Are Reits considered Stock or Bonds or What

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antiqueman
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Are Reits considered Stock or Bonds or What

Post by antiqueman » Tue May 03, 2011 7:57 pm

In ones AA should you consider Reits as a bond, or stock or something else?

Thanks :D

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stratton
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Post by stratton » Tue May 03, 2011 7:58 pm

Stock.

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nisiprius
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Post by nisiprius » Tue May 03, 2011 8:15 pm

Here's a chart of Vanguard Total Stock Market, Vanguard Total Bond Market, and Vanguard REIT Index.

In terms of actual behavior, risk and return, does the REIT index fund (blue) look to you as if it behaves more like stocks (orange) or more like bonds (green)?

Image

One aspect of risk showed up clearly in 2008-2009, when Vanguard REIT Index lost over 60%, while typical stock funds lost "only" 50%.

Image
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norookie
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Post by norookie » Tue May 03, 2011 8:21 pm

:D AS always thanks for the reply post Nisi. Last I looked VNQ was @ 62, and had been on a tear!
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staythecourse
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Post by staythecourse » Tue May 03, 2011 8:42 pm

David Darst is one of the leading asset allocation guys in the world and he places REITS under the heading of real estate which are all under Alternative Investments in his book, "Art of Asset Allocation". If I remember correctly. Someone correct me if I'm wrong.

I personally think they are stocks as the same companies are in the Wilshire 5000 under ?financials so they would seem like a subsector fund.
But what do I know. Just like if you were to invest in an energy fund.

Good luck.
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joe8d
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Post by joe8d » Tue May 03, 2011 8:48 pm

I've seen REIT's classified as an "Alternate Asset" along with TIPS and Commodities funds.I own the VG REIT Index and consider it as an Income Producing Security.
All the Best, | Joe

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stratton
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Post by stratton » Tue May 03, 2011 8:49 pm

joe8d wrote:I've seen REIT's classified as an "Alternate Asset" along with TIPS and Commodities funds.I own the VG REIT Index and consider it as an Income Producing Security.
Yes, but at its most basic REITs are stocks or has stock like behavior. Same with commodities. TIPS belong in the bond category.

Paul
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Post by Die Hard » Tue May 03, 2011 8:59 pm

stratton wrote:
joe8d wrote:I've seen REIT's classified as an "Alternate Asset" along with TIPS and Commodities funds.I own the VG REIT Index and consider it as an Income Producing Security.
Yes, but at its most basic REITs are stocks or has stock like behavior. Same with commodities. TIPS belong in the bond category.

Paul
Speaking of TIPS, when is the best time to add to your portfolio? I was thinking of a 50/50 bond/TIP split. Isn't the price fairly high now? Not trying to influence the OP thread
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Post by Tex » Tue May 03, 2011 9:08 pm

I treat REITs as a separate asset class due to the unique income characteristics. Having said that, I pull my 5% allocation out of my stock allocation due to their risk. I would never consider it part of my bond allocation, which is 50-50 total bond-tips.

grok87
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stocks

Post by grok87 » Tue May 03, 2011 9:12 pm

REITS are stocks.
Direct Real Estate (such as TIAA real estate annuity) is a hybrid between stock-like and bond-like. Properties with long term leases (say buildings with long term government contracts) are bond like. Properties with short term rentals (hotels etc) are more stock like as they are more subject to the vagaries of the economy and rents will fluctuate accordingly.

REITS are leveraged vehicles for investing in real estate. So the leverage sort of cancels out the bond like part of real estate- and you are left with a stock like instrument.
cheers,
RIP Mr. Bogle.

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Post by gotherelate » Tue May 03, 2011 11:21 pm

The only reason I own the Vanguard REIT Index Fund is because I wanted a broad, diversified exposure to real estate. So, I consider it neither equities nor fixed income, but real estate.
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Re: stocks

Post by wlpotts » Wed May 04, 2011 2:19 am

grok87 wrote:REITS are stocks.
Direct Real Estate (such as TIAA real estate annuity) is a hybrid between stock-like and bond-like. Properties with long term leases (say buildings with long term government contracts) are bond like. Properties with short term rentals (hotels etc) are more stock like as they are more subject to the vagaries of the economy and rents will fluctuate accordingly.

REITS are leveraged vehicles for investing in real estate. So the leverage sort of cancels out the bond like part of real estate- and you are left with a stock like instrument.
cheers,
Grok87,
Thank you for offering your position on this subject. Your contributions are always well recieved and well respected.

My frustration with this issue is to how one constructs and manages a structured portfolio that might properly reflect any REIT investment allocation.

Do you have any recommendations or rescources for accessing portfolio managent tools, spreadsheet templates, or any other representative products that might serve to accommodate "Alternative Asset Class Allocations"?

I've reviewed the Bogleheads site in search of Portfolio Models/ Templates as well as the Wiki site, but the available information and references seem to me to be too generic and lack conviction.

Respectfully,

WLPotts
Could you provide any insightor guidance?
Some have it. Some don't. Either way, here I am!

grok87
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Re: stocks

Post by grok87 » Wed May 04, 2011 8:31 am

wlpotts wrote:
grok87 wrote:REITS are stocks.
Direct Real Estate (such as TIAA real estate annuity) is a hybrid between stock-like and bond-like. Properties with long term leases (say buildings with long term government contracts) are bond like. Properties with short term rentals (hotels etc) are more stock like as they are more subject to the vagaries of the economy and rents will fluctuate accordingly.

REITS are leveraged vehicles for investing in real estate. So the leverage sort of cancels out the bond like part of real estate- and you are left with a stock like instrument.
cheers,
Grok87,
Thank you for offering your position on this subject. Your contributions are always well recieved and well respected.

My frustration with this issue is to how one constructs and manages a structured portfolio that might properly reflect any REIT investment allocation.

Do you have any recommendations or rescources for accessing portfolio managent tools, spreadsheet templates, or any other representative products that might serve to accommodate "Alternative Asset Class Allocations"?

I've reviewed the Bogleheads site in search of Portfolio Models/ Templates as well as the Wiki site, but the available information and references seem to me to be too generic and lack conviction.

Respectfully,

WLPotts
Could you provide any insightor guidance?
Hi Wlpotts,
Thanks for the kind words.
Not exactly sure what you have in mind. I pretty much do mine in Excel. Here are the buckets I track:

US Large Cap Stocks
US SMall MId/Cap STocks
International Stocks
Real Estate (US REITs, Foreign REITS, Direct Real Estate)
Treasuries/CDs
TIPs/IBonds

While you can come up with various weights to the above, I think a equal weight among these six categories is not a terrible idea- one could do much worse!
cheers,
TIPS
RIP Mr. Bogle.

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Post by dbr » Wed May 04, 2011 8:39 am

I haven't kept track of where the data is, but didn't someone post a breakout of REIT stocks in the typical Vanguard stock funds? Normally REITs are not stratified separately from financials in typical asset class breakdowns. It is true that a portfolio high in small cap value and buying a REIT fund has a little more in that asset class than might be intended.

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Post by xerty24 » Wed May 04, 2011 8:41 am

Leveraged stocks.

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Post by pkcrafter » Wed May 04, 2011 11:35 am

Read about REITS. Good explanation.

http://www.accumulatingmoney.com/what-are-reits/

Paul
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Post by nisiprius » Wed May 04, 2011 11:45 am

It sort of depends why you're classifying them, I guess. And while I haven't dug very deep, I haven't seen any evidence that there are well-understood "classifications" or "right answers."

In my own spreadsheet, not knowing what else to do, I actually have separate columns for "equities," "REITs," "[nominal] bonds", "TIPS," "I bonds," and "cash" and lump them according to the question I'm trying to answer. Fortunately my REIT allocation is so tiny (a long and embarrassing story, I can't bring myself either to throw away the sliver or add to it, so I pretend I'm "staying the course") it doesn't matter one bit how I classify it.

It's all fairly arbitrary. It seems pretty obvious that junk bonds are sort of halfway in between stocks and bonds in their characteristics. People like to classify them as "bonds" because, well, they are bonds, just not very bond-like bonds... and... I'm totally convinced... so that fund companies can intentionally overstate their "bond" allocation.

We've seen that Vanguard Lifestrategy Funds treat short-term bonds as part of the "short-term reserves" allocation, yet the Vanguard Portfolio Analysis Tool considers them to be "bonds."
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Post by og15F1 » Wed May 04, 2011 11:47 am

staythecourse wrote:David Darst is one of the leading asset allocation guys in the world and he places REITS under the heading of real estate ...
This is how Rick Ferri classified them in 'All About Asset Allocation' ... in a separate section and neither stocks nor bonds

I guess the real answer depends on how you understand their prior and (anticipated) future correlations with stocks and bonds

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Re:

Post by zeek » Thu Mar 07, 2013 12:09 am

What are you using to run the graphs?
nisiprius wrote:Here's a chart of Vanguard Total Stock Market, Vanguard Total Bond Market, and Vanguard REIT Index.

In terms of actual behavior, risk and return, does the REIT index fund (blue) look to you as if it behaves more like stocks (orange) or more like bonds (green)?

Image

One aspect of risk showed up clearly in 2008-2009, when Vanguard REIT Index lost over 60%, while typical stock funds lost "only" 50%.

Image

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Re: Are Reits considered Stock or Bonds or What

Post by money » Thu Mar 07, 2013 2:38 am

Looks like morningstar.com. A tip: check to see if your local library has remote access for full analysis reports (not required for charts).
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Re: Re:

Post by nisiprius » Thu Mar 07, 2013 9:13 am

zeek wrote:What are you using to run the graphs?
See:
How to use Morningstar growth charts. No cost. I find them to be of inestimable value. Some forum regulars may feel that I overuse them. :wink: I love the fact that they go back to fund inception, not just ten years; I love the fact that they are growth charts that include the effect of dividend reinvestment, because that corresponds to the way I invest; I love the fact that if you plot a mutual fund first, you can get growth charts for ETFs and individual stocks by putting them in the "compare to" box.

For the record, I have no connection with Morningstar beyond being a grateful and enthusiastic user of the information they make available at no cost.

There are many pieces of information available, but I believe that all the Sharpe ratios and verbal descriptions and such should always be looked with the long-term growth chart available for inspection as well.

1-3-5-10-year returns are evil. You are trying to watch a baseball game through four knotholes in a fence. The growth chart may be a distant view, but at least you see the whole field.
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Re: Re:

Post by Doc » Thu Mar 07, 2013 9:43 am

nisiprius wrote:
zeek wrote:What are you using to run the graphs?
See:
How to use Morningstar growth charts. No cost. I find them to be of inestimable value. Some forum regulars may feel that I overuse them. :wink: I love the fact that they go back to fund inception, not just ten years; I love the fact that they are growth charts that include the effect of dividend reinvestment, because that corresponds to the way I invest; I love the fact that if you plot a mutual fund first, you can get growth charts for ETFs and individual stocks by putting them in the "compare to" box.

...

1-3-5-10-year returns are evil. You are trying to watch a baseball game through four knotholes in a fence. The growth chart may be a distant view, but at least you see the whole field.
Growth charts are great and 1-3-5-10 year returns are very evil because you can't control their endpoints. But you can also use M*'s charts in the rolling return mode and get to see the whole field from both dugouts, the left & right foul lines, the bleachers and even from the view of the 2nd base umpire. :D

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

Post by matjen » Thu Mar 07, 2013 10:11 am

Doc wrote: Growth charts are great and 1-3-5-10 year returns are very evil because you can't control their endpoints. But you can also use M*'s charts in the rolling return mode and get to see the whole field from both dugouts, the left & right foul lines, the bleachers and even from the view of the 2nd base umpire. :D
http://quote.morningstar.com/fund/chart ... %2C0%22%7D[/quote]

Is there a reason this doesn't seem to work for ETFs? The description on how to get to Rolling Returns is below but that doesn't work for VTI for instance. No Rolling Return option.

To find a fund's rolling returns, click on the Chart tab on the page for an individual mutual fund. You'll be directed to the fund's Growth of $10,000 chart. Toggle over the Growth tab, and you'll get a dropdown menu. Select the Rolling Returns option. You'll then see the three-month rolling returns for the investment--how often it was in the black in various three-month periods as well as how often it posted negative returns.
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Re: Re:

Post by Default User BR » Thu Mar 07, 2013 1:25 pm

matjen wrote:Is there a reason this doesn't seem to work for ETFs? The description on how to get to Rolling Returns is below but that doesn't work for VTI for instance. No Rolling Return option.
Start with a mutual fund, then add your ETF for "comparison".


Brian

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Re: Are Reits considered Stock or Bonds or What

Post by matjen » Thu Mar 07, 2013 1:36 pm

Thank you Brian. That does the trick.
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Re: Are Reits considered Stock or Bonds or What

Post by Doc » Thu Mar 07, 2013 1:38 pm

Morningstar treats ETF's as "stocks" since they are traded like stocks. Hence their charts default to price not total return.

As both Nisi and Brian have noted start either the growth or rolling return chart with a mutual fund and then add your ETF as a comparison.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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