Are you adjusting your REIT Allocation?

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mojorisin
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Are you adjusting your REIT Allocation?

Post by mojorisin » Fri Jul 10, 2020 9:08 am

My current allocation is

60% equities (40% US / 20% INTL)
35% Bonds (MUNI / BND)
5% REIT

My rebalance "band" is telling me to add more to REIT. However looking at the Covid impact on commercial real estate, I'm wondering if I should shrink my current REIT allocation smaller.

I'm not asking to speculate on REIT (although if you have a crystal ball please share).

More of a question if you are modifying your allocation.

livesoft
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Re: Are you adjusting your REIT Allocation?

Post by livesoft » Fri Jul 10, 2020 9:16 am

Haven't owned a REIT fund in quite a while, but I did sell all my TIAA Real Estate Account (TREA) shares and replaced with a bond fund. That was 8%-10% of my total portfolio in March and is now 0%. TREA is now selling lower than I sold it at, so it has not participated in any recovery since the March lows and is indeed lower than what it was on March 23.
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BackToSchoolDad
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Re: Are you adjusting your REIT Allocation?

Post by BackToSchoolDad » Fri Jul 10, 2020 9:33 am

I gave up on investing in REIT's after learning that the results can be replicated with a combination of small value and corporate bonds. I also didn't like the idea that I was making a specific sector bet.

See: https://www.etf.com/sections/index-inve ... nopaging=1

If you're investing in REIT's for diversification, I'd instead add 10% of domestic small cap value (SLYV) and with the combination of that and BND you will get most of the benefits a REIT allocation would get you.

Robot Monster
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Re: Are you adjusting your REIT Allocation?

Post by Robot Monster » Fri Jul 10, 2020 9:58 am

Not modifying my allocation because it's only about .5% of my portfolio.
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

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Re: Are you adjusting your REIT Allocation?

Post by rholt » Fri Jul 10, 2020 10:47 am

I share your angst. In theory, my plan suggests I should be buying REITs, but I haven't been able to pull the trigger .

That said, even before the crash, REITs were a pretty small part of my portfolio.

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sleepysurf
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Re: Are you adjusting your REIT Allocation?

Post by sleepysurf » Fri Jul 10, 2020 11:45 am

I've been holding my nose and rebalancing (in Roth and IRA) to maintain my 5% REIT allocation (per my IPS). It's not really a large enough tilt to significantly "move the needle" on returns, but I have it for added diversification. I assume the pandemic impact has already been priced in, for better or worse.
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asif408
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Re: Are you adjusting your REIT Allocation?

Post by asif408 » Fri Jul 10, 2020 11:59 am

Emotions are the investor's worst enemy. Whatever you feels about REITs, I'd follow your band and rebalance. You added REITs at some point because you thought they would be of some benefit. You limit the benefits of diversficiation without rebalancing.

REITs have diversified greatly, since mid-2016 you've lost money in US REITs while both US and foreign stocks have made money: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D. In the last month REITs have gone down while US and foreign stocks have risen. I'm not being facetious when I say those are examples of diversification in action, just maybe not the kind you were looking for. At some point down the road the opposite will likely be true, but if you don't rebalance you can't reap the benefits if and when REITs go up when stocks in general are going down.

chw
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Re: Are you adjusting your REIT Allocation?

Post by chw » Fri Jul 10, 2020 12:02 pm

I got out about 4 mos ago, and reallocated those funds to VTI. It was part of a decision to simply my portfolio, and a decision I was contemplating for some time. You can certainly stay the course, and be possibly rewarded as the COVID issues with RE subside in 12-18 mos.

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mojorisin
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Re: Are you adjusting your REIT Allocation?

Post by mojorisin » Fri Jul 10, 2020 1:15 pm

Thanks all for the replies.

My question is about REIT's as a good sector to even hold money in due to the changing landscape. Will the sector exist in the future. Not speculating the returns.

My temptation is surely to invest further into REIT's as they are one of the remaining to not come back yet post Covid. So I have no problem re-allocating or buying into a beaten down sector. However I'm more concerned that they will exist in the long term.

I would love to collect the dividend and re-invest while they are low, then pick up the upside when they come back!

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Re: Are you adjusting your REIT Allocation?

Post by PolarInvest » Fri Jul 10, 2020 1:48 pm

If you are unwilling to rebalance to even a 5% REIT allocation, then my advice would be to get rid of the tilt entirely. You should only be shifting 1% or so of your portfolio to rebalance at the moment.

FWIW, I permanently changed my tilt to REITS from 10% to 5% in May. I am swayed by the argument that commercial REITs are mostly privately owned and therefore underrepresented in US total market funds, but the fact that they pay out most of their earnings makes them vulnerable to credit crunches and adds volatility at the worst times when they can't fund through bond or secondary stock issues at fair prices.

As for COVID, I think now is as good a time as any to buy REITs, and a lot of the pandemic-related news should have been priced in. I'm not sure how they will do going forward, but I do know that it is usually a good time to buy something when things look bleak with no way out, provided that you are willing to hold for the long-term.

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Ice-9
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Re: Are you adjusting your REIT Allocation?

Post by Ice-9 » Fri Jul 10, 2020 2:23 pm

Hoping I don't mess up paraphrasing Bill Bernstein here...

If you're allocating less than 5% to any asset class, you're just kidding yourself.

Concur with the poster above - if you really feel 5% is too much REIT for you, maybe reallocate that part of your portfolio to a small or mid cap holding or a broad market index.

Full disclosure: I've maintained a 7% allocation to REIT Index for more than a decade and haven't considered changing that.

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rob
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Re: Are you adjusting your REIT Allocation?

Post by rob » Fri Jul 10, 2020 2:29 pm

Rebalancing like always... but I've had a long term high allocation to non US small, value, emerging - so a little more pain is hardly noticeable :)
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jason2459
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Re: Are you adjusting your REIT Allocation?

Post by jason2459 » Fri Jul 10, 2020 2:33 pm

Ice-9 wrote:
Fri Jul 10, 2020 2:23 pm
Hoping I don't mess up paraphrasing Bill Bernstein here...

If you're allocating less than 5% to any asset class, you're just kidding yourself.

....
Absolutely correct. I thought I was doing some tilting to some sectors utilities,REITs, and energy funds. I wanted to cap my tilts to 5% and was at about 3% allocation to each.

Recently I adjusted to a basic 3 fund principles and found after consolidating to some total market funds and sp500 fund. After doing that and breaking down my sector allocation with in those broad index funds I'm now sitting at about 3% each to utilities, REITs, and energy....

I was not expecting that at all and realized I was not tilting effectively at all and was making things more complicated then necessary.

So if you're going to tilt by all means make sure you tilt. :?

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Re: Are you adjusting your REIT Allocation?

Post by birdog » Sat Jul 11, 2020 9:08 am

I learned my lesson in private REITs and I feel like publicly traded REITs behave too much like stocks so I no longer hold those either. If I did still own a quality REIT I would be more inclined to either just hold it or maintain current allocation. I hate to sell when things drop and a year (or so) from now the REIT market may be chugging along nicely.

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Re: Are you adjusting your REIT Allocation?

Post by grok87 » Sat Jul 11, 2020 12:06 pm

BackToSchoolDad wrote:
Fri Jul 10, 2020 9:33 am
I gave up on investing in REIT's after learning that the results can be replicated with a combination of small value and corporate bonds. I also didn't like the idea that I was making a specific sector bet.

See: https://www.etf.com/sections/index-inve ... nopaging=1

If you're investing in REIT's for diversification, I'd instead add 10% of domestic small cap value (SLYV) and with the combination of that and BND you will get most of the benefits a REIT allocation would get you.
past results *were* replicated...
:)
RIP Mr. Bogle.

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zonto
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Re: Are you adjusting your REIT Allocation?

Post by zonto » Sat Jul 11, 2020 1:17 pm

I find it interesting that these kinds of threads are never started when the tilt is outperforming the broader market, and that people often seem to eliminate their tilts to “simplify” during periods of underperformance.

Happens most frequently with international, small cap value, value generally, TIPS, and REITs.

If the rationale for the tilt was sound before, it is sound now. Stick to the plan.

That said, to respond to your original question directly: I increased my global REIT and real estate allocation from 14% to 20% on April 24. On the same date, I increased my SCV allocation from 7% to 10%.

Why? Those asset classes have been hammered this year so I wanted to purchase more shares. Shares of my highly appreciated long term Treasury and US broad market (i.e., technology and communication services) index funds funded the purchases.
"For real-world portfolios, the main impact of diversification is to narrow the dispersion of outcomes. [T]he most important impact is to make the worst outcomes less bad." (Vineviz)

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DarkNyte
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Re: Are you adjusting your REIT Allocation?

Post by DarkNyte » Sat Jul 11, 2020 2:33 pm

Isn't this just trying to justify buy high sell low?

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DarkNyte
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Re: Are you adjusting your REIT Allocation?

Post by DarkNyte » Sat Jul 11, 2020 2:36 pm

Also staying the course, and I recommend you do the same:

12.5% VNQ REIT Allocation
12.5% BND
25.0% VXUS
50.0% VTI

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sleepysurf
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Re: Are you adjusting your REIT Allocation?

Post by sleepysurf » Mon Jul 27, 2020 7:02 am

Here's an interesting perspective on Vanguard's domestic REIT index... https://moneyandmarkets.com/reits-not-y ... al-estate/

The author is Charles Sizemore, CFA, who runs an investment advisory firm in Dallas. Here's an excerpt from the article...
Here’s a breakdown of VNQ’s portfolio:

8.8%: Retail REITs.
8.2%: Office REITs.
2.5%: Hotel and resort REITs.
80.5%: Properties that are pretty close to COVID-proof.
I'm feeling quite comfortable maintaining my 5% REIT tilt (split between Roth/IRA).
Retired 2018 | ~50/45/5 (partially sliced and diced)

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Re: Are you adjusting your REIT Allocation?

Post by AerialWombat » Mon Jul 27, 2020 8:01 am

My Roth IRA is 100% Fidelity REIT Index. It’s only two years of contributions, so not a huge chunk of my portfolio. On Jan 1, 2021, I will add the full 2021 contribution in the same fund, regardless of NAV.

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Re: Are you adjusting your REIT Allocation?

Post by Sandtrap » Mon Jul 27, 2020 8:15 am

I adjusted my REIT allocation to physically held R/E residential income property.

For example:
Previous REIT Allocation = $660,000

Purchase 3 townhouses for $220k each (cash in full) and rent them out.

This type of diversification is not for everyone.
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Re: Are you adjusting your REIT Allocation?

Post by abuss368 » Mon Jul 27, 2020 8:24 am

mojorisin wrote:
Fri Jul 10, 2020 1:15 pm
Thanks all for the replies.

My question is about REIT's as a good sector to even hold money in due to the changing landscape. Will the sector exist in the future. Not speculating the returns.

My temptation is surely to invest further into REIT's as they are one of the remaining to not come back yet post Covid. So I have no problem re-allocating or buying into a beaten down sector. However I'm more concerned that they will exist in the long term.

I would love to collect the dividend and re-invest while they are low, then pick up the upside when they come back!
That is a lot of real estate to not exist as a sector! This is not the early 1990's when REITs first went mainstream. They are well established and I suspect like any sector, only the strong will survive.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: Are you adjusting your REIT Allocation?

Post by abuss368 » Mon Jul 27, 2020 8:26 am

PolarInvest wrote:
Fri Jul 10, 2020 1:48 pm
If you are unwilling to rebalance to even a 5% REIT allocation, then my advice would be to get rid of the tilt entirely.
This is good advice.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: Are you adjusting your REIT Allocation?

Post by dziuniek » Mon Jul 27, 2020 8:26 am

What about the dollar getting weaker now?
Wouldn't you want to hold companies which hold real assets?

Maybe?

Or just buy gold? :twisted:

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Re: Are you adjusting your REIT Allocation?

Post by abuss368 » Mon Jul 27, 2020 8:28 am

I do not think REITs are required or necessary. They are included in Total Stock and the International REIT/RE (big difference from US) is included in Total International. Own the haystack rather than look for the needle in the haystack.
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Re: Are you adjusting your REIT Allocation?

Post by Robot Monster » Mon Jul 27, 2020 8:29 am

zonto wrote:
Sat Jul 11, 2020 1:17 pm
...I increased my global REIT and real estate allocation from 14% to 20% on April 24.
Global REIT is interesting. In a 2015 article entitled "3 Investment Gurus Share Their Model Portfolios", Gretchen Tai recommends a 5% allocation to that.

https://www.npr.org/2015/10/17/43699364 ... portfolios

Vanguard Global ex-U.S. Real Estate ETF (VNQI) is 13.6% China, and 10.2% Hong Kong. Not sure how I feel about that. Unsure about Hong Kong, but I'm pretty I've heard about lots of speculative real estate investing going on in China. Doing a quick search I find,

The $52 Trillion Bubble: China Grapples With Epic Property Boom - WSJ - The Wall Street Journal
https://www.google.com/url?q=https://ww ... Hts9Tep0-W_
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

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Re: Are you adjusting your REIT Allocation?

Post by h82goslw » Mon Jul 27, 2020 8:40 am

First off....I own no REITs or any property other than my home.

Before the pandemic, more than a few large companies were ending the “work from home” programs for employees as they discovered that employees who worked in person, face to face were more productive and more innovative. They started making employees come to the office. Obviously since March most people are working from home and everyone’s saying commercial real estate Is dead...everyone forgot about those companies who were recalling their employees over the last couple of years.
This weekend I read my first article about a large firm that’s noticing their employees ability to produce at home is starting f to decrease....that fear of losing their job is going away and people are getting complacent at home.

So....if I were already into REITs I’d be buying more now as there’s a pretty good chance commercial real estate is going to come back....eventually, just like the overall market always does.

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Re: Are you adjusting your REIT Allocation?

Post by grok87 » Mon Jul 27, 2020 11:51 am

abuss368 wrote:
Mon Jul 27, 2020 8:28 am
I do not think REITs are required or necessary. They are included in Total Stock and the International REIT/RE (big difference from US) is included in Total International. Own the haystack rather than look for the needle in the haystack.
it's a reasonable point of view.

The argument for including commercial real estate as a separate portfolio allocation (not just reits, but direct real estate) is that it is a huge segment of the economy.
according to this report it was $16 Trillion in 2018 whereas US stock market cap was $35 Trillion
https://siblisresearch.com/data/us-stock-market-value/
RIP Mr. Bogle.

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Re: Are you adjusting your REIT Allocation?

Post by garlandwhizzer » Mon Jul 27, 2020 1:07 pm

US REITS (VNQ) and International real estate (VNQI) have been underperforming sectors in the incredibly rapid COVID-19 bear market collapse and the very strong cyclical bull market that followed it after the 3/23/20. What that underperformance means is that relative to beta and especially to tech which dominates beta, the real estate investment sector is less richly valued at present. There are reasons for this of course. In the US, concerns about both commercial and residential real estate from shutdown and its uncertain duration going forward. In international, we add to that the impact of geopolitical and economic forces in Hong Kong and China. Real estate investing has done poorly since this started but how it will do in the future for long term investors is a different question. Income focused slow growth sectors like REITS and high dividend stocks have underperformed as investors flocked to AMZN, TSLA, and ZOOM, but I suspect that this is not a permanent situation. We are living in a yield free world and will be there for years according to Powell. Once we get a vaccine and the scare has passed, things will move back to normal. At that point I expect the endless investor appetite for income/yield will resume and these high income producing sectors will do better.

TSM gives you REIT market weight exposure and this is an entirely rational position IMO. But at this point, for those who are sometimes tempted to tinker with portfolios based on current and expected future market conditions, a slight to modest increase in VNQ and VNQI exposure may not be a bad move given their present relative valuations.

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Re: Are you adjusting your REIT Allocation?

Post by statefan03 » Mon Jul 27, 2020 1:28 pm

REITs should be added (if you choose) because of their non-correlation with stocks and bonds.

https://www.portfoliovisualizer.com/ass ... &months=36

Over the last 24 years, it's correlation with US Stocks is 0.59, with US Bonds is 0.18, and with International Stocks is 0.58.

It's correlation with US Stocks is lower than International stocks is, suggesting in some views that REITs are a better portfolio addition than International Equities.

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Re: Are you adjusting your REIT Allocation?

Post by Taylor Larimore » Mon Jul 27, 2020 1:53 pm

mojorisin wrote:
Fri Jul 10, 2020 9:08 am
My current allocation is

60% equities (40% US / 20% INTL)
35% Bonds (MUNI / BND)
5% REIT

My rebalance "band" is telling me to add more to REIT. However looking at the Covid impact on commercial real estate, I'm wondering if I should shrink my current REIT allocation smaller.

I'm not asking to speculate on REIT (although if you have a crystal ball please share).

More of a question if you are modifying your allocation.
mojorisin: Total Stock Market and Total International Stock Market ALREADY own the market weight in REITs in a very tax-efficient manner. No need to add more-real estate--especially if you own your own home.

Strive for simplicity -- not complexity.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "This business is all about simplicity and low cost. I'm not into all these market strategies and theories and cost-benefit analyses - all the bureaucracy that goes with business. In investing, strip all the baloney out of it, and give people what you promise."
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Are you adjusting your REIT Allocation?

Post by 000 » Mon Jul 27, 2020 1:57 pm

Taylor Larimore wrote:
Mon Jul 27, 2020 1:53 pm
mojorisin: Total Stock Market and Total International Stock Market ALREADY own the market weight in REITs in a very tax-efficient manner.
Some have suggested real estate is underweight in the Total Market funds due to the high degree of private ownership of land versus other business sectors.

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Re: Are you adjusting your REIT Allocation?

Post by Robot Monster » Mon Jul 27, 2020 2:03 pm

000 wrote:
Mon Jul 27, 2020 1:57 pm
Taylor Larimore wrote:
Mon Jul 27, 2020 1:53 pm
mojorisin: Total Stock Market and Total International Stock Market ALREADY own the market weight in REITs in a very tax-efficient manner.
Some have suggested real estate is underweight in the Total Market funds due to the high degree of private ownership of land versus other business sectors.
There are in fact several portfolios featured on this very site that tilt REIT,
https://www.bogleheads.org/wiki/Lazy_portfolios

David Swensen's lazy portfolio has it at 15%!
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

000
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Re: Are you adjusting your REIT Allocation?

Post by 000 » Mon Jul 27, 2020 2:08 pm

Robot Monster wrote:
Mon Jul 27, 2020 2:03 pm
000 wrote:
Mon Jul 27, 2020 1:57 pm
Taylor Larimore wrote:
Mon Jul 27, 2020 1:53 pm
mojorisin: Total Stock Market and Total International Stock Market ALREADY own the market weight in REITs in a very tax-efficient manner.
Some have suggested real estate is underweight in the Total Market funds due to the high degree of private ownership of land versus other business sectors.
There are in fact several portfolios featured on this very site that tilt REIT,
https://www.bogleheads.org/wiki/Lazy_portfolios

David Swensen's lazy portfolio has it at 15%!
I think REIT tilts might make sense for a renter. Most homeowners, on the other hand, already have enough of their net worth in real estate.

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Re: Are you adjusting your REIT Allocation?

Post by Robot Monster » Mon Jul 27, 2020 2:11 pm

000 wrote:
Mon Jul 27, 2020 2:08 pm
Robot Monster wrote:
Mon Jul 27, 2020 2:03 pm
000 wrote:
Mon Jul 27, 2020 1:57 pm
Taylor Larimore wrote:
Mon Jul 27, 2020 1:53 pm
mojorisin: Total Stock Market and Total International Stock Market ALREADY own the market weight in REITs in a very tax-efficient manner.
Some have suggested real estate is underweight in the Total Market funds due to the high degree of private ownership of land versus other business sectors.
There are in fact several portfolios featured on this very site that tilt REIT,
https://www.bogleheads.org/wiki/Lazy_portfolios

David Swensen's lazy portfolio has it at 15%!
I think REIT tilts might make sense for a renter. Most homeowners, on the other hand, already have enough of their net worth in real estate.
Not if you're a billionaire who lives in a normal Brady Bunch type house. Boom!
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

000
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Re: Are you adjusting your REIT Allocation?

Post by 000 » Mon Jul 27, 2020 2:13 pm

Robot Monster wrote:
Mon Jul 27, 2020 2:11 pm
000 wrote:
Mon Jul 27, 2020 2:08 pm
Robot Monster wrote:
Mon Jul 27, 2020 2:03 pm
000 wrote:
Mon Jul 27, 2020 1:57 pm
Taylor Larimore wrote:
Mon Jul 27, 2020 1:53 pm
mojorisin: Total Stock Market and Total International Stock Market ALREADY own the market weight in REITs in a very tax-efficient manner.
Some have suggested real estate is underweight in the Total Market funds due to the high degree of private ownership of land versus other business sectors.
There are in fact several portfolios featured on this very site that tilt REIT,
https://www.bogleheads.org/wiki/Lazy_portfolios

David Swensen's lazy portfolio has it at 15%!
I think REIT tilts might make sense for a renter. Most homeowners, on the other hand, already have enough of their net worth in real estate.
Not if you're a billionaire who lives in a normal Brady Bunch type house. Boom!
You got me! :oops:

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Re: Are you adjusting your REIT Allocation?

Post by Portfolio7 » Mon Jul 27, 2020 2:40 pm

Nope.

In general, I hold about 5% US REITs and 5% international.

At least I know what an REIT is for the most part.
I don't understand what value is, or has morphed to be, so I'm not replacing REITs with SCV.
I even have questions about bonds in this low rate environment, and am holding out in stable value, with a little in TIPS.
"An investment in knowledge pays the best interest" - Benjamin Franklin

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Re: Are you adjusting your REIT Allocation?

Post by Cam894 » Mon Jul 27, 2020 2:58 pm

With the value of the dollar decreasing, I am more than happy to keep a certain % of my portfolio in real estate.

I also don't buy into the notion that office space is going the way of the Dodo. If it does the index will adjust over time.

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Re: Are you adjusting your REIT Allocation?

Post by 92irish » Mon Jul 27, 2020 3:11 pm

Office properties make up 8.2% of the REIT index. If anything, my concern with the REIT index is it doesn't have enough office and too much of the specialized properties (cell towers, communication infrastructure) etc. which have been red hot and are now premium priced.

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Re: Are you adjusting your REIT Allocation?

Post by midareff » Mon Jul 27, 2020 3:22 pm

It's difficult to think that a 5% share of almost anything is going to move the needle much one way or another. I'd be tempted to move it back to TSM.

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Re: Are you adjusting your REIT Allocation?

Post by abuss368 » Mon Jul 27, 2020 3:44 pm

midareff wrote:
Mon Jul 27, 2020 3:22 pm
It's difficult to think that a 5% share of almost anything is going to move the needle much one way or another. I'd be tempted to move it back to TSM.
Well said and I agree. In our investment journey, 5% has never gotten us excited. I always aimed for 15% at least. It has to be able to move the needle.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: Are you adjusting your REIT Allocation?

Post by sleepysurf » Mon Jul 27, 2020 4:49 pm

midareff wrote:
Mon Jul 27, 2020 3:22 pm
It's difficult to think that a 5% share of almost anything is going to move the needle much one way or another. I'd be tempted to move it back to TSM.
According to Personal Capital, VTSAX (Vanguard Total Stock Market Index), contains ~3.8% Real Estate. Therefore, adding an additional 5% REIT to your portfolio, brings you to ~8.8% total, which should be sufficient to "move the needle" (for better or worse).

For comparison, VFINX (Vanguard S&P 500) contains ~2.8% Real Estate.
Last edited by sleepysurf on Mon Jul 27, 2020 4:53 pm, edited 1 time in total.
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Re: Are you adjusting your REIT Allocation?

Post by abuss368 » Mon Jul 27, 2020 4:51 pm

sleepysurf wrote:
Mon Jul 27, 2020 4:49 pm
midareff wrote:
Mon Jul 27, 2020 3:22 pm
It's difficult to think that a 5% share of almost anything is going to move the needle much one way or another. I'd be tempted to move it back to TSM.
According to Personal Capital, VTSAX (Vanguard Total Stock Market Index), contains ~3.8% Real Estate. Therefore, adding an additional 5% REIT to your portfolio, brings you to ~8.8% total, which should be sufficient to "move the needle" (for better or worse).
Overweight of one sector results in less diversification as the other 10 sectors are underweight.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: Are you adjusting your REIT Allocation?

Post by midareff » Tue Jul 28, 2020 7:11 am

sleepysurf wrote:
Mon Jul 27, 2020 4:49 pm
midareff wrote:
Mon Jul 27, 2020 3:22 pm
It's difficult to think that a 5% share of almost anything is going to move the needle much one way or another. I'd be tempted to move it back to TSM.
According to Personal Capital, VTSAX (Vanguard Total Stock Market Index), contains ~3.8% Real Estate. Therefore, adding an additional 5% REIT to your portfolio, brings you to ~8.8% total, which should be sufficient to "move the needle" (for better or worse).

For comparison, VFINX (Vanguard S&P 500) contains ~2.8% Real Estate.
It's still a 5% add any way you look at it and it's difficult to think that (adding) a 5% share of almost anything is going to move the needle much one way or another.

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Re: Are you adjusting your REIT Allocation?

Post by Taylor Larimore » Tue Jul 28, 2020 9:37 am

midareff wrote:
Tue Jul 28, 2020 7:11 am
sleepysurf wrote:
Mon Jul 27, 2020 4:49 pm
midareff wrote:
Mon Jul 27, 2020 3:22 pm
It's difficult to think that a 5% share of almost anything is going to move the needle much one way or another. I'd be tempted to move it back to TSM.
According to Personal Capital, VTSAX (Vanguard Total Stock Market Index), contains ~3.8% Real Estate. Therefore, adding an additional 5% REIT to your portfolio, brings you to ~8.8% total, which should be sufficient to "move the needle" (for better or worse).

For comparison, VFINX (Vanguard S&P 500) contains ~2.8% Real Estate.
It's still a 5% add any way you look at it and it's difficult to think that (adding) a 5% share of almost anything is going to move the needle much one way or another.
Bogleheads:

Many corporations own large amounts of real estate which is included in the Total Market Index Fund--not to mention real estate owned by the investor which can easily make real estate over-weight in an individual portfolio. I believe the real estate in a total market index fund is enough--and real estate becomes tax-efficient in a total market index fund.

Strive for simplicity.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "If you want real diversification diversify the entire market."
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Are you adjusting your REIT Allocation?

Post by tibbitts » Tue Jul 28, 2020 9:45 am

mojorisin wrote:
Fri Jul 10, 2020 9:08 am
My current allocation is

60% equities (40% US / 20% INTL)
35% Bonds (MUNI / BND)
5% REIT

My rebalance "band" is telling me to add more to REIT. However looking at the Covid impact on commercial real estate, I'm wondering if I should shrink my current REIT allocation smaller.

I'm not asking to speculate on REIT (although if you have a crystal ball please share).

More of a question if you are modifying your allocation.
It's not a REIT but I moved about 75% of my TIAA Real Estate to 3% fixed, however I am planning on that being permanent.

I have not made any changes to my Vanguard REIT fund.

You seem to be asking us not to speculate on REITs, yet you seem to be speculating on how Covid will impact them.

It doesn't bother me to have less than a 5% tilt - it's not like one more Vanguard fund is hard to keep up with, especially if it's in a deferred account (which I'm assuming yours is.)

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Re: Are you adjusting your REIT Allocation?

Post by balbrec2 » Tue Jul 28, 2020 10:31 am

No, keeping it at zero.

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Re: Are you adjusting your REIT Allocation?

Post by tomd37 » Tue Jul 28, 2020 10:55 am

Just throwing this out for thought. I have read that, in an interview with Christine Benz of Morningstar during the November 2013 Bogleheads Conference, Rick Ferri stated that commercial real estate represents 13 to 14 percent of our GNP. I believe he said adding about 10 percent of your stock equity in REITs would not be unreasonable if you were so inclined. I believe he favors the REIT index fund. Each to his own to meet their goal.
Tom D.

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Re: Are you adjusting your REIT Allocation?

Post by nedsaid » Tue Jul 28, 2020 11:41 am

mojorisin wrote:
Fri Jul 10, 2020 1:15 pm
Thanks all for the replies.

My question is about REIT's as a good sector to even hold money in due to the changing landscape. Will the sector exist in the future. Not speculating the returns.

My temptation is surely to invest further into REIT's as they are one of the remaining to not come back yet post Covid. So I have no problem re-allocating or buying into a beaten down sector. However I'm more concerned that they will exist in the long term.

I would love to collect the dividend and re-invest while they are low, then pick up the upside when they come back!
Real estate is not going away. The ways in which real estate are used are changing. I suppose big shopping malls will under perform and cell towers will be treasured assets. Even family housing would seem to be relatively safe but no one predicted eviction moratoriums. Paying rent on your home is optional in the view of some people, no one could have predicted this.
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Re: Are you adjusting your REIT Allocation?

Post by grok87 » Tue Jul 28, 2020 12:55 pm

sleepysurf wrote:
Mon Jul 27, 2020 7:02 am
Here's an interesting perspective on Vanguard's domestic REIT index... https://moneyandmarkets.com/reits-not-y ... al-estate/

The author is Charles Sizemore, CFA, who runs an investment advisory firm in Dallas. Here's an excerpt from the article...
Here’s a breakdown of VNQ’s portfolio:

8.8%: Retail REITs.
8.2%: Office REITs.
2.5%: Hotel and resort REITs.
80.5%: Properties that are pretty close to COVID-proof.
I'm feeling quite comfortable maintaining my 5% REIT tilt (split between Roth/IRA).
thanks. interesting article. only quibble is that the yield is not really 4%ish.
per vanguard's website the true yield is 2.8%
wrote: The current unadjusted effective yield is 3.73% as of 06/30/2020, which is based on the full amount of REIT distributions (dividend income, as well as return of capital and capital gain).

The current adjusted effective yield is 2.82% as of 06/30/2020. The adjusted yield reflects a reduction in the income included in the yield based on the average return of capital and capital gain distributions received from the fund's REIT investments for the past 2 calendar years. (These percentages are 25.70% for 2018 and 25.16% for 2017.)
re the YTD return, the vanguard reit fund VGLSX is down 15% ytd. the CPPI index for commercial real estate that Greenstreet calculates is down 11.3%
one might suspect stock valuations account for the difference. but again per greenstreet reits are trading at a similar premium to NAV now as compared to january 1 (7% vs. 8% at jan1). I think the difference between the 11% and the 15% is leverage- i.e. the average reit may be levered 1.5:1.

cheers
grok
RIP Mr. Bogle.

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