large stake in VNQ [Vanguard Real Estate ETF]

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SashaWalpole
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Joined: Thu Nov 07, 2019 3:17 pm

large stake in VNQ [Vanguard Real Estate ETF]

Post by SashaWalpole » Thu Nov 07, 2019 3:34 pm

Hi, i'm new here. I made a lot of money in the crypto bubble a couple years ago and then lost most of it in the preceding crypto crash. The experience convinced me to education myself more on investing. I read the Boggleheads Guide to Investing before deciding that i'd like to focus more on real estate. My problem is this. I'm trying to contribute to my Roth every year despite my focus on real estate, but i'm not really comfortable with the sky high valuations. My experience with crypto doesn't endear me to sky high valuations. So, recently i decided to put a lot of my Roth money in VNQ, since at least if the market crashes it'll pay out a bigger dividend. I know that this is unusual however and that REIT valuations are also sky high. I wish there was a way to invest defensively and still get a decent return. Thoughts?

Topic Author
SashaWalpole
Posts: 4
Joined: Thu Nov 07, 2019 3:17 pm

Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by SashaWalpole » Thu Nov 07, 2019 6:32 pm

So, a little more info...

I have around $90k in individual stocks that my grandfather gave me. I can't sell them without paying significant taxes.

My Roth has $3k in VGT (Vanguard tech sector), $2k in VTI (total stock market), $1k in VO (mid caps), and $12k in VNQ (reits).

I have one 200k rental property (a triplex) on a 30 yr loan and $120k in cash and a short term bond funds to buy more rental properties next year.

So, what do you think of my portfolio and the heavy investment in VNQ?

retired@50
Posts: 394
Joined: Tue Oct 01, 2019 2:36 pm

Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by retired@50 » Thu Nov 07, 2019 6:42 pm

SashaWalpole wrote:
Thu Nov 07, 2019 6:32 pm
So, a little more info...

I have around $90k in individual stocks that my grandfather gave me. I can't sell them without paying significant taxes.

My Roth has $3k in VGT (Vanguard tech sector), $2k in VTI (total stock market), $1k in VO (mid caps), and $12k in VNQ (reits).

I have one 200k rental property (a triplex) on a 30 yr loan and $120k in cash and a short term bond funds to buy more rental properties next year.

So, what do you think of my portfolio and the heavy investment in VNQ?
It would appear that you're not really interested in owning a market portfolio, comprised of U.S. Stocks, International Stocks, and U.S. Bonds, like the Three Fund Portfolio often discussed on the Bogleheads website. If you continue to make market specific, or sector specific bets you will either do better or worse than the overall market, but you won't match the market.

My advice would be to use a dollar cost averaging (DCA) technique into a market matching portfolio over the next several years, that way, you'll be purchasing stocks and bonds at a variety of prices and you won't suffer from the negative feelings of regret from "buying high".
Regards,

Northern Flicker
Posts: 4893
Joined: Fri Apr 10, 2015 12:29 am

Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by Northern Flicker » Thu Nov 07, 2019 7:38 pm

SashaWalpole wrote:
Thu Nov 07, 2019 6:32 pm
So, a little more info...

I have around $90k in individual stocks that my grandfather gave me. I can't sell them without paying significant taxes.

My Roth has $3k in VGT (Vanguard tech sector), $2k in VTI (total stock market), $1k in VO (mid caps), and $12k in VNQ (reits).

I have one 200k rental property (a triplex) on a 30 yr loan and $120k in cash and a short term bond funds to buy more rental properties next year.

So, what do you think of my portfolio and the heavy investment in VNQ?
You are only 3% REITs. That is not a heavy investment. 3-5% is reasonable and appropriate for most investors, but if you are going to hold rental property, you probably want ZERO in REITs because you want other investments to be less correlated with your rental property. You already have plenty of real estate exposure without holding any REIT funds.
Index fund investor since 1987.

Grt2bOutdoors
Posts: 21356
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Location: New York

Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by Grt2bOutdoors » Thu Nov 07, 2019 7:51 pm

SashaWalpole wrote:
Thu Nov 07, 2019 3:34 pm
Hi, i'm new here. I made a lot of money in the crypto bubble a couple years ago and then lost most of it in the preceding crypto crash. The experience convinced me to education myself more on investing. I read the Boggleheads Guide to Investing before deciding that i'd like to focus more on real estate. My problem is this. I'm trying to contribute to my Roth every year despite my focus on real estate, but i'm not really comfortable with the sky high valuations. My experience with crypto doesn't endear me to sky high valuations. So, recently i decided to put a lot of my Roth money in VNQ, since at least if the market crashes it'll pay out a bigger dividend. I know that this is unusual however and that REIT valuations are also sky high. I wish there was a way to invest defensively and still get a decent return. Thoughts?
What makes you believe that REITs are unaffected by general economic conditions? When the market tanked in '08-'09, what did VNQ do?
The correlations were nearly 1 to 1 with Total Stock Market Index, in 2008, VNQ returned -37%, VTI returned -36.98%.

2009: VNQ +30.08% VTI +28.89%
2010: VNQ +28.37 VTI +17.42%
2011: VNQ +8.62% VTI +0.97%
2012: VNQ +17.63% VTI +16.45%
2013: VNQ +2.1% VTI +33.45%

You are young, your best defense for a current high valuation is to hold your nose and plunge right in, and continue doing so each and every year, don't look at it, stop listening to CNBC and stop reading the newspaper. As the economy goes, so goes the stock market and vice versa - alot of what happens is usually inextricably linked. Stick with diversified broad index funds. If you think REITS are not susceptible to economic decline, you are mistaken and they can and do cut distributions when trouble hits the fan.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

supersecretname
Posts: 103
Joined: Tue Sep 01, 2015 2:33 pm

Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by supersecretname » Thu Nov 07, 2019 8:18 pm

SashaWalpole wrote:
Thu Nov 07, 2019 3:34 pm
I wish there was a way to invest defensively and still get a decent return. Thoughts?
Don't we all. It should would be nice to have our cake and eat it too.

Topic Author
SashaWalpole
Posts: 4
Joined: Thu Nov 07, 2019 3:17 pm

Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by SashaWalpole » Thu Nov 07, 2019 8:20 pm

Grt2bOutdoors wrote:
Thu Nov 07, 2019 7:51 pm
SashaWalpole wrote:
Thu Nov 07, 2019 3:34 pm
Hi, i'm new here. I made a lot of money in the crypto bubble a couple years ago and then lost most of it in the preceding crypto crash. The experience convinced me to education myself more on investing. I read the Boggleheads Guide to Investing before deciding that i'd like to focus more on real estate. My problem is this. I'm trying to contribute to my Roth every year despite my focus on real estate, but i'm not really comfortable with the sky high valuations. My experience with crypto doesn't endear me to sky high valuations. So, recently i decided to put a lot of my Roth money in VNQ, since at least if the market crashes it'll pay out a bigger dividend. I know that this is unusual however and that REIT valuations are also sky high. I wish there was a way to invest defensively and still get a decent return. Thoughts?
What makes you believe that REITs are unaffected by general economic conditions? When the market tanked in '08-'09, what did VNQ do?
The correlations were nearly 1 to 1 with Total Stock Market Index, in 2008, VNQ returned -37%, VTI returned -36.98%.

2009: VNQ +30.08% VTI +28.89%
2010: VNQ +28.37 VTI +17.42%
2011: VNQ +8.62% VTI +0.97%
2012: VNQ +17.63% VTI +16.45%
2013: VNQ +2.1% VTI +33.45%

You are young, your best defense for a current high valuation is to hold your nose and plunge right in, and continue doing so each and every year, don't look at it, stop listening to CNBC and stop reading the newspaper. As the economy goes, so goes the stock market and vice versa - alot of what happens is usually inextricably linked. Stick with diversified broad index funds. If you think REITS are not susceptible to economic decline, you are mistaken and they can and do cut distributions when trouble hits the fan.
This is where i read that REITs generally do better in recessions and that 2008 was an outlier.

https://seekingalpha.com/article/429154 ... sions-talk

Topic Author
SashaWalpole
Posts: 4
Joined: Thu Nov 07, 2019 3:17 pm

Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by SashaWalpole » Thu Nov 07, 2019 8:22 pm

Northern Flicker wrote:
Thu Nov 07, 2019 7:38 pm
SashaWalpole wrote:
Thu Nov 07, 2019 6:32 pm
So, a little more info...

I have around $90k in individual stocks that my grandfather gave me. I can't sell them without paying significant taxes.

My Roth has $3k in VGT (Vanguard tech sector), $2k in VTI (total stock market), $1k in VO (mid caps), and $12k in VNQ (reits).

I have one 200k rental property (a triplex) on a 30 yr loan and $120k in cash and a short term bond funds to buy more rental properties next year.

So, what do you think of my portfolio and the heavy investment in VNQ?
You are only 3% REITs. That is not a heavy investment. 3-5% is reasonable and appropriate for most investors, but if you are going to hold rental property, you probably want ZERO in REITs because you want other investments to be less correlated with your rental property. You already have plenty of real estate exposure without holding any REIT funds.
You make good points. Thank you!

KyleAAA
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Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by KyleAAA » Thu Nov 07, 2019 8:27 pm

What asset do you think has sky high valuations? Stocks? Based on what? They seem just about fairly valued to me.

Grt2bOutdoors
Posts: 21356
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Location: New York

Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by Grt2bOutdoors » Thu Nov 07, 2019 8:37 pm

SashaWalpole wrote:
Thu Nov 07, 2019 8:20 pm
Grt2bOutdoors wrote:
Thu Nov 07, 2019 7:51 pm
SashaWalpole wrote:
Thu Nov 07, 2019 3:34 pm
Hi, i'm new here. I made a lot of money in the crypto bubble a couple years ago and then lost most of it in the preceding crypto crash. The experience convinced me to education myself more on investing. I read the Boggleheads Guide to Investing before deciding that i'd like to focus more on real estate. My problem is this. I'm trying to contribute to my Roth every year despite my focus on real estate, but i'm not really comfortable with the sky high valuations. My experience with crypto doesn't endear me to sky high valuations. So, recently i decided to put a lot of my Roth money in VNQ, since at least if the market crashes it'll pay out a bigger dividend. I know that this is unusual however and that REIT valuations are also sky high. I wish there was a way to invest defensively and still get a decent return. Thoughts?
What makes you believe that REITs are unaffected by general economic conditions? When the market tanked in '08-'09, what did VNQ do?
The correlations were nearly 1 to 1 with Total Stock Market Index, in 2008, VNQ returned -37%, VTI returned -36.98%.

2009: VNQ +30.08% VTI +28.89%
2010: VNQ +28.37 VTI +17.42%
2011: VNQ +8.62% VTI +0.97%
2012: VNQ +17.63% VTI +16.45%
2013: VNQ +2.1% VTI +33.45%

You are young, your best defense for a current high valuation is to hold your nose and plunge right in, and continue doing so each and every year, don't look at it, stop listening to CNBC and stop reading the newspaper. As the economy goes, so goes the stock market and vice versa - alot of what happens is usually inextricably linked. Stick with diversified broad index funds. If you think REITS are not susceptible to economic decline, you are mistaken and they can and do cut distributions when trouble hits the fan.
This is where i read that REITs generally do better in recessions and that 2008 was an outlier.

https://seekingalpha.com/article/429154 ... sions-talk
2008 was an outlier, they said the same about 1929 and 1931 too. The point is the person who wrote that opinion piece is basing it upon others opinions and not incorporating much if any real historical points or real insights into it. It speaks of recency bias. REIT balance sheets can be stressed, you can hold a lease but if the leasee goes bust, your lease is not going to be worth much in bankruptcy court. Banking on continued interest rate cuts, take a number so is just about every other speculator out there but that does not mean it will come to fruition. Comparing equities to reits, is comparing apples to oranges. Real estate is local, you seem to have a passion for it, you should focus your energies on that. But don't rely on opinions found on an internet sight for growing your retirement savings, leave your IRA investments in broad stock market index(s). Read the wiki, read the forum posts, the trend of the market over the last hundred years is up, even after a few very bad years.
Last edited by Grt2bOutdoors on Thu Nov 07, 2019 8:38 pm, edited 1 time in total.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

tesuzuki2002
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Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by tesuzuki2002 » Thu Nov 07, 2019 8:37 pm

Northern Flicker wrote:
Thu Nov 07, 2019 7:38 pm
SashaWalpole wrote:
Thu Nov 07, 2019 6:32 pm
So, a little more info...

I have around $90k in individual stocks that my grandfather gave me. I can't sell them without paying significant taxes.

My Roth has $3k in VGT (Vanguard tech sector), $2k in VTI (total stock market), $1k in VO (mid caps), and $12k in VNQ (reits).

I have one 200k rental property (a triplex) on a 30 yr loan and $120k in cash and a short term bond funds to buy more rental properties next year.

So, what do you think of my portfolio and the heavy investment in VNQ?
You are only 3% REITs. That is not a heavy investment. 3-5% is reasonable and appropriate for most investors, but if you are going to hold rental property, you probably want ZERO in REITs because you want other investments to be less correlated with your rental property. You already have plenty of real estate exposure without holding any REIT funds.

My thoughts are the same!!

Vanguard Fan 1367
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Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by Vanguard Fan 1367 » Thu Nov 07, 2019 11:59 pm

I am glad that your REIT is in a Roth. I took someone's advice a while back and invested in Vanguard's REIT. It has done very well. Unfortunately I didn't get interested in Bogleheads until a few years ago. Bogleheads pointed out that the dividend that the REIT has to pay results in more taxes than I want. So I am in the process of slowly getting rid of my REIT in my taxable account.

These days I like Vanguard's Total Stock Market better than their REIT.

venkman
Posts: 1064
Joined: Tue Mar 14, 2017 10:33 pm

Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by venkman » Fri Nov 08, 2019 1:15 am

SashaWalpole wrote:
Thu Nov 07, 2019 3:34 pm
So, recently i decided to put a lot of my Roth money in VNQ, since at least if the market crashes it'll pay out a bigger dividend. I know that this is unusual however and that REIT valuations are also sky high. I wish there was a way to invest defensively and still get a decent return.
The industry sectors that are considered defensive are Utilities, Consumer Staples, and Health Care; they tend to outperform during a recession because demand for those products/services is relatively constant. (Of the three, Utilities is typically the least correlated with the overall stock market.)

REIT's suffer during a recession because, like most other businesses, there's less demand for their product. They'll still pay out dividends, but those dividends will be lower. And if you're a long-term investor, dividends aren't particularly relevant anyway; you should care about total return.

Target2019
Posts: 380
Joined: Sat Mar 03, 2007 5:30 pm

Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by Target2019 » Fri Nov 08, 2019 6:49 am

SashaWalpole wrote:
Thu Nov 07, 2019 8:20 pm
Grt2bOutdoors wrote:
Thu Nov 07, 2019 7:51 pm
SashaWalpole wrote:
Thu Nov 07, 2019 3:34 pm
Hi, i'm new here. I made a lot of money in the crypto bubble a couple years ago and then lost most of it in the preceding crypto crash. The experience convinced me to education myself more on investing. I read the Boggleheads Guide to Investing before deciding that i'd like to focus more on real estate. My problem is this. I'm trying to contribute to my Roth every year despite my focus on real estate, but i'm not really comfortable with the sky high valuations. My experience with crypto doesn't endear me to sky high valuations. So, recently i decided to put a lot of my Roth money in VNQ, since at least if the market crashes it'll pay out a bigger dividend. I know that this is unusual however and that REIT valuations are also sky high. I wish there was a way to invest defensively and still get a decent return. Thoughts?
What makes you believe that REITs are unaffected by general economic conditions? When the market tanked in '08-'09, what did VNQ do?
The correlations were nearly 1 to 1 with Total Stock Market Index, in 2008, VNQ returned -37%, VTI returned -36.98%.

2009: VNQ +30.08% VTI +28.89%
2010: VNQ +28.37 VTI +17.42%
2011: VNQ +8.62% VTI +0.97%
2012: VNQ +17.63% VTI +16.45%
2013: VNQ +2.1% VTI +33.45%

You are young, your best defense for a current high valuation is to hold your nose and plunge right in, and continue doing so each and every year, don't look at it, stop listening to CNBC and stop reading the newspaper. As the economy goes, so goes the stock market and vice versa - alot of what happens is usually inextricably linked. Stick with diversified broad index funds. If you think REITS are not susceptible to economic decline, you are mistaken and they can and do cut distributions when trouble hits the fan.
This is where i read that REITs generally do better in recessions and that 2008 was an outlier.

https://seekingalpha.com/article/429154 ... sions-talk
Please read the comments. That is where the peer review is, and some of the statements are debunked. He actually wrote that REITs are good for late cycle investors.

rkhusky
Posts: 7366
Joined: Thu Aug 18, 2011 8:09 pm

Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by rkhusky » Fri Nov 08, 2019 8:31 am

SashaWalpole wrote:
Thu Nov 07, 2019 3:34 pm
So, recently i decided to put a lot of my Roth money in VNQ, since at least if the market crashes it'll pay out a bigger dividend.
Have you noticed that the share price of VNQ drops proportionately to the dividend paid, such that you have as much money before as after the payment of the dividend (true of all stock funds)? There is no benefit to receiving a stock dividend.

dbr
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Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by dbr » Fri Nov 08, 2019 8:39 am

deleted

goblue100
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Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by goblue100 » Fri Nov 08, 2019 8:43 am

SashaWalpole wrote:
Thu Nov 07, 2019 6:32 pm

I have around $90k in individual stocks that my grandfather gave me. I can't sell them without paying significant taxes.
If your grandfather willed those stocks to you, you get a stepped up cost basis and may not owe as much in taxes as you think. Just in case you weren't aware of that.

https://www.investopedia.com/terms/i/in ... -stock.asp
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

Valuethinker
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Re: large stake in VNQ [Vanguard Real Estate ETF]

Post by Valuethinker » Fri Nov 08, 2019 9:03 am

SashaWalpole wrote:
Thu Nov 07, 2019 3:34 pm
Hi, i'm new here. I made a lot of money in the crypto bubble a couple years ago and then lost most of it in the preceding crypto crash. The experience convinced me to education myself more on investing. I read the Boggleheads Guide to Investing before deciding that i'd like to focus more on real estate. My problem is this. I'm trying to contribute to my Roth every year despite my focus on real estate, but i'm not really comfortable with the sky high valuations. My experience with crypto doesn't endear me to sky high valuations. So, recently i decided to put a lot of my Roth money in VNQ, since at least if the market crashes it'll pay out a bigger dividend. I know that this is unusual however and that REIT valuations are also sky high. I wish there was a way to invest defensively and still get a decent return. Thoughts?
You own a rental property.

I think you'd be crazy to go all-in on REITs. REITs have proven to be more volatile than the stock market as a whole in conditions of financial stress.

5-10% of a well diversified portfolio in REITs? Fine as long as you get your taxable/ non taxable strategy right.

Own the US market - Vanguard Total Stock Market fund. Better yet, own the world market as well (c 30% of your total equity portfolio). Sit back and enjoy the (inevitably very bumpy) ride.

viewtopic.php?f=10&t=281875&start=50

is worth a read.

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