whether it is a good investment or not.
It's a good investment for the low volatility part of your portfolio.
I have about 15% of my portfolio in TREA, which has been inching up close to 6% annualized return in recent months.
Also, about half of my monthly annuity income is based on TREA and this has increased nicely over the past five years.

Note: annuitized TREA can also decrease monthly payouts if total return is less than 4% annualized, so one needs to keep on top of this slow moving ship...
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grok87
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Re: TIAA Real Estate

Post by grok87 » Thu May 10, 2018 4:16 pm

You may be interested in this link provided by tiaa of faqs
https://www.tiaa.org/public/pdf/performance/REA_FAQ.pdf

The expense ratio is somewhat high at 0.85%

It is up like 4% over the last year whereas reits have lost money. My aim is to divide my real estate exposure equally between the vanguard REIT index and the tiaa real estate fund.

Cheers
Grok
Last edited by grok87 on Thu May 10, 2018 4:39 pm, edited 1 time in total.
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The Wizard
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Re: TIAA Real Estate

Post by The Wizard » Thu May 10, 2018 4:31 pm

oldzey wrote:
Thu May 10, 2018 4:12 pm
...TREA has a 0.85% ER, while index funds have a 0.04% ER...
It actually decreased to 0.79% recently, and that still would be EXTREMELY HIGH if TREA purported to be an S&P 500 index fund.
But it doesn't and it's not.
Direct real estate ownership undeniably costs more to manage than an index fund of common stocks.
So what matters with TREA is its total return after expenses...
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grok87
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Re: TIAA Real Estate

Post by grok87 » Thu May 10, 2018 6:22 pm

The Wizard wrote:
Thu May 10, 2018 4:13 pm

Note: annuitized TREA can also decrease monthly payouts if total return is less than 4% annualized, so one needs to keep on top of this slow moving ship...
thanks.
i'm a few years of annuitizing but interested to learn how it works. i just read the prospectus section on annuitizing. But i would be interested in someones actual experience. so the payouts can be adjusted annually or monthly right. and if it's annualized return is less than 4% then the payouts decrease? so if the annualized return is greater than 4% they increase?
Keep calm and Boglehead on. KCBO.

Kathys
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Re: TIAA Real Estate

Post by Kathys » Thu May 10, 2018 6:27 pm

Why would anyone annuitize TREA? If I want to annuitize why not just put the money in TIAA traditional? Is the return that much higher in TREA?

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oldzey
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Re: TIAA Real Estate

Post by oldzey » Thu May 10, 2018 6:42 pm

Kathys wrote:
Thu May 10, 2018 6:27 pm
Why would anyone annuitize TREA? If I want to annuitize why not just put the money in TIAA traditional? Is the return that much higher in TREA?
That's what I do. 35% of my portfolio is TIAA Traditional (aka TRAD), a combination of the restricted-liquid TRAD RA and the liquid TRAD GSRA.

TREA is a variable annuity, as compared to TRAD, which is a fixed annuity: https://www.tiaa.org/public/offer/produ ... -annuities

I like the predictability of a fixed annuity, if I ever choose to annuitize, thus I don't own TREA. I realize that TREA may do better than TRAD.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

Kathys
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Re: TIAA Real Estate

Post by Kathys » Thu May 10, 2018 6:48 pm

oldzey wrote:
Thu May 10, 2018 6:42 pm
Kathys wrote:
Thu May 10, 2018 6:27 pm
Why would anyone annuitize TREA? If I want to annuitize why not just put the money in TIAA traditional? Is the return that much higher in TREA?
That's what I do (35% of my portfolio is TIAA Traditional, a combination of the restricted-liquid RA and the liquid GSRA).

TREA is a variable annuity, as compared to TIAA Traditional, which is a fixed annuity: https://www.tiaa.org/public/offer/produ ... -annuities

I would prefer the predictability of a fixed annuity, if I ever choose to annuitize, thus I don't own TREA.
Why would anyone want variable annuity?
I do wonder what the appeal of TREA is.

folkher0
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Re: TIAA Real Estate

Post by folkher0 » Thu May 10, 2018 7:27 pm

I thought a lot about the expense ratio before investing in TIAA Real estate. I came to the conclusion that there were essentially no similar investments that I could compare it to, so the ER became somewhat irrelevant. I became attracted to the fund for the following reasons:

1. Extremely low volatility. I encourage you to follow the trends in the fund over the last several years. Because the fund represents direct ownership of commercial real estate, the fund’s value changes very slowly over time. This is in sharp contrast to REITs which exhibit significant volatility.

2. Low correlation with stocks or bonds. Stocks or bonds go up and down, TIAA real estate just chugs along slowly. Like a steamroller.

3. Relative liquidity compared to TIAA traditional. You can get money in and out of the fund relatively easily. There are rules: I believe you can only make one withdrawal per quarter and I also believe that some plans have maximum total contributions.

4. Potential to time the investment. You can search this forum for signals to get in or out. Not very bogleheadish and no guarantees, but in the past people have successfully timed this fund without being a real estate or math whiz.

I only have 5% of my portfolio in this fund. I wouldn’t recommend more than 10%. I combine it with TIAA TRAD and total bond mkt as my fixed income component. I view it as an anchor in times of high volatility (like the last few months)

Kathys
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Re: TIAA Real Estate

Post by Kathys » Thu May 10, 2018 7:38 pm

folkher0 wrote:
Thu May 10, 2018 7:27 pm
I thought a lot about the expense ratio before investing in TIAA Real estate. I came to the conclusion that there were essentially no similar investments that I could compare it to, so the ER became somewhat irrelevant. I became attracted to the fund for the following reasons:

1. Extremely low volatility. I encourage you to follow the trends in the fund over the last several years. Because the fund represents direct ownership of commercial real estate, the fund’s value changes very slowly over time. This is in sharp contrast to REITs which exhibit significant volatility.

2. Low correlation with stocks or bonds. Stocks or bonds go up and down, TIAA real estate just chugs along slowly. Like a steamroller.

3. Relative liquidity compared to TIAA traditional. You can get money in and out of the fund relatively easily. There are rules: I believe you can only make one withdrawal per quarter and I also believe that some plans have maximum total contributions.

4. Potential to time the investment. You can search this forum for signals to get in or out. Not very bogleheadish and no guarantees, but in the past people have successfully timed this fund without being a real estate or math whiz.

I only have 5% of my portfolio in this fund. I wouldn’t recommend more than 10%. I combine it with TIAA TRAD and total bond mkt as my fixed income component. I view it as an anchor in times of high volatility (like the last few months)
TIAA traditional GSRA is liquid, you can get money out at any time. So don't all other points apply to TIAA trad as well?

squidfather
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Re: TIAA Real Estate

Post by squidfather » Thu May 10, 2018 7:41 pm

I have about 10% of my portfolio in TIAA real estate. I view it as a mix between fixed income and equity, and see it's main benefit as having a lower correlation with equities than a typical REIT. The ER is high, but as I understand it, this includes all costs of managing the properties while in a typical REIT the ER represents the cost of managing the fund on top of the property management costs, which aren't as easy to measure. That may be a simplification, but ultimately it's a small enough portion of my investments and acts differently enough that my other asset classes that I don't worry about the ER.

folkher0
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Re: TIAA Real Estate

Post by folkher0 » Thu May 10, 2018 7:48 pm

Kathys wrote:
Thu May 10, 2018 7:38 pm
folkher0 wrote:
Thu May 10, 2018 7:27 pm
I thought a lot about the expense ratio before investing in TIAA Real estate. I came to the conclusion that there were essentially no similar investments that I could compare it to, so the ER became somewhat irrelevant. I became attracted to the fund for the following reasons:

1. Extremely low volatility. I encourage you to follow the trends in the fund over the last several years. Because the fund represents direct ownership of commercial real estate, the fund’s value changes very slowly over time. This is in sharp contrast to REITs which exhibit significant volatility.

2. Low correlation with stocks or bonds. Stocks or bonds go up and down, TIAA real estate just chugs along slowly. Like a steamroller.

3. Relative liquidity compared to TIAA traditional. You can get money in and out of the fund relatively easily. There are rules: I believe you can only make one withdrawal per quarter and I also believe that some plans have maximum total contributions.

4. Potential to time the investment. You can search this forum for signals to get in or out. Not very bogleheadish and no guarantees, but in the past people have successfully timed this fund without being a real estate or math whiz.

I only have 5% of my portfolio in this fund. I wouldn’t recommend more than 10%. I combine it with TIAA TRAD and total bond mkt as my fixed income component. I view it as an anchor in times of high volatility (like the last few months)
TIAA traditional GSRA is liquid, you can get money out at any time. So don't all other points apply to TIAA trad as well?

I use both. I like the diversification of the guaranteed fund and the real estate investment. Both have low correlation to stocks and bonds. However both also concentrate risk in a single company.

I expect somewhat better returns from the real estate fund. If the returns for the real estate fun drop below the floor for traditional, I will drop it.
Last edited by folkher0 on Thu May 10, 2018 7:51 pm, edited 1 time in total.

golfCaddy
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Re: TIAA Real Estate

Post by golfCaddy » Thu May 10, 2018 7:49 pm

I doubt the long term performance will be much different than equity REITs, after adjusting for leverage. I wouldn't put more than 5% into it.

Kathys
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Re: TIAA Real Estate

Post by Kathys » Thu May 10, 2018 7:52 pm

golfCaddy wrote:
Thu May 10, 2018 7:49 pm
I doubt the long term performance will be much different than equity REITs, after adjusting for leverage. I wouldn't put more than 5% into it.
5% will hardly make any difference, is it worth bothering then?

Kathys
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Re: TIAA Real Estate

Post by Kathys » Thu May 10, 2018 7:54 pm

squidfather wrote:
Thu May 10, 2018 7:41 pm
I have about 10% of my portfolio in TIAA real estate. I view it as a mix between fixed income and equity, and see it's main benefit as having a lower correlation with equities than a typical REIT. The ER is high, but as I understand it, this includes all costs of managing the properties while in a typical REIT the ER represents the cost of managing the fund on top of the property management costs, which aren't as easy to measure. That may be a simplification, but ultimately it's a small enough portion of my investments and acts differently enough that my other asset classes that I don't worry about the ER.
So do you calculate it as stocks or bonds in your AA?

golfCaddy
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Re: TIAA Real Estate

Post by golfCaddy » Thu May 10, 2018 8:07 pm

Kathys wrote:
Thu May 10, 2018 7:52 pm
golfCaddy wrote:
Thu May 10, 2018 7:49 pm
I doubt the long term performance will be much different than equity REITs, after adjusting for leverage. I wouldn't put more than 5% into it.
5% will hardly make any difference, is it worth bothering then?
If you search, there's been a lot of TIAA threads in the past. You are taking a bet on the active management skill of TIAA, which is why I would limit it to 5%. A three fund portfolio or even a target date fund can work great, but some people truly geek out on slice and dice investing, trying to find an optimal portfolio.

grok87
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Re: TIAA Real Estate

Post by grok87 » Thu May 10, 2018 8:08 pm

squidfather wrote:
Thu May 10, 2018 7:41 pm
I have about 10% of my portfolio in TIAA real estate. I view it as a mix between fixed income and equity, and see it's main benefit as having a lower correlation with equities than a typical REIT. The ER is high, but as I understand it, this includes all costs of managing the properties while in a typical REIT the ER represents the cost of managing the fund on top of the property management costs, which aren't as easy to measure. That may be a simplification, but ultimately it's a small enough portion of my investments and acts differently enough that my other asset classes that I don't worry about the ER.
thanks- that's an interesting point about the expense side of things
Keep calm and Boglehead on. KCBO.

talzara
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Re: TIAA Real Estate

Post by talzara » Thu May 10, 2018 8:27 pm

The Wizard wrote:
Thu May 10, 2018 4:31 pm
Direct real estate ownership undeniably costs more to manage than an index fund of common stocks.
grok87 wrote:
Thu May 10, 2018 8:08 pm
squidfather wrote:
Thu May 10, 2018 7:41 pm
I have about 10% of my portfolio in TIAA real estate. I view it as a mix between fixed income and equity, and see it's main benefit as having a lower correlation with equities than a typical REIT. The ER is high, but as I understand it, this includes all costs of managing the properties while in a typical REIT the ER represents the cost of managing the fund on top of the property management costs, which aren't as easy to measure. That may be a simplification, but ultimately it's a small enough portion of my investments and acts differently enough that my other asset classes that I don't worry about the ER.
thanks- that's an interesting point about the expense side of things
This is a common misconception about the TIAA Real Estate Account.

TREA's expense ratio includes only the investment costs of the portfolio. It does not include the costs of managing the real estate. Those are reported separately, above the line.
Expense charges per Accumulation Unit and the Ratio of Expenses to average net assets reflect the year to date Account level expenses and exclude real estate property level expenses which are included in real estate income, net.

https://www.tiaa.org/public/pdf/reports ... ate10K.pdf
TREA's expense ratio of 0.79% is directly comparable to any other real estate mutual fund. It's much higher than the 0.12% that the Vanguard Real Estate Index Fund charges for the Admiral shares.

The difference comes from the active management. TIAA pays analysts to select the properties that they will buy. Vanguard just buys every REIT in the index.

Kathys
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Re: TIAA Real Estate

Post by Kathys » Fri May 11, 2018 5:02 am

So would you say now is a good time to get invest in TREA or not?

The Wizard
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Re: TIAA Real Estate

Post by The Wizard » Fri May 11, 2018 6:58 am

grok87 wrote:
Thu May 10, 2018 6:22 pm
The Wizard wrote:
Thu May 10, 2018 4:13 pm

Note: annuitized TREA can also decrease monthly payouts if total return is less than 4% annualized, so one needs to keep on top of this slow moving ship...
thanks.
i'm a few years of annuitizing but interested to learn how it works. i just read the prospectus section on annuitizing. But i would be interested in someones actual experience. so the payouts can be adjusted annually or monthly right. and if it's annualized return is less than 4% then the payouts decrease? so if the annualized return is greater than 4% they increase?
Correct on the 4% Assumed Investment Return.
I have over $5000 per month coming in from TIAA annuities, much of it based on TREA. I have income adjusted monthly, based on performance from the 20th of last month to the 20th of this month, so I monitor TREA's at that level rather than annually. It has been growing at close to the 4% level over the past year, but in the past few months, it has picked up to closer to 6% (0.5% per month).

TREA closed at 402.98 on April 20 and at 404.92 yesterday, which is a 0.48% increase so far (5.7% annualized) and it's not a full month yet. This month closes next Friday, 5/18 for monthly checks to be issued on 6/1, so it's looking good for now.

I monitor my monthly annuity income in a spreadsheet. From start of annuitization on 5/1/2013 to this month my monthly income from annuitized TREA has increased 17.4%.
But the amounts on 8/1/2016 and 4/1/2018 were almost the same dollar amount, so that 17% increase in income was mostly over the first three years.
Time will tell if it's actually picking up again, meaning annualized return significantly greater than 4%...
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grok87
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Re: TIAA Real Estate

Post by grok87 » Fri May 11, 2018 7:05 am

The Wizard wrote:
Fri May 11, 2018 6:58 am
grok87 wrote:
Thu May 10, 2018 6:22 pm
The Wizard wrote:
Thu May 10, 2018 4:13 pm

Note: annuitized TREA can also decrease monthly payouts if total return is less than 4% annualized, so one needs to keep on top of this slow moving ship...
thanks.
i'm a few years of annuitizing but interested to learn how it works. i just read the prospectus section on annuitizing. But i would be interested in someones actual experience. so the payouts can be adjusted annually or monthly right. and if it's annualized return is less than 4% then the payouts decrease? so if the annualized return is greater than 4% they increase?
Correct on the 4% Assumed Investment Return.
I have over $5000 per month coming in from TIAA annuities, much of it based on TREA. I have income adjusted monthly, based on performance from the 20th of last month to the 20th of this month, so I monitor TREA's at that level rather than annually. It has been growing at close to the 4% level over the past year, but in the past few months, it has picked up to closer to 6% (0.5% per month).

TREA closed at 402.98 on April 20 and at 404.92 yesterday, which is a 0.48% increase so far (5.7% annualized) and it's not a full month yet. This month closes next Friday, 5/18 for monthly checks to be issued on 6/1, so it's looking good for now.

I monitor my monthly annuity income in a spreadsheet. From start of annuitization on 5/1/2013 to this month my monthly income from annuitized TREA has increased 17.4%.
But the amounts on 8/1/2016 and 4/1/2018 were almost the same dollar amount, so that 17% increase in income was mostly over the first three years.
Time will tell if it's actually picking up again, meaning annualized return significantly greater than 4%...
Thanks, that’s very helpful.
Keep calm and Boglehead on. KCBO.

The Wizard
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Re: TIAA Real Estate

Post by The Wizard » Fri May 11, 2018 7:14 am

Kathys wrote:
Fri May 11, 2018 5:02 am
So would you say now is a good time to get invest in TREA or not?
Now is a good time, but not yet a great time quite yet, where "great" equates to the 8% total returns of a few years ago.
I actually moved money out of TREA and into Trad several months ago, reducing TREA holdings from around 25% of portfolio to 15%.

As noted in my reply to grok, TREA has picked up a bit in the last two months, but it's hard to predict the future.
I think the consensus on the other forum would be that Commercial Real Estate is still a bit fragile right now...
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cinghiale
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Re: TIAA Real Estate

Post by cinghiale » Fri May 11, 2018 7:21 am

folkher0 wrote,
Stocks or bonds go up and down, TIAA real estate just chugs along slowly. Like a steamroller.
I’d be careful with this claim. Look at the 10 year chart. Look at late 2008 and 2009. The fund has done very nicely since, but took a significant hit during that period right alongside stocks and bonds. If you are depending on this holding for steady retirement income, the chart provides a cautionary note.

http://quote.morningstar.com/fund/chart ... %2C0%22%7D
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squidfather
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Re: TIAA Real Estate

Post by squidfather » Fri May 11, 2018 7:43 am

talzara wrote:
Thu May 10, 2018 8:27 pm

TREA's expense ratio includes only the investment costs of the portfolio. It does not include the costs of managing the real estate. Those are reported separately, above the line.
Expense charges per Accumulation Unit and the Ratio of Expenses to average net assets reflect the year to date Account level expenses and exclude real estate property level expenses which are included in real estate income, net.

https://www.tiaa.org/public/pdf/reports ... ate10K.pdf
TREA's expense ratio of 0.79% is directly comparable to any other real estate mutual fund. It's much higher than the 0.12% that the Vanguard Real Estate Index Fund charges for the Admiral shares.

The difference comes from the active management. TIAA pays analysts to select the properties that they will buy. Vanguard just buys every REIT in the index.
Thank you, I definitely was misunderstanding the relationship between property management costs and the fund expense ratio.

Having said that, I disagree that TREA is directly comparable to any other real estate fund. Buying a share of TREA means you own a share of a fund that directly owns multiple properties. Buying a share of a REIT mutual fund means you own a share of a fund that owns shares in other funds that then own property. I find it hard to believe that that extra layer doesn't add cost somewhere. Each REIT that the Vanguard index fund owns is paying it's own analysts to select properties. That cost then impacts earnings from those properties, which then should impact the earnings of the REIT.

I'm not saying one is better than the other, just that I don't consider them to be the same. In my opinion, TREA acts less like an equity fund than REIT index funds and therefore I prefer it as a diversifying component of my overall portfolio (of which most of the rest is in equity index funds). I have both the Vanguard REIT index and TREA as options in my 403b plans, and I've chosen to go with TREA. Others could just as easily choose the opposite depending on their overall portfolio goals.

aristotelian
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Re: TIAA Real Estate

Post by aristotelian » Fri May 11, 2018 7:53 am

Like your questions about TIAA Traditional, their Real Estate fund is a unique investment. As a one of a kind investment, it is very hard to evaluate. You kind of have to trust that TIAA knows what they are doing. Although I do have a large % of my fixed income in TIAA Traditional, I personally avoid Real Estate. I do not like investing in instruments that I do not understand, and TIAA is not very transparent in how this fund works or how it is priced. It still lost bigtime in 2008, so it is at least as risky as investing in index funds.

I will say that the high expense ratio is not inherently problematic since the fund directly invests in real estate and there are management costs associated with that. It is more like investing in a real estate investment company rather than a mutual fund, so the costs are not apples to apples. Still, I avoid it due to risk and lack of transparency. (If you do elect to invest in it, I would suggest treating it as stock or "alternative" asset class, i.e. do not reduce your bond/fixed income allocation).

student
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Re: TIAA Real Estate

Post by student » Fri May 11, 2018 7:57 am

I personally do not invest in TIAA Real Estate now. I did long time ago and I observed that it moved in a way similar to the stock market during the Great Recession. So I replaced it with an equity index fund.

The Wizard
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Re: TIAA Real Estate

Post by The Wizard » Fri May 11, 2018 8:08 am

student wrote:
Fri May 11, 2018 7:57 am
I personally do not invest in TIAA Real Estate now. I did long time ago and I observed that it moved in a way similar to the stock market during the Great Recession. So I replaced it with an equity index fund.
Yes, it will be interesting to see what TREA does during the next stock market crash and/or recession.
Although the 2008 sub-prime mortgage fiasco was the central cause of that recession, it's not clear how that impacted TREA directly since it doesn't invest in single family real estate.
So I guess it was a ripple effect; when you have a decent recession, there's less demand for prime office space and apartment buildings probably can't increase rents as much.

So we can probably expect TREA to take a bath again during the next recession...
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squidfather
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Re: TIAA Real Estate

Post by squidfather » Fri May 11, 2018 8:16 am

student wrote:
Fri May 11, 2018 7:57 am
I personally do not invest in TIAA Real Estate now. I did long time ago and I observed that it moved in a way similar to the stock market during the Great Recession. So I replaced it with an equity index fund.
And in 2001-2002, TIAA real estate continued it's steady march while equities fell. I think the answer remains that no one knows what will happen next...

talzara
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Re: TIAA Real Estate

Post by talzara » Fri May 11, 2018 11:10 am

squidfather wrote:
Fri May 11, 2018 7:43 am
Having said that, I disagree that TREA is directly comparable to any other real estate fund. Buying a share of TREA means you own a share of a fund that directly owns multiple properties. Buying a share of a REIT mutual fund means you own a share of a fund that owns shares in other funds that then own property. I find it hard to believe that that extra layer doesn't add cost somewhere. Each REIT that the Vanguard index fund owns is paying it's own analysts to select properties. That cost then impacts earnings from those properties, which then should impact the earnings of the REIT.
Even if you ignore the management fee, the other fees are still higher in the TIAA Real Estate Account.

Vanguard Real Estate Index has an expense ratio of 0.12%.

TREA charges administrative fees of 0.24%, distribution fees of 0.10%, and a liquidity guarantee fee of 0.19%. The administrative fee alone is twice what Vanguard charges for everything added together.

The liquidity guarantee just adds insult to injury. TREA can be timed because the unit value lags actual price changes in real estate. TIAA has the audacity to charge all investors for a liquidity guarantee to enable this behavior. They should be punishing the market timers by charging them a redemption fee. They could also adopt fair-value pricing so that TREA cannot be timed. Why not impose a 10-year withdrawal period, like they do for some forms of the TIAA Traditional annuity?
squidfather wrote:
Fri May 11, 2018 7:43 am
I'm not saying one is better than the other, just that I don't consider them to be the same.
TREA does have one advantage. The Vanguard Real Estate Index Fund buys everything that's classified as a REIT, including forestry companies and data center operators. TREA is a pure play in real estate.

I just find TREA to be expensive for what you get.

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oldzey
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Re: TIAA Real Estate

Post by oldzey » Fri May 11, 2018 11:37 am

Per Morningstar, here is a comparison chart between these funds, since 10/02/1995:

TIAA Real Estate Account (QREARX). Inception date: 10/02/1995.

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX). Inception date: 4/27/1992.

Vanguard Total Bond Market Index Fund Investor Shares (VBMFX). Inception date: 12/11/1986.

Image

Morningstar won't plot TIAA Traditional on its charts, so the Vanguard Total Bond Market Index Fund can be used as an approximation of TIAA Traditional's performance in the accumulation phase.

Image

Graph from: https://collegeretirement.blogspot.com/ ... -deal.html
Last edited by oldzey on Fri May 11, 2018 12:05 pm, edited 1 time in total.
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Valuethinker
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Re: TIAA Real Estate

Post by Valuethinker » Fri May 11, 2018 12:04 pm

The Wizard wrote:
Fri May 11, 2018 8:08 am
student wrote:
Fri May 11, 2018 7:57 am
I personally do not invest in TIAA Real Estate now. I did long time ago and I observed that it moved in a way similar to the stock market during the Great Recession. So I replaced it with an equity index fund.
Yes, it will be interesting to see what TREA does during the next stock market crash and/or recession.
Although the 2008 sub-prime mortgage fiasco was the central cause of that recession, it's not clear how that impacted TREA directly since it doesn't invest in single family real estate.
So I guess it was a ripple effect; when you have a decent recession, there's less demand for prime office space and apartment buildings probably can't increase rents as much.

So we can probably expect TREA to take a bath again during the next recession...
You've nailed it.

The worst recession in 30 years, and so the demand for Commercial RE drops. Retail tenants do less well, companies cut employment and office space, etc. Hotel REITs are particularly badly affected.

Apartment REITs tend to do well in recessions-- people rent rather than buying. However this recession was so bad, and so lengthy, that vacancies and tenant default became significant factors.

Be careful also of structural change. For example PWC has managed to cut its worldwide space requirements by up to 1/3rd due to flexible working and hot desking. Retail CRE in the US is in the process of structural obsolescence, only the quality properties and locations will survive (you need to be a "destination" mall to compete with the likes of Amazon).

The early 2000s thing was about serious undervaluation of CRE vs. the stock market (or rather, the TMT sectors of the stock market became significantly overvalued).

folkher0
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Re: TIAA Real Estate

Post by folkher0 » Fri May 11, 2018 12:59 pm

cinghiale wrote:
Fri May 11, 2018 7:21 am
folkher0 wrote,
Stocks or bonds go up and down, TIAA real estate just chugs along slowly. Like a steamroller.
I’d be careful with this claim. Look at the 10 year chart. Look at late 2008 and 2009. The fund has done very nicely since, but took a significant hit during that period right alongside stocks and bonds. If you are depending on this holding for steady retirement income, the chart provides a cautionary note.

http://quote.morningstar.com/fund/chart ... %2C0%22%7D
I certainly expect the value to go down at some point--its not bulletproof. Anyone who uses it needs to be aware of the possibility of negative returns. The value of the fund changes very slowly however. Even in 2008-9, it was not prone to the huge swings of the stock and bond markets, let alone REITS. And TIAA (theoretically) lets you get out at least once a quarter.

It is the funds low volatility that is appealing when compared to Bonds and REITS, and the relative liquidity and higher potential returns (and risk) when compared to TIAA TRAD.

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Re: TIAA Real Estate

Post by The Wizard » Fri May 11, 2018 1:15 pm

folkher0 wrote:
Fri May 11, 2018 12:59 pm

...And TIAA (theoretically) lets you get out at least once a quarter.
It's not just theoretical, it's actual also; I've done it.
Once per calendar quarter per TREA holding contract, you can transfer part or all of each holding...
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dknightd
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Re: TIAA Real Estate

Post by dknightd » Fri May 11, 2018 6:02 pm

The Wizard wrote:
Fri May 11, 2018 1:15 pm

It's not just theoretical, it's actual also; I've done it.
Once per calendar quarter per TREA holding contract, you can transfer part or all of each holding...
When it was first introduced there were no restrictions on contributing, or transferring in or out.
TIAA can change the rules when ever they like (depending on your employer contract).
I started buying TREA shortly after it was introduced. If memory serves, at the time they said tiaa traditional was going to have less real estate holdings, and offered this as an alternative for those who wanted more exposure to commercial real estate. Of course, I could be wrong, that was may years ago.
I have about 10% of my savings in trea. Recently my tiaa rep suggested I cut that back and put more to their reit fund. I did not sell trea, but did start investing in their reit. Too early to tell if that was a good idea. So far the reit has been losing money. I don't like to sell when things are going down, so will probably keep investing in both.

I like the trea. I have exposure to some real estate because I own a house. The trea gives me exposure to commercial real estate it is not practical for me to buy. I'm not sure about their reit, as near as I can tell it is a like stock fund that focuses on the real estate related things. I'm not convinced that is a good idea. But as long as it keeps going down I guess I'll put money into it. I like selling when things are going up, and buying when they are going down - to me this makes sense, but I could be crazy and stupid ;)

golfCaddy
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Re: TIAA Real Estate

Post by golfCaddy » Fri May 11, 2018 6:09 pm

It seems most of the low correlation benefits of direct real estate, relative to REITs, can be attributed to stale prices. This is a footnote from a TIAA paper.
The correlation of calendar year REIT and ODCE returns over the 1993–2013 period was very low at 0.07. The correlation increases considerably to 0.73 when REIT returns are lagged by a year, or in other words, when REIT returns lead ODCE.

dknightd
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Re: TIAA Real Estate

Post by dknightd » Fri May 11, 2018 6:28 pm

Kathys wrote:
Thu May 10, 2018 6:27 pm
Why would anyone annuitize TREA? If I want to annuitize why not just put the money in TIAA traditional? Is the return that much higher in TREA?
You have identified the two funds at TIAA that are more or less unique. I plan to annuitize my tiaa traditional (probably using their graded payout). I may or may not annuitize trea (if I do it will also likely include some stock and bond funds, for re-balancing purposes). The nice thing about trea is that its returns change more slowly than stocks, but, faster than bonds (or tiaa traditional). On average it has returned someplace in the middle.
When I retire I'm trying to reproduce my income over many many years. While working some years my cost of living stayed pretty much flat, other years it went up a lot. I also do not want my money to run out. To me annitizing some of my assets makes sense. And having some of that guaranteed lifetime income depending on market conditions makes sense to me.

I Also like having most of my money in one place. It makes it easier to keep track of. You could move to vanguard, or, you could move to tiaa. Both are good companies with good products.

NoHeat
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Re: TIAA Real Estate

Post by NoHeat » Fri May 11, 2018 7:42 pm

aristotelian wrote:
Fri May 11, 2018 7:53 am
I do not like investing in instruments that I do not understand, and TIAA is not very transparent in how this fund works or how it is priced.
I read the prospectus yesterday, and I think it's transparent how the fund is priced.

http://www.tiaa.org/public/prospectuses

Here's a summary:

Directly held real estate, which is the bulk of the fund's holdings, consists of individual properties that are each appraised quarterly by an outside firm. The quarterly appraisals are rolling, so that one property will be appraised this week, and a different property will be appraised the following week.

Marketable securities, which are a smaller element of the portfolio, are marked to market daily.
It still lost bigtime in 2008, so it is at least as risky as investing in index funds.
How do you describe risk? Unpredictable short-term fluctuations, or long-term trends?

Unpredictable short-term fluctuations are almost entirely missing from TIAA Real Estate, thanks to the quarterly pricing of the assets. That's one of the great attractions of this investment.

The big-time loss you mention was a very slow and smooth long-term trend. It was sizable to be sure, but it was slow and smooth. And it was rather obvious when it was bottoming -- in fact, back then I actually bought back in at the very bottom -- I identified the bottom in real time with some confidence just by fitting the monthly price data to a parabola. That sort of predictability is the opposite of risk, I think, and it's completely unlike equity markets, where the assets jump all over the place because they are priced every minute by a fickle marketplace rather than quarterly by an outside appraiser who is responding to sales of comparable properties, which behave according to slow trends.

aristotelian
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Re: TIAA Real Estate

Post by aristotelian » Fri May 11, 2018 9:04 pm

NoHeat wrote:
Fri May 11, 2018 7:42 pm
aristotelian wrote:
Fri May 11, 2018 7:53 am
I do not like investing in instruments that I do not understand, and TIAA is not very transparent in how this fund works or how it is priced.
I read the prospectus yesterday, and I think it's transparent how the fund is priced.

http://www.tiaa.org/public/prospectuses

Here's a summary:

Directly held real estate, which is the bulk of the fund's holdings, consists of individual properties that are each appraised quarterly by an outside firm. The quarterly appraisals are rolling, so that one property will be appraised this week, and a different property will be appraised the following week.

Marketable securities, which are a smaller element of the portfolio, are marked to market daily.
What firm? What is their methodology? How do we know that their appraisals reflect the market price? If it is anything like Zillow, I don't really have confidence that the money will be there if everyone panics and sells the fund in a crisis. Weren't there rumors about liquidity problems in 2008?

In any case, if you feel you understand it enough and it is transparent, go for it. Personally, I see it as just as risky as equities, if not more, so I would just prefer to stay in equities with a long time horizon, and use bonds rather than "alternatives" to mitigate risk since I understand them better.

I do take your point on its behavior in '08. Hopefully it behaves the same in the next crisis for those who invest in it. Personally, I don't see enough upside to justify the risk.

talzara
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Re: TIAA Real Estate

Post by talzara » Sat May 12, 2018 10:26 am

From the TIAA Real Estate Account's 2009 SEC filings:
Subsequently, each property is valued each quarter with an independent external appraisal completed for each real estate property at least once a year. In general, the Account obtains appraisals for each real estate property throughout the quarter, which is intended to result in appraisal adjustments (to the extent such adjustments are made) that happen regularly throughout each quarter and not on one specific day in each period.

Starting with the second quarter of 2009, Account management intends to have each real property owned by the Account appraised by independent appraisers once per calendar quarter.
During the 2008-2009 real estate crash, investors were market-timing TREA because its prices were stale by 1 year. So TIAA moved to quarterly appraisals.

It didn't work, because TREA continued to lag the market by 1 year. The Vanguard REIT Index bottomed out in February 2009. The TIAA Real Estate Account bottomed out in March 2010.

The idea of using appraisals to set the price is fundamentally flawed. Appraisals are just a calculation of what the property should trade at. It doesn't mean you can actually sell it to someone for the appraised value. However, TIAA still has to redeem shares of TREA for the net asset value.

They need to be doing fair-value pricing, like Vanguard does on its international mutual funds. If you adjust for market conditions, then nobody can arbitrage TREA with the REIT Index Funds.

talzara
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Re: TIAA Real Estate

Post by talzara » Sat May 12, 2018 10:47 am

aristotelian wrote:
Fri May 11, 2018 9:04 pm
I don't really have confidence that the money will be there if everyone panics and sells the fund in a crisis. Weren't there rumors about liquidity problems in 2008?
The liquidity guarantee is there to cover that situation. When the TIAA Real Estate Account can no longer meet redemptions, the TIAA General Account will step in.

In February 2009, you could redeem shares in the TIAA Real Estate Account for 80% of the pre-crash value. You could then turn around and buy shares in the Vanguard REIT Index Fund for 40% of the pre-crash value.

In other words, buy-and-hold investors in TREA had to subsidize half the value of redemptions. When TREA ran out of securities to cash in, holders of TIAA Traditional annuities had to subsidize half the value of redemptions.

TIAA Traditional annuity holders are used to getting the short end of the stick. They're the ones who suffer when Roger Ferguson makes another acquisition for TIAA.

grok87
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Re: TIAA Real Estate

Post by grok87 » Sat May 19, 2018 7:18 am

The Wizard wrote:
Fri May 11, 2018 6:58 am
It has been growing at close to the 4% level over the past year, but in the past few months, it has picked up to closer to 6% (0.5% per month).
JUst did the math on this. as far as i can figure for 2018 (i.e. since year end) the fund is growing at an annualized rate of 4.5%
Keep calm and Boglehead on. KCBO.

Kathys
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Re: TIAA Real Estate

Post by Kathys » Sat May 19, 2018 7:27 am

grok87 wrote:
Sat May 19, 2018 7:18 am
The Wizard wrote:
Fri May 11, 2018 6:58 am
It has been growing at close to the 4% level over the past year, but in the past few months, it has picked up to closer to 6% (0.5% per month).
JUst did the math on this. as far as i can figure for 2018 (i.e. since year end) the fund is growing at an annualized rate of 4.5%
Is that considered decent? Worth investing in?

tibbitts
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Re: TIAA Real Estate

Post by tibbitts » Sat May 19, 2018 10:03 am

folkher0 wrote:
Thu May 10, 2018 7:48 pm
Kathys wrote:
Thu May 10, 2018 7:38 pm
folkher0 wrote:
Thu May 10, 2018 7:27 pm
I thought a lot about the expense ratio before investing in TIAA Real estate. I came to the conclusion that there were essentially no similar investments that I could compare it to, so the ER became somewhat irrelevant. I became attracted to the fund for the following reasons:

1. Extremely low volatility. I encourage you to follow the trends in the fund over the last several years. Because the fund represents direct ownership of commercial real estate, the fund’s value changes very slowly over time. This is in sharp contrast to REITs which exhibit significant volatility.

2. Low correlation with stocks or bonds. Stocks or bonds go up and down, TIAA real estate just chugs along slowly. Like a steamroller.

3. Relative liquidity compared to TIAA traditional. You can get money in and out of the fund relatively easily. There are rules: I believe you can only make one withdrawal per quarter and I also believe that some plans have maximum total contributions.

4. Potential to time the investment. You can search this forum for signals to get in or out. Not very bogleheadish and no guarantees, but in the past people have successfully timed this fund without being a real estate or math whiz.

I only have 5% of my portfolio in this fund. I wouldn’t recommend more than 10%. I combine it with TIAA TRAD and total bond mkt as my fixed income component. I view it as an anchor in times of high volatility (like the last few months)
TIAA traditional GSRA is liquid, you can get money out at any time. So don't all other points apply to TIAA trad as well?

I use both. I like the diversification of the guaranteed fund and the real estate investment. Both have low correlation to stocks and bonds. However both also concentrate risk in a single company.

I expect somewhat better returns from the real estate fund. If the returns for the real estate fun drop below the floor for traditional, I will drop it.
I hate to break it to you but the returns already have dropped below Traditional, dramatically in some cases, depending on the time period you choose to measure.

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