Taylor Larimore wrote:
kkhanmd wrote:Are REITS, TIPS included in three fund portfolios according to their market caps or they missing from it?
REITS are included. TIPS are not.
GDP calculations include imputed rent from all homes, rented or not, as that way GDP isn't affected by transitions from owner-occupier to rental and vice-versa. For the UK the total housing stock value is a multiple of the UK total stock market value and as such the three fund portfolio doesn't hold REIT cap weighting IMO. That may be corrected for if a investor owns their own home.
A alternative three 'fund' portfolio is as advocated in ancient Talmud text : third each in business, land and reserves which might be interpreted as stocks, own home and CD's/gold. Owning a home avoids having to pay gross rental yield whilst generally seeing the home value rise over time - very equity like (share/house price appreciation plus dividend/imputed rent).
For UK investors historic gross rental yields averaged 4.6%, when added to house price appreciation and combined with US stocks (GBP adjusted) and gold such a portfolio was resilient whilst providing satisfactory rewards in a cost and tax efficient manner. Buy and hold compared in reward to rebalanced and even if you discounted one asset being devastated such as a assumption of home value being lost during WW2 the broader portfolio outcome was still good (around 6% annualised real long term reward).
For US data towards the bottom of http://www.econ.yale.edu/~shiller/data.htm
there's data for house price, stocks and one year interest rates available in two separate spreadsheets. Assuming a 4.5% average imputed rent benefit a yearly rebalanced three way split of those assets since 1890 yielded a 4.6% annualised real with a near straight upward sloping nominal growth line other than a wiggle during the 1930's.
From a UK investors perspective gold sovereign coins being legal tender are exempt from capital gains tax and pay no interest so there's no income taxes. Your primary home is exempt from capital gain tax and imputed rent is also tax exempt. We have options to hold stocks in tax exempt accounts that eliminate any taxes on capital gains or income/dividends, and if stocks are a initial equal weighted bought and held set of the 50 largest stocks (or whatever) there's no ongoing fund management fees. i.e. after the initial purchase there might be zero ongoing fees/costs (if you opt to not rebalance) other than the cost of any sales.
This link shows the actual Talmudic text http://www.yutorah.org/daf.cfm/6024/Bava%20Metzia/42/a
and this link provides a translation http://www.come-and-hear.com/babamezia/ ... ia_42.html
Part of the translation further suggests that you reduce/eliminate third party risk as much as possible.
Comparing non rebalanced and rebalanced and rebalanced can reduce portfolio volatility
Rebalancedhttps://www.portfoliovisualizer.com/bac ... 0&REIT2=33
Non rebalancedhttps://www.portfoliovisualizer.com/bac ... 0&REIT2=33
But for less liquid assets it can be better to just ride the volatility and use periodic profit taking as the means to steer the portfolio.