Hi Gene,genefl wrote: Also, I read the post that owning real estate rentals may obviate the need for a REIT. My father feels that his rental properties act as bonds and so he is 100% in equities. Thoughts on this approach?
Thanks,
Gene
That is an individual "thing"! If your father can stand up to a 50% decrease in equities (or more) during the next sell off, then go for it. Please take goals, time frame, and the ability to handle risks into the decision.
Bond funds provide income (which is lower today than historical considerations) and safety. They also provide the ability to rebalance by buying equities during the inevitable downturns. Having that "dry powder" available to purchase equities was huge during the financial crisis.
What would concern me with your fathers plan is the combination of 100% equities and very illiquid rental properties. Without knowing the rental property specifics, what if tenants lose their jobs and move out? Can he handle the loss of cash flow from rental income? In addition, does he have additional funds to rebalance back into equities. These are some of the areas and risks that should be considered. David Swensen, Yale CIO and author of the excellent book "Unconventional Success" noted that liquidity is huge and shows up when it is least expected. This is excellent advice.
Please stop back with any additional questions you may have. You might want to consider starting a separate thread to get more detailed and potentially better responses.
Best.