Invest equally in stock, bonds, and REITs (US & International)

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
early.investor
Posts: 2
Joined: Thu Dec 21, 2017 6:28 pm

Invest equally in stock, bonds, and REITs (US & International)

Post by early.investor » Thu Dec 21, 2017 6:35 pm

I've been thinking of an investment portfolio with the following AA:

33% Stocks | 33% Bonds | 33% REITs

This can be further diversified with a 50/50 US-International split for each asset class. It seems like an interesting way to split investments equally between major asset classes, and I have not found much discussion on such a portfolio. I was wondering if anyone had any interesting views on the portfolio. A hypothetical portfolio of ETFs would look something like this:

33% Stocks:
16.5% VTI (Total Stock Market) & 16.5% VXUS (Total International Stock)

33% Bonds:
16.5% BND (Total Bond Market) & 16.5% BNDX (Total International Bond)

33% REITs:
16.5% VNQ (Vanguard REIT) 16.5% VNQI (Vanguard Global ex-U.S. Real Estate)

Quaestner
Posts: 71
Joined: Tue Jul 18, 2017 6:39 pm

Re: Invest equally in stock, bonds, and REITs (US & International)

Post by Quaestner » Thu Dec 21, 2017 8:25 pm

It does look "interesting", but that doesn't mean it makes sense. Without digging into the numbers too much, if you choose this portfolio, you are taking an active bet that you know more than the market. Real Estate doesn't make up a third of the economy (plus there is real estate embedded in a total market type index fund). REITs are stocks and risky like stocks. I don't think you can count on them behaving differently than other stocks. I'd think twice about making such a huge bet on them. If you really do think REITs are an asset class you need, 8-10% seems more reasonable. Don't forget to keep those REIT's out of your taxable accounts (They throw off lots of taxable dividends - much of which will be taxed at your marginal income tax rate). Do you have that much room in your retirement accounts for them? Another poster might weigh in on the implications of the newly signed tax bill for REITs in taxable accounts.

early.investor
Posts: 2
Joined: Thu Dec 21, 2017 6:28 pm

Re: Invest equally in stock, bonds, and REITs (US & International)

Post by early.investor » Thu Dec 21, 2017 9:27 pm

I should have made it clearer that I do not plan on reallocating my portfolio to this. It really was meant to be nothing more than something to think about mostly because it is difficult to find much research on such a REIT heavy portfolio. I did find a Fidelity article from 2013 making an argument for a 33% REIT allocation https://www.reit.com/sites/default/file ... delity.pdf, but it was surprising to not find much research for or against it.
With potential interest rate rises I believe that usually isn't a good thing for REITs returns and your comment about the tax bill brings up another point. REIT structure allows the companies to deduct dividend payments on their corporate taxes so I wonder what effect a lower corporate tax rate will have.

User avatar
nisiprius
Advisory Board
Posts: 37048
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Invest equally in stock, bonds, and REITs (US & International)

Post by nisiprius » Thu Dec 21, 2017 9:38 pm

REITs are a kind of stock. They are an industry sector in the GICS classification. They don't behave like direct ownership in real estate.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

jalbert
Posts: 3906
Joined: Fri Apr 10, 2015 12:29 am

Re: Invest equally in stock, bonds, and REITs (US & International)

Post by jalbert » Thu Dec 21, 2017 9:57 pm

REIT structure allows the companies to deduct dividend payments on their corporate taxes so I wonder what effect a lower corporate tax rate will have.
In other words, REITs don't pay corporate taxes as long as they pay all net income out as dividends, which is what they normally do. Moreover, it would seem this means they also are not stashing profits away in overseas tax havens either.

Thus, there should be no direct effect of the new tax law on REITs. A possible indirect effect is that other asset classes may become more attractive relative to REITs at today's valuations, leading to some investors re-allocating some funds held in REITs to the other asset classes, with downward pressure on REITs. Most or all of that effect is likely already discounted in (probabilistically), so I'm skeptical one can exploit it other than by just getting lucky.
Risk is not a guarantor of return.

User avatar
spdoublebass
Posts: 470
Joined: Thu Apr 27, 2017 10:04 pm
Location: NY

Re: Invest equally in stock, bonds, and REITs (US & International)

Post by spdoublebass » Fri Dec 22, 2017 5:19 am

This has been described as the Talmud Portfolio.
I copied this from The White Coat Investors “150 portfolios that are better than yours” article.

Portfolio 53: The Talmud Portfolio

1/3 Vanguard Total Stock Market Index Fund
1/3 Vanguard REIT Index Fund
1/3 Vanguard Total Bond Market Index Fund

Apparently, the Talmud, a central text of Rabbinic Judaism, had some portfolio advice, “Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.” This is one author’s low-cost vision of that ancient portfolio. A little REIT-heavy for my taste.
I'm trying to think, but nothing happens

Johm221122
Posts: 5072
Joined: Fri May 13, 2011 6:27 pm

Re: Invest equally in stock, bonds, and REITs (US & International)

Post by Johm221122 » Fri Dec 22, 2017 5:38 am

Not only is it REIT heavy but for many of us it's bond light.Bond/stock ratio should be your first factor,then choose your specific investment choices(tilt,sector and type of fixed income)

Valuethinker
Posts: 36620
Joined: Fri May 11, 2007 11:07 am

Re: Invest equally in stock, bonds, and REITs (US & International)

Post by Valuethinker » Fri Dec 22, 2017 7:00 am

early.investor wrote:
Thu Dec 21, 2017 6:35 pm
I've been thinking of an investment portfolio with the following AA:

33% Stocks | 33% Bonds | 33% REITs

This can be further diversified with a 50/50 US-International split for each asset class. It seems like an interesting way to split investments equally between major asset classes, and I have not found much discussion on such a portfolio. I was wondering if anyone had any interesting views on the portfolio. A hypothetical portfolio of ETFs would look something like this:

33% Stocks:
16.5% VTI (Total Stock Market) & 16.5% VXUS (Total International Stock)

33% Bonds:
16.5% BND (Total Bond Market) & 16.5% BNDX (Total International Bond)

33% REITs:
16.5% VNQ (Vanguard REIT) 16.5% VNQI (Vanguard Global ex-U.S. Real Estate)
Massive overweighting in Real Estate relative to market weighting. REITs have equity risk. Roughly speaking a 15x US standard market weighting.

Take a look at the performance of the Vanguard domestic REIT fund during the 2008-09 crash. The maximum drawdown was something like 70%. I am sure you could find an equivalent international RE fund to track (btw many of the stocks in that are not REITs, REITs are not so common outside USA).

So, -70% on 1/3rd of your portfolio. Happy with that?

Valuethinker
Posts: 36620
Joined: Fri May 11, 2007 11:07 am

Re: Invest equally in stock, bonds, and REITs (US & International)

Post by Valuethinker » Fri Dec 22, 2017 7:02 am

spdoublebass wrote:
Fri Dec 22, 2017 5:19 am
This has been described as the Talmud Portfolio.
I copied this from The White Coat Investors “150 portfolios that are better than yours” article.

Portfolio 53: The Talmud Portfolio

1/3 Vanguard Total Stock Market Index Fund
1/3 Vanguard REIT Index Fund
1/3 Vanguard Total Bond Market Index Fund

Apparently, the Talmud, a central text of Rabbinic Judaism, had some portfolio advice, “Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.” This is one author’s low-cost vision of that ancient portfolio. A little REIT-heavy for my taste.
So we should:

- have 1/3rd of our money in real estate that we own directly
- 1/3rd of our money in our own business that we manage
- 1/3rd of our money in FDIC insured bank accounts, and/or maybe gold coins under the floorboards?

I think that while this is nicely appealing, it doesn't really represent how we invest.

Like all good religious texts, it is open to wide interpretation depending on circumstances. Consider the debates among Christians re capitalism & money-- and we are all working off the same set of texts.

bangkokphuket
Posts: 11
Joined: Thu Feb 26, 2015 10:07 am

Re: Invest equally in stock, bonds, and REITs (US & International)

Post by bangkokphuket » Fri Dec 22, 2017 7:22 am

early.investor wrote:
Thu Dec 21, 2017 6:35 pm
I've been thinking of an investment portfolio with the following AA:

33% Stocks | 33% Bonds | 33% REITs

This can be further diversified with a 50/50 US-International split for each asset class. It seems like an interesting way to split investments equally between major asset classes, and I have not found much discussion on such a portfolio. I was wondering if anyone had any interesting views on the portfolio. A hypothetical portfolio of ETFs would look something like this:

33% Stocks:
16.5% VTI (Total Stock Market) & 16.5% VXUS (Total International Stock)

33% Bonds:
16.5% BND (Total Bond Market) & 16.5% BNDX (Total International Bond)

33% REITs:
16.5% VNQ (Vanguard REIT) 16.5% VNQI (Vanguard Global ex-U.S. Real Estate)
This is pretty much what I have now. Just the breakdown is a tad different as I'm a non-US resident and also from Latin America living in Asia

32.5% bonds / cash (half in latin america bonds, the other half spread in USD and Asian bonds)
32.5 stocks (15% VOO, 10% VEU, 7.5% latina america country, none in asia as already own a business here)
35% REITS (half real assests home country, other half REITS region where I reside)

I do enjoy nice overall dividends with this portfolio, around 4%.

User avatar
spdoublebass
Posts: 470
Joined: Thu Apr 27, 2017 10:04 pm
Location: NY

Re: Invest equally in stock, bonds, and REITs (US & International)

Post by spdoublebass » Fri Dec 22, 2017 7:27 am

Valuethinker wrote:
Fri Dec 22, 2017 7:02 am
spdoublebass wrote:
Fri Dec 22, 2017 5:19 am
This has been described as the Talmud Portfolio.
I copied this from The White Coat Investors “150 portfolios that are better than yours” article.

Portfolio 53: The Talmud Portfolio

1/3 Vanguard Total Stock Market Index Fund
1/3 Vanguard REIT Index Fund
1/3 Vanguard Total Bond Market Index Fund

Apparently, the Talmud, a central text of Rabbinic Judaism, had some portfolio advice, “Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.” This is one author’s low-cost vision of that ancient portfolio. A little REIT-heavy for my taste.
So we should:

- have 1/3rd of our money in real estate that we own directly
- 1/3rd of our money in our own business that we manage
- 1/3rd of our money in FDIC insured bank accounts, and/or maybe gold coins under the floorboards?

I think that while this is nicely appealing, it doesn't really represent how we invest.

Like all good religious texts, it is open to wide interpretation depending on circumstances. Consider the debates among Christians re capitalism & money-- and we are all working off the same set of texts.
Oh I do not advocate this at all. (I don't advocate anything still new to all of this) I only mentioned it because I read that before and it stuck with me. I didn't mean to imply that one should use this portfolio.
I'm trying to think, but nothing happens

1nv35t
Posts: 113
Joined: Wed Dec 13, 2017 3:37 pm

Re: Invest equally in stock, bonds, and REITs (US & International)

Post by 1nv35t » Fri Dec 22, 2017 7:30 am

Talmud advocated "reserves" as being "reserves in-hand". Physical gold/silver is the more appropriate choice of "reserves" (bonds are having lent reserves to a third party (counter party risk)). Land can produce dividends (produce grown/sold); Or owning a home avoids having to pay gross rental yield to someone else (diversification/liability matching).

Post Reply