Fans of VTWAX, what do you think of REITs?

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manlymatt83
Posts: 309
Joined: Tue Jan 30, 2018 8:23 am

Fans of VTWAX, what do you think of REITs?

Post by manlymatt83 »

In theory, someone holding 100% VTWAX means they're holding the entire global market allocated by total market cap. Add in BNDW, and you've now got allocation to the world's offering of diversified bonds.

One common thing I see in "lazy" portfolios is a REIT allocation as the first slice to add after stocks / bonds. The theory seems to be that, while REITs are included in total market, they aren't included in proportions that represent the actual weight of real estate in the global economy. By adding a small slice of VNQ or SCHH, for example, you can "counteract" that imbalance.

US investors who invest their equity side in VTSAX but not VTIAX, or at different percentages, are already in theory "tilting". Maybe not as bad as adding a small cap value tilt, but home country bias is an active decision someone makes to invest more in their local economy. This question really isn't for them, as it would be very easy to say "I don't want a REIT slice, so I haven't included one".

But for those who are targeting a VTWAX type scenario (or VTSAX + VTIAX at 50/50 proportions) .... do you have a REIT allocation too? If you don't, aren't you technically under investing in the global real estate market?

I guess the same could be true for not holding slices of commodities, but I think that's a different story. One I know nothing about also :)
bogledogle87
Posts: 273
Joined: Wed Sep 26, 2018 7:03 pm

Re: Fans of VTWAX, what do you think of REITs?

Post by bogledogle87 »

I believe it is Rick Ferri that recommends the additional 10% REIT's to an index portfolio in order to better reflect the actual market. I see nothing wrong with VNQ & VNQI, or simply REET as a 10% allocation to pair with VTWAX. I've considered it myself but for now have enjoyed the simplicity of managing of a single fund or a couple funds that replicate VTWAX. I believe that when my invested assets exceed $1M, I will start to consider a 10% REIT allocation and start to phase in some bonds.
VTWAX and chill
DB2
Posts: 937
Joined: Thu Jan 17, 2019 10:07 pm

Re: Fans of VTWAX, what do you think of REITs?

Post by DB2 »

I don't know about individual REITs. I think as many more jobs, services, and shopping continue to shift online, certain segments of real estate is going to come under incredible pressure for years to come which could drag on these funds.
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