Who understands REITS?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Johnnie
Posts: 482
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Who understands REITS?

Post by Johnnie » Sun Jan 15, 2017 12:06 pm

Merriman recaps why REITs add value to a slice and dice portfolio: http://paulmerriman.com/10-things-need-know-reits/

On the basis of that I've been DCAing in to VGSIX via 401k contribs.

Admission: I don't understand what makes this asset class go up and down from day to day and month so month. <cue image of Buffet shaking his head and groaning, like Lurch in the old Addams Family>

"Timing" a dirty word around here, but I can't help wondering whether my timing stinks or is great as we transition to a potentially higher growth/lower tax-and-regulation economy.

One specific question: Per the article above, REIT owners don't suffer the double-taxation of stocks, because only shareholder distributions are taxed. Assuming a lower and friendlier corporate tax regime is adopted will that mean a flight from REITs?
"I know nothing."

User avatar
CaliJim
Posts: 2800
Joined: Sun Feb 28, 2010 8:47 pm
Location: California, near the beach

Re: Who understands REITS?

Post by CaliJim » Sun Jan 15, 2017 12:44 pm

Nobody can predict with good certainty

Invest for the long term, not the next administration
-calijim- | | For more info, click this Wiki

Call_Me_Op
Posts: 6787
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Who understands REITS?

Post by Call_Me_Op » Sun Jan 15, 2017 5:54 pm

Note that if you own a total market index, you own REITs already - and in proportion to their representation in the market. (Remember, REITs are stocks.)

Personally, I believe that tilting toward REITs provides limited if any benefit. Also, they should be held in a tax-advantaged account.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
Johnnie
Posts: 482
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Re: Who understands REITS?

Post by Johnnie » Sun Jan 15, 2017 7:07 pm

CaliJim wrote:Nobody can predict with good certainty
I'm writing that down. :wink:

Seriously, the timing issue is secondary. Sure, once one is all invested in one's plan it's just rebalance and stay the course. But is there a Boglehead so granite-hearted as to not to question, say, whether new money should be dumped in all at once or DCA'd?

The main reason I ask is this: I really don't know what makes the price of REITs move. With stocks I at least know the factors involved. If a firm is big exporter, I expect a big dollar rally to nick it's revenue and price, for example. I get interest sensitive stocks, consumer non-cyclicals, etc. - when those go up or down I can make a reasonable guess at the factors in play, at least in hindsight.

With REITs I really don't know what makes them move from month to month and year to year, other than obvious stuff like getting killed in 2008.
"I know nothing."

alex_686
Posts: 3210
Joined: Mon Feb 09, 2015 2:39 pm

Re: Who understands REITS?

Post by alex_686 » Sun Jan 15, 2017 7:18 pm

Call_Me_Op wrote:Note that if you own a total market index, you own REITs already - and in proportion to their representation in the market. (Remember, REITs are stocks.)
I would disagree. Is your AA split between stocks and bonds based on the neutral market cap weighting of stocks and bonds? Do you hold real estate - regardless if the ownership is via private or public company - at a market neutral weight? I doubt it. You should hold REITs in the amount to maximize your risk / return profile.

REITs have a long and persistent history of having a low correlation with the rest of the market. As such they make a excellent diversifer.

alex_686
Posts: 3210
Joined: Mon Feb 09, 2015 2:39 pm

Re: Who understands REITS?

Post by alex_686 » Sun Jan 15, 2017 7:22 pm

Johnnie wrote:The main reason I ask is this: I really don't know what makes the price of REITs move. With stocks I at least know the factors involved. If a firm is big exporter, I expect a big dollar rally to nick it's revenue and price, for example. I get interest sensitive stocks, consumer non-cyclicals, etc. - when those go up or down I can make a reasonable guess at the factors in play, at least in hindsight.

With REITs I really don't know what makes them move from month to month and year to year, other than obvious stuff like getting killed in 2008.
I am not sure I am following your question. In many ways REITs are just like any other business. Some REITs make money by building homes and buildings. Other make money by managing or renting out buildings. The only twist is the tax code. They don't have to pay taxes if they only invest in real estate and pay out almost all of their earnings as dividends. There are a few more twists but basically REITs are business that focus on real estate.

alex_686
Posts: 3210
Joined: Mon Feb 09, 2015 2:39 pm

Re: Who understands REITS?

Post by alex_686 » Sun Jan 15, 2017 7:23 pm

Johnnie wrote:The main reason I ask is this: I really don't know what makes the price of REITs move. With stocks I at least know the factors involved. If a firm is big exporter, I expect a big dollar rally to nick it's revenue and price, for example. I get interest sensitive stocks, consumer non-cyclicals, etc. - when those go up or down I can make a reasonable guess at the factors in play, at least in hindsight.

With REITs I really don't know what makes them move from month to month and year to year, other than obvious stuff like getting killed in 2008.
I am not sure I am following your question. In many ways REITs are just like any other business. Some REITs make money by building homes and buildings. Other make money by managing or renting out buildings. The only twist is the tax code. They don't have to pay taxes if they only invest in real estate and pay out almost all of their earnings as dividends. There are a few more twists but basically REITs are business that focus on real estate.

kenner
Posts: 3129
Joined: Sat Mar 01, 2008 8:45 am

Re: Who understands REITS?

Post by kenner » Sun Jan 15, 2017 7:44 pm

Johnnie wrote: But is there a Boglehead so granite-hearted as to not to question, say, whether new money should be dumped in all at once or DCA'd?

I'd venture to say that the vast majority of Bogleheads have asked this question at one time or another. And, by a slight majority, most agree with the concept that, historically, the market has risen over time, so lump sum investing makes sense.

However, that does not necessarily account for the fact that a vast number of investor mistakes are psychological in nature. And the investor who invests lump sum can be psychologically scarred for decades in the event of a sudden, unexpected market crash and, thus influenced, suffer lasting adverse consequences.

The main reason I ask is this: I really don't know what makes the price of REITs move.

You seem to believe that such market moves can be reduced to simple, predictable market factors. THEY CANNOT!

With stocks I at least know the factors involved. If a firm is big exporter, I expect a big dollar rally to nick it's revenue and price, for example. I get interest sensitive stocks, consumer non-cyclicals, etc. - when those go up or down I can make a reasonable guess at the factors in play, at least in hindsight.

You seem to be sold on market fundamental analysis. Of course, that works every time. Except when it doesn't.

With REITs I really don't know what makes them move from month to month and year to year, other than obvious stuff like getting killed in 2008.
No one can predict exactly how REITS or any other sector of the market will perform in the future.

User avatar
patriciamgr2
Posts: 780
Joined: Mon Nov 19, 2007 3:06 pm

Re: Who understands REITS?

Post by patriciamgr2 » Sun Jan 15, 2017 8:13 pm

One extra factor with equity REITs is that many of them are heavily leveraged with shorter-term financing. If interest rates increase rapidly, their costs could increase & their distributions decrease. Many investors buy them for cash flow, not for the diversification benefit you describe. Accordingly, REITs sometime trade on the expectations surrounding interest rates.

A recent wrinkle involved declines in REIT prices associated (in time) with an unbundling of REITs from financial sector indexes. It's possible that some holders of Financial Sector didn't want REIT exposure & sold when presented with the opportunity--or there may not have been any cause & effect at all.

There have been threads here on Bogleheads about REITs and I've also reviewed research at https://www.google.com/url?sa=t&rct=j&q ... 4172,d.cGc

It's a good idea IMO to become familiar with historical price swings in an investment, so you have some sense of price declines being familiar territory rather than inexplicable moves. Because REITs should probably be in your tax-advantaged accounts, there's no need to tax loss harvest. So, IMO, if you feel you need them in your portfolio, you should become comfortable with holding them for the very long term--through ups & downs.

Best Wishes

brad.clarkston
Posts: 588
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Who understands REITS?

Post by brad.clarkston » Sun Jan 15, 2017 8:57 pm

Johnnie wrote:
CaliJim wrote:Nobody can predict with good certainty
I'm writing that down. :wink:
Me to! Because seriously I never hear that on this forum! :twisted:

pkcrafter
Posts: 12572
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Who understands REITS?

Post by pkcrafter » Sun Jan 15, 2017 9:19 pm

Jonnie
I don't understand what makes this asset class go up and down from day to day and month so month.
Don't all asset classes go up or down every day? REITS are stocks of companies like all other stocks.

From the Oblivious Investor (Mike Piper-Boglehead)
Real estate investment trusts (REITs) are companies that invest in real estate — sometimes commercial real estate, sometimes residential estate, sometimes both.

REITs are unique because of the way they’re taxed. Specifically, they are not subject to corporate income tax, provided that they satisfy a few requirements. For example, REITs must distribute at least 90% of their taxable income to shareholders every year.

Should REITs Be Counted as Stocks or Bonds?

Despite their unique tax treatment and their high yield, shares of ownership in a REIT are still, by definition, equity investments. In other words, when considering your overall stock/bond allocation, a REIT fund should be counted as a stock fund because it is a stock fund
http://www.obliviousinvestor.com/reits-are-stocks/

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Post Reply