Thoughts on placing REITs in Roth IRA?

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Jesteroftheswamp
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Thoughts on placing REITs in Roth IRA?

Post by Jesteroftheswamp »

I’ve been thinking about diversifying into some REITS. I’ve heard that they usually pay a relatively higher amount in distributions and are thus not as tax efficient. Are REITs a good option to place in a ROTH IRA? What are your thoughts?
autopeep
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Re: Thoughts on placing REITs in Roth IRA?

Post by autopeep »

Yep. Its totally reasonable to hold REITs in a Roth IRA.
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Stinky
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Re: Thoughts on placing REITs in Roth IRA?

Post by Stinky »

Agreed. That's where I hold my REIT assets.
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Jesteroftheswamp
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Re: Thoughts on placing REITs in Roth IRA?

Post by Jesteroftheswamp »

autopeep wrote: Sat Jan 05, 2019 8:30 pm Yep. Its totally reasonable to hold REITs in a Roth IRA.
But is it good to?
dharrythomas
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Re: Thoughts on placing REITs in Roth IRA?

Post by dharrythomas »

Jesteroftheswamp wrote: Sat Jan 05, 2019 9:19 pm
autopeep wrote: Sat Jan 05, 2019 8:30 pm Yep. Its totally reasonable to hold REITs in a Roth IRA.
But is it good to?
If you are going to hold REITs and you are going to be holding index or tax managed funds in taxable and all your taxable bonds in either traditional or Roth accounts, it is good to hold the REITs in the Roth or Tradtional tax deferred account. REITs are not required.
drk
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Re: Thoughts on placing REITs in Roth IRA?

Post by drk »

I'm with dharrythomas. It seems like you don't understand *why* you're going to add REITs to your portfolio. Without that, there is no saying whether it is a good idea to put them in your Roth IRA. Don't skip that step.
phantom0308
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Re: Thoughts on placing REITs in Roth IRA?

Post by phantom0308 »

Jesteroftheswamp wrote: Sat Jan 05, 2019 9:19 pm
autopeep wrote: Sat Jan 05, 2019 8:30 pm Yep. Its totally reasonable to hold REITs in a Roth IRA.
But is it good to?
What do you mean good? It’s tax efficient. Roth is best for high growth assets because the gains won’t be taxed. Both traditional and Roth style accounts are good for high dividends. REITs are high yield high dividend. Roth makes the most sense. Bonds are low growth high dividend* so they belong in 401k.

*I know bonds produce coupons not dividends but I didn’t know a good word to combine the two examples.
autopeep
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Re: Thoughts on placing REITs in Roth IRA?

Post by autopeep »

dharrythomas wrote: Sat Jan 05, 2019 9:26 pm
Jesteroftheswamp wrote: Sat Jan 05, 2019 9:19 pm
autopeep wrote: Sat Jan 05, 2019 8:30 pm Yep. Its totally reasonable to hold REITs in a Roth IRA.
But is it good to?
If you are going to hold REITs and you are going to be holding index or tax managed funds in taxable and all your taxable bonds in either traditional or Roth accounts, it is good to hold the REITs in the Roth or Tradtional tax deferred account. REITs are not required.
+1 to the above. Roth IRAs are a "good" account to hold REITs in. If you're question is it's good to hold REITs, that's a tougher question to answer. REITs are 1) part of the total stock index (so you probably already own some 2) are not that great of a diversifier if your goal is to decrease correlation with equity. That said if your goal is to capture the productivity of the United States Economy, real estate is underrepresented in the total stock indexes. 10% of my equity allocation is in REITs (which I hold my Roth account), I'm pretty meh about my decision to hold them.
bargainhuntingking
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Re: Thoughts on placing REITs in Roth IRA?

Post by bargainhuntingking »

I have a REIT tilt to my AA and hold them in my Roth IRA, HSA, and 401k.
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Jesteroftheswamp
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Re: Thoughts on placing REITs in Roth IRA?

Post by Jesteroftheswamp »

drk wrote: Sat Jan 05, 2019 9:28 pm I'm with dharrythomas. It seems like you don't understand *why* you're going to add REITs to your portfolio. Without that, there is no saying whether it is a good idea to put them in your Roth IRA. Don't skip that step.
I’m holding them for broader diversification, and since I don’t plan on withdrawing earnings for 30 years I want to collect the relatively higher distributions. I also have Vanguard total stock index as well.
RamblinDoc
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Re: Thoughts on placing REITs in Roth IRA?

Post by RamblinDoc »

autopeep wrote: Sat Jan 05, 2019 8:30 pm Yep. Its totally reasonable to hold REITs in a Roth IRA.
Stinky wrote: Sat Jan 05, 2019 9:04 pm Agreed. That's where I hold my REIT assets.
I put mine there too. IF you want to own REITs (folks have mixed feelings about owning them), then Roth IRAs are the preferred place for them.
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Re: Thoughts on placing REITs in Roth IRA?

Post by drk »

Jesteroftheswamp wrote: Sat Jan 05, 2019 10:41 pm
drk wrote: Sat Jan 05, 2019 9:28 pm I'm with dharrythomas. It seems like you don't understand *why* you're going to add REITs to your portfolio. Without that, there is no saying whether it is a good idea to put them in your Roth IRA. Don't skip that step.
I’m holding them for broader diversification, and since I don’t plan on withdrawing earnings for 30 years I want to collect the relatively higher distributions.
The bolded parts above don't make sense. What do you mean by them?
phantom0308
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Re: Thoughts on placing REITs in Roth IRA?

Post by phantom0308 »

Here is a good reason to own them.

According to Vanguard [1], global commercial real estate is 23 trillion dollars in assets meaning that US commercial real estate is trillions of dollars in assets. Publicly traded REITs only make up $300 billion. Privately held REITs are another $300 billion. This means that the REITs that are included in a market cap weighted index like TSM (total stock market) doesn't get adequate exposure to real estate. Vanguard argues in the paper that their index tracks fairly well with the private market. By adding REITs to your portfolio, you're adding back exposure to real estate which TSM misses.

[1] https://personal.vanguard.com/pdf/icreecr.pdf

Another reason is that REITs have lower correlation with stocks than other high yielding investments. Any correlation below 1 is helpful in reducing the volatility of your portfolio.
bornloopy
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Re: Thoughts on placing REITs in Roth IRA?

Post by bornloopy »

phantom0308 wrote: Sun Jan 06, 2019 12:41 am Here is a good reason to own them.

According to Vanguard [1], global commercial real estate is 23 trillion dollars in assets meaning that US commercial real estate is trillions of dollars in assets. Publicly traded REITs only make up $300 billion. Privately held REITs are another $300 billion. This means that the REITs that are included in a market cap weighted index like TSM (total stock market) doesn't get adequate exposure to real estate. Vanguard argues in the paper that their index tracks fairly well with the private market. By adding REITs to your portfolio, you're adding back exposure to real estate which TSM misses.

[1] https://personal.vanguard.com/pdf/icreecr.pdf

Another reason is that REITs have lower correlation with stocks than other high yielding investments. Any correlation below 1 is helpful in reducing the volatility of your portfolio.
May I ask which REITs do you hold? Is VNQ what everyone has?
phantom0308
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Re: Thoughts on placing REITs in Roth IRA?

Post by phantom0308 »

bornloopy wrote: Sun Jan 06, 2019 1:20 am
phantom0308 wrote: Sun Jan 06, 2019 12:41 am Here is a good reason to own them.

According to Vanguard [1], global commercial real estate is 23 trillion dollars in assets meaning that US commercial real estate is trillions of dollars in assets. Publicly traded REITs only make up $300 billion. Privately held REITs are another $300 billion. This means that the REITs that are included in a market cap weighted index like TSM (total stock market) doesn't get adequate exposure to real estate. Vanguard argues in the paper that their index tracks fairly well with the private market. By adding REITs to your portfolio, you're adding back exposure to real estate which TSM misses.

[1] https://personal.vanguard.com/pdf/icreecr.pdf

Another reason is that REITs have lower correlation with stocks than other high yielding investments. Any correlation below 1 is helpful in reducing the volatility of your portfolio.
May I ask which REITs do you hold? Is VNQ what everyone has?
I have VGSLX which is the admiral mutual fund of VNQ ETF I think. There’s also VNQI for international. I don’t have any but not for a very good reason.
I’m 40 US/40 International/ 10 REIT / 10 Bond. Maybe I should split the REIT half and be half US, half international.
phantom0308
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Re: Thoughts on placing REITs in Roth IRA?

Post by phantom0308 »

Note there is some skepticism of REITs in general by some in this board who argue that REITs don’t give you anything you couldn’t get from small stocks or long bonds. So I guess, do your research and read up and don’t just take my word for it.
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Re: Thoughts on placing REITs in Roth IRA?

Post by AerialWombat »

bornloopy wrote: Sun Jan 06, 2019 1:20 am
phantom0308 wrote: Sun Jan 06, 2019 12:41 am Here is a good reason to own them.

According to Vanguard [1], global commercial real estate is 23 trillion dollars in assets meaning that US commercial real estate is trillions of dollars in assets. Publicly traded REITs only make up $300 billion. Privately held REITs are another $300 billion. This means that the REITs that are included in a market cap weighted index like TSM (total stock market) doesn't get adequate exposure to real estate. Vanguard argues in the paper that their index tracks fairly well with the private market. By adding REITs to your portfolio, you're adding back exposure to real estate which TSM misses.

[1] https://personal.vanguard.com/pdf/icreecr.pdf

Another reason is that REITs have lower correlation with stocks than other high yielding investments. Any correlation below 1 is helpful in reducing the volatility of your portfolio.
May I ask which REITs do you hold? Is VNQ what everyone has?
SRET, an ETF of REITs, is about half of my 401k.
Register44
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Re: Thoughts on placing REITs in Roth IRA?

Post by Register44 »

I had posted this in a different thread, but realized it is more with this topic so I moved it here.

Lynn Alden wrote a very compelling post on why they are the #1 investment to hold in a Roth: https://www.lynalden.com/roth-ira/

Now she says that is not a reason alone to buy REITS, but I really like the idea of a truly tax free investment. If one had broad diversification in their taxable accounts already, would it be acceptable go 100% reits in the Roth?
000
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Re: Thoughts on placing REITs in Roth IRA?

Post by 000 »

I hold a passively sampled collection of individual REITs mostly in the farm, timber, and residential sectors. There are two concerns holding me back from putting these in Roth (besides limited space):
1. I'm not sure that these real estate sectors have more growth potential than stocks.
2. If an individual REIT goes bankrupt, at least there is a deduction in taxable.
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Re: Thoughts on placing REITs in Roth IRA?

Post by Johm221122 »

Register44 wrote: Sat Oct 17, 2020 11:11 pm I had posted this in a different thread, but realized it is more with this topic so I moved it here.

Lynn Alden wrote a very compelling post on why they are the #1 investment to hold in a Roth: https://www.lynalden.com/roth-ira/

Now she says that is not a reason alone to buy REITS, but I really like the idea of a truly tax free investment. If one had broad diversification in their taxable accounts already, would it be acceptable go 100% reits in the Roth?
That wasn't my take on what was said. She said "savy investers" may put REITs in Roth for tax reasons. They are better tax wise if your going to hold them in a Roth (her words not mine).
I think she is just saying stuff to produce material for you to read
  • Is she saying REITs will outperform all other investments?
    Are REITs not as good in a Traditional IRA?
She is writing financial porn
Last edited by Johm221122 on Sun Oct 18, 2020 3:30 pm, edited 1 time in total.
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Re: Thoughts on placing REITs in Roth IRA?

Post by abuss368 »

Jesteroftheswamp wrote: Sat Jan 05, 2019 8:13 pm I’ve been thinking about diversifying into some REITS. I’ve heard that they usually pay a relatively higher amount in distributions and are thus not as tax efficient. Are REITs a good option to place in a ROTH IRA? What are your thoughts?
REITS have changed much over the years. At one time the yields were 6 - 8% but those days appear over. Ideally they could be placed in a tax advantaged account. However, I have talked with many investors who use an “equal location” strategy and include essentially the same funds in all accounts including REITS in taxable.

President Trump’s tax act of 2017 changed the ballgame for REITS for the better. REITS now qualify for the Qualified Business Income (QBI) deduction. Essentially 20% of the REITS income is deducted from taxation. This is more favorable and keeps the taxation of REITS aligned with direct real estate investment.

While not the same at dividends taxed at lower and preferred qualified tax rates of 15% it is much more tax friendly. If you can place in tax advantaged that is good. If you don’t have an account or space but still want a position in REITS, I would not let the tax tail wag the dog.
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Re: Thoughts on placing REITs in Roth IRA?

Post by rkhusky »

Note that Total Stock Market has REIT’s (so does Midcap and Smallcap).
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