REIT or No REIT

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hdas
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REIT or No REIT

Post by hdas » Fri Dec 22, 2017 8:48 am

I'm helping my brother with his long term investing. He does not have access to a tax-advantaged account at the moment. Perhaps in 2-3 years but still uncertain. The allocation I would like for him is:

80% Stocks (US, Dev-Ex US, EM)
10% Reits (US, International)
10% US long term bonds

The Question is: Is the tax drag of REIT such (25% bracket), that it would be preferable to allocate 90% Stocks 10% Bonds instead or 100% Stocks?

In other words...if a person doesn't have a tax advantaged account, should this person not diversify to REIT's at all based on tax efficiency considerations?

Thanks,

deltaneutral83
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Re: REIT or No REIT

Post by deltaneutral83 » Fri Dec 22, 2017 9:12 am

You will get a host of responses but I doubt anyone will tell you they hold REITs in taxable accounts. I think they go Ex-D for over 4% a year, not qualified, which is just double bad. I personally wouldn't worry about REITs until I had so much money that I was looking to diversify. Even then, some would say the 3F is fine no matter how many zero's are in your net worth.

Ok, I should clarify, since I hold TSM in my taxable, then I technically do hold REITs in my taxable, just not as a separate asset class outside of TSM.

livesoft
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Re: REIT or No REIT

Post by livesoft » Fri Dec 22, 2017 9:13 am

I only like to hold a REIT fund when it has a chance of increasing in value. The past year has not been one of those times, so I have not held a REIT fund in quite a while. I will predict that 2018 will also be such a year of no increase in value.
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Grt2bOutdoors
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Re: REIT or No REIT

Post by Grt2bOutdoors » Fri Dec 22, 2017 9:20 am

livesoft wrote:
Fri Dec 22, 2017 9:13 am
I only like to hold a REIT fund when it has a chance of increasing in value. The past year has not been one of those times, so I have not held a REIT fund in quite a while. I will predict that 2018 will also be such a year of no increase in value.
What criteria do you use to determine whether REIT will increase in value?
What does the Livesoft hedge fund like these days?
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Re: REIT or No REIT

Post by Valuethinker » Fri Dec 22, 2017 9:21 am

hdas wrote:
Fri Dec 22, 2017 8:48 am
I'm helping my brother with his long term investing. He does not have access to a tax-advantaged account at the moment. Perhaps in 2-3 years but still uncertain. The allocation I would like for him is:

80% Stocks (US, Dev-Ex US, EM)
10% Reits (US, International)
10% US long term bonds

The Question is: Is the tax drag of REIT such (25% bracket), that it would be preferable to allocate 90% Stocks 10% Bonds instead or 100% Stocks?

In other words...if a person doesn't have a tax advantaged account, should this person not diversify to REIT's at all based on tax efficiency considerations?

Thanks,
I would avoid REITs for the tax drag reasons.

REITs are not a bond substitute in any case. They are a form of equity. During the financial crash, the REIT index fell by much more than the Total Stock Market.

We don't know the age of your brother nor his financial position.

I would suggest that all investors should be 20% in bonds, as a minimum. This to stiffen the nerve during the inevitable bear markets (which can be long, and brutal**) and also to provide ammunition for rebalancing into a falling equity market.

What I see now is behavioural-- overweighting the recent past experience. Investors are constantly increasing their equity weightings, responding to the fact that markets have nearly x3 since the bottom in March 2009.

The longer history of stock markets suggests returns will be much lower. And, markets don't usually stagnate at low returns. Instead, they have sequences of negative returns and positive returns.

The fact that when I suggest stocks might return 5% pa for the next 10 years*, the furious responses that triggers from here, a relatively informed audience, suggest just how embedded we have become with the psychology of a bull market.

What tends to happen is those with very high equity weightings find themselves becoming more risk averse, and loss averse, as the markets fall. Thus they cut equity weightings. Taking more loss than necessary on the downside, and losing on the upside.


* we'd actually be lucky.

** the Federal Reserve cannot spark another stock rally by cutting interest rates from 5% and engaging in Quantitative Easing, if interest rates are near zero, as they are now. So the short, severe bear market of 2008-09 is relatively unusual.

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Re: REIT or No REIT

Post by CppCoder » Fri Dec 22, 2017 9:22 am

I held a REIT fund (in an IRA) for several years and recently divested out of it. My main reason for owning it was from the hypothetical benefits I had read about in several different books about asset allocation. Ultimately, though, I didn't like the volatility, and I felt it was adding more portfolio complexity than it was worth to me. I'm glad to be rid of it.

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Re: REIT or No REIT

Post by TwstdSista » Fri Dec 22, 2017 9:27 am

I'm a no REIT person. I have plenty of equity in my home and my job is real estate related. I do not need any more exposure. (aside from my total stock market index fund)

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Re: REIT or No REIT

Post by truenorth418 » Fri Dec 22, 2017 9:30 am

I have held some REIT in my IRA for a few years. Now I have reached a rebalancing band in my overall equity allocation and need to buy more of my bond fund. I will sell off all of my REITs to bring my equities into balance - which will at the same time open up room in my IRA to increase the bond allocation.

Thus I will rebalance with tax efficiency while simplifying my portfolio a little bit at the same time.

livesoft
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Re: REIT or No REIT

Post by livesoft » Fri Dec 22, 2017 9:33 am

For those that have an allocation to REITs, it would seem that if they were following their asset allocation plan that they would have to buy more REITs at this point to bring things back into balance. After all, REITs have done nothing in the past year when everything else has gone up. I can see selling international fund to by REITs or bond funds, but I cannot see selling REITs for those folks unless they are giving up on REITs.

That's a dilemma: One should buy REIT in order to rebalance into REIT. And one should not own REIT because it ain't going up in the next year anyways.
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hdas
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Re: REIT or No REIT

Post by hdas » Fri Dec 22, 2017 10:33 am

This post seems helpful for the discussion:

https://seekingalpha.com/article/399531 ... ency-reits

This is the gist (imgur file):

https://imgur.com/a/cuqtv

livesoft
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Re: REIT or No REIT

Post by livesoft » Fri Dec 22, 2017 10:37 am

That's old and will not apply to tax year 2017 for the Vanguard REIT index fund because distributions are quite different for 2017 than for 2016. One can immediately see this at Vanguard.com. Though I suppose all the info at vanguard.com could change by May 2018 and one would get a corrected 1099 and have to amend their tax return.

But you know, any fund that loses money is very tax efficient. :twisted:
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Re: REIT or No REIT

Post by betablocker » Fri Dec 22, 2017 10:45 am

They are considered an inflation hedge. That could be a reason to have them now and get paid more for it than commodities because of the dividends. Definitely hold them in tax deferred accounts though. My sense is most investors have forgotten inflation exists since the last few crises haven’t featured it.

hdas
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Re: REIT or No REIT

Post by hdas » Fri Dec 22, 2017 10:52 am

livesoft wrote:
Fri Dec 22, 2017 10:37 am
That's old and will not apply to tax year 2017 for the Vanguard REIT index fund because distributions are quite different for 2017 than for 2016. One can immediately see this at Vanguard.com. Though I suppose all the info at vanguard.com could change by May 2018 and one would get a corrected 1099 and have to amend their tax return.

But you know, any fund that loses money is very tax efficient. :twisted:
Mr. Livesoft, you seem to have a strong opinion the investment case (regardless of tax issues) of reits (VNQ), can u state your case?

IMO For the long term holder, a reit fund like VNQ is one of the few thing that looks attractive to dollar cost average in 2018, as it looks that will have somewhat of a correction. Currently 5% of 52 day max. Corrections are in the 20% ballpark, very welcome if it happens in my opinion.

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Re: REIT or No REIT

Post by Nowizard » Fri Dec 22, 2017 10:56 am

We first added REITs when our portfolio total increased, based on recommendations by some investors. We have held on to them since their interest is higher than a CD, and they are in tax deferred accounts. We will eliminate them in 2018 with a combination of transferring to another fund within a ROTH and MRD's. They complicate our portfolio unnecessarily.

Tim

livesoft
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Re: REIT or No REIT

Post by livesoft » Fri Dec 22, 2017 10:59 am

My case: REITs are bad investments in a rising interest rate environment since they run on borrowed money. REITs are volatile. If they drop significantly, then that will be the time to buy them, but be prepared to sell them if they go up quickly, too. If there is a 20% correction, then there will be so many other buying opportunities besides REITs.

Simply put: I think there are better opportunities elsewhere at this time.
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Re: REIT or No REIT

Post by triceratop » Fri Dec 22, 2017 11:04 am

livesoft wrote:
Fri Dec 22, 2017 10:59 am
My case: REITs are bad investments in a rising interest rate environment since they run on borrowed money. REITs are volatile. If they drop significantly, then that will be the time to buy them, but be prepared to sell them if they go up quickly, too. If there is a 20% correction, then there will be so many other buying opportunities besides REITs.

Simply put: I think there are better opportunities elsewhere at this time.
Agreed, re: REITs being volatile. But in a rising interest rate environment, is this not a point in favor of REITs? They have nominal obligations, and are backed by real income-producing assets. What's the logic behind reversing what appears to be a good inflation hedge?
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livesoft
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Re: REIT or No REIT

Post by livesoft » Fri Dec 22, 2017 11:07 am

^Their expenses on their borrowed money goes up. It costs them more.
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Re: REIT or No REIT

Post by nedsaid » Fri Dec 22, 2017 11:08 am

hdas wrote:
Fri Dec 22, 2017 8:48 am
I'm helping my brother with his long term investing. He does not have access to a tax-advantaged account at the moment. Perhaps in 2-3 years but still uncertain. The allocation I would like for him is:

80% Stocks (US, Dev-Ex US, EM)
10% Reits (US, International)
10% US long term bonds

The Question is: Is the tax drag of REIT such (25% bracket), that it would be preferable to allocate 90% Stocks 10% Bonds instead or 100% Stocks?

In other words...if a person doesn't have a tax advantaged account, should this person not diversify to REIT's at all based on tax efficiency considerations?

Thanks,
Taxable accounts are not a good place to hold REIT funds. I would just go with the US and International Stock Index funds. My recommendation for Bonds are for Investment Grade Intermediate Term Bonds and not for Long Term bonds. Long Bonds can be quite volatile. On the other hand, in a stock market crisis, long US Treasuries normally do great, the exception being the 1970's stagflation era. You will get better returns with Long Bonds over Intermediate Bonds, but you have to accept higher volatility. The whole idea of Bonds is to reduce portfolio volatility.
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hdas
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Re: REIT or No REIT

Post by hdas » Fri Dec 22, 2017 11:22 am

livesoft wrote:
Fri Dec 22, 2017 10:59 am
My case: REITs are bad investments in a rising interest rate environment since they run on borrowed money. REITs are volatile. If they drop significantly, then that will be the time to buy them, but be prepared to sell them if they go up quickly, too. If there is a 20% correction, then there will be so many other buying opportunities besides REITs.

Simply put: I think there are better opportunities elsewhere at this time.
Mr Livesoft statement doesn't seem to be true. Let's put some numbers on the table: Looking at the rising rate enviroments since 1970 (no reit index funds data before that) and the performance of the FTSE NAREIT All reits index

1975-1980 --> 160%
1987-1989 --> -1.3%
1995-1998 --> 54%
2003-2007 --> 94%

https://tradingeconomics.com/united-sta ... erest-rate

https://www.reit.com/data-research/reit ... es-returns

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Re: REIT or No REIT

Post by livesoft » Fri Dec 22, 2017 11:24 am

Your data stops curiously at 2007. What happened in the past 10 years?

If you have already made up your mind about REITs, then that's fine with me. I am not going to buy any REIT shares unless they have a really bad day.
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hdas
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Re: REIT or No REIT

Post by hdas » Fri Dec 22, 2017 11:32 am

livesoft wrote:
Fri Dec 22, 2017 11:24 am
Your data stops curiously at 2007. What happened in the past 10 years?

If you have already made up your mind about REITs, then that's fine with me. I am not going to buy any REIT shares unless they have a really bad day.
Mr Livesoft,
Don't engage in sophistry. IT STOPS THERE BECAUSE THAT IS THE END OF THE LAST RISING RATE ENVIRONMENT. You are making baseless statements that don't hold the test of actual data.

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Re: REIT or No REIT

Post by Call_Me_Op » Fri Dec 22, 2017 3:18 pm

livesoft wrote:
Fri Dec 22, 2017 10:59 am
My case: REITs are bad investments in a rising interest rate environment since they run on borrowed money. REITs are volatile. If they drop significantly, then that will be the time to buy them, but be prepared to sell them if they go up quickly, too. If there is a 20% correction, then there will be so many other buying opportunities besides REITs.

Simply put: I think there are better opportunities elsewhere at this time.
Sounds like some serious market timing.

If I were to hold REITs, it would be a fixed percentage of my portfolio and rebalanced regularly - just like the other asset classes.
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betablocker
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Re: REIT or No REIT

Post by betablocker » Fri Dec 22, 2017 3:50 pm

livesoft wrote:
Fri Dec 22, 2017 10:59 am
My case: REITs are bad investments in a rising interest rate environment since they run on borrowed money. REITs are volatile. If they drop significantly, then that will be the time to buy them, but be prepared to sell them if they go up quickly, too. If there is a 20% correction, then there will be so many other buying opportunities besides REITs.

Simply put: I think there are better opportunities elsewhere at this time.
This is false. They use fixed rated leverage which won’t go up. So their relative debt cost goes down not up. That’s a good thing and they can raise rents, also a good thing. It also makes building new stuff more expensive so less competition. You might not want to own REITs but your facts aren’t straight.

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Re: REIT or No REIT

Post by livesoft » Fri Dec 22, 2017 3:55 pm

OK, my facts aren't straight. I don't want to own REITs now and have owned them in the past. The cool thing is: The future will become the present, then the past and we will know how things turned out.
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Re: REIT or No REIT

Post by Valuethinker » Fri Dec 22, 2017 5:19 pm

betablocker wrote:
Fri Dec 22, 2017 3:50 pm
livesoft wrote:
Fri Dec 22, 2017 10:59 am
My case: REITs are bad investments in a rising interest rate environment since they run on borrowed money. REITs are volatile. If they drop significantly, then that will be the time to buy them, but be prepared to sell them if they go up quickly, too. If there is a 20% correction, then there will be so many other buying opportunities besides REITs.

Simply put: I think there are better opportunities elsewhere at this time.
This is false. They use fixed rated leverage which won’t go up. So their relative debt cost goes down not up. That’s a good thing and they can raise rents, also a good thing. It also makes building new stuff more expensive so less competition. You might not want to own REITs but your facts aren’t straight.
They are traditionally seen as interest-sensitive stocks.

Like utilities. Investors own them for yield, and when interest rates rise, the yields become less attractive. Also the cap rates of the underlying assets may rise (confusingly, in the UK we call that Yield, as well), and thus the assets are worth less, for the same rental income stream.

There's a caveat: if economic growth leads the Central Bank to tighten, then the fundamentals of the REIT businesses may also be getting stronger-- lower vacancy rates, higher rental growth.

What is happening in US retail though is not cyclical-- this is structural. There are a lot of malls that have closed, or are going to close.

Another complexity is around the thinness of the REIT index if you go back far enough-- makes the data less trust-able. And the undervaluation at the end of the 1990s, and then the superb outperformance in the early 00s. That makes the performance data harder to interpret-- because there is this strong serial correlation of the time series (ie a trend over time).

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Re: REIT or No REIT

Post by zonto » Sat Dec 23, 2017 4:57 am

Valuethinker wrote:
Fri Dec 22, 2017 5:19 pm
They are traditionally seen as interest-sensitive stocks.
I hear this often, but the data do not support the definitive conclusion. See: REIT Stocks: An Underutilized Portfolio Diversifier by Fidelity, specifically pp. 6-7.
REITs are sensitive to interest-rate movements.
With historically low government policy rates and investment-grade bond yields near historically low levels due in large part to unprecedented levels of central bank activity in recent years, some investors may be concerned about a potential rise in interest rates and the impact it could have on REITs.

In reality, the performance of REITs historically has demonstrated surprisingly minimal sensitivity to changes in interest rates. This is contrary to the widely held belief that because real estate is a capital-intensive business, the equation of higher interest rates resulting in higher borrowing costs serves as a headwind to commercial property owners. While there is some validity to this point, broadly speaking, there are other factors at play that serve to negate the negative effects of increased capital costs. Gradually rising interest rates generally portend an improving economic backdrop, which is supportive of REIT cash flows due to strengthening demand for commercial real estate and an increased ability for landlords to increase rental rates to adapt to improving conditions. Furthermore, easing commercial lending standards and improved access to credit for private players has historically offered support during rising-rate environments.

More specifically, there appears to be little consistency in terms of REIT performance during periods of rising or declining interest rates, respectively. Throughout nine periods of rising interest rates in the modern REIT era (1993-2013), REIT stocks as a group have generated positive absolute returns in seven of these periods, and have outperformed broad equities as measured by the S&P 500 in five periods (see Exhibit 8, page 6). This ambiguous outcome is a result of the “tug of war” that typically occurs across REIT property sectors during rising-rate environments. More economically sensitive and shorter-lease property sectors, such as hotels, apartments, and self storage facilities can more easily raise rental rates in stronger, inflationary environments—a tailwind for these sectors. For their part, mall REITs have also fared well during periods of rising interest rates as an improving economic backdrop has tended to buoy more discretionary sectors.

On the flip side, strip shopping centers have tended to underperform during rising interest-rate periods as tenants are generally more value-oriented, and their customers have shown a propensity to “trade up” during periods of economic strength. Furthermore, the health care REIT sector, which includes senior living facilities that tend to have longer-term contractual leases, has more bond-like characteristics and thus exhibits greater interestrate sensitivity. However, it’s important to note that REITs are not static yield investments such as bonds, as REITs offer the potential for growth—a key distinction. Thus, the varied supply/demand dynamics and lease durations found across commercial property sectors is one explanation for the overall low sensitivity of broad REIT performance to interest-rate changes.

An analysis of the magnitude of previous interest rates moves also shows that there has been inconsistent performance by REITs. For example, during months when the 10-year U.S. Treasury bond yield experienced its biggest increases over the past 20 years, REITs generated an average monthly return of –1.2% (see Exhibit 9, page 6, Category 10). This result is consistent with the aforementioned theory that rising interest rates are a headwind to REIT performance. However, REITs generated positive returns in half the 22 months when rates increased the most—muddying
the conclusion. In addition, the positive 1.5% average REIT return during months featuring the second-largest rate increases (Category 9) stands in contrast to REITs’ performance in the months featuring the biggest rate increases (Category 10). Further, positive returns were registered in 14 out of 23 months featuring the second-largest rate increases. This analysis suggests that there are other factors at play that may better explain REIT stock returns at any given time, such as the macroeconomic backdrop, fundamentals, valuation, and technical conditions.
A number of us have posted in this thread re: U.S. and foreign REITs as well: viewtopic.php?f=1&t=218459.

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Re: REIT or No REIT

Post by edge » Sat Dec 23, 2017 6:52 am

Like what?

In other news when does your newsletter come out?
livesoft wrote:
Fri Dec 22, 2017 10:59 am
My case: REITs are bad investments in a rising interest rate environment since they run on borrowed money. REITs are volatile. If they drop significantly, then that will be the time to buy them, but be prepared to sell them if they go up quickly, too. If there is a 20% correction, then there will be so many other buying opportunities besides REITs.

Simply put: I think there are better opportunities elsewhere at this time.

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Re: REIT or No REIT

Post by livesoft » Sat Dec 23, 2017 7:07 am

^At the present time, something like a US Total Stock Market Index fund or Total International Stock Market Index fund is a better investment than a REIT index fund.
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Re: REIT or No REIT

Post by birdog » Sat Dec 23, 2017 7:17 am

livesoft wrote:
Sat Dec 23, 2017 7:07 am
^At the present time, something like a US Total Stock Market Index fund or Total International Stock Market Index fund is a better investment than a REIT index fund.
Agree.

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Re: REIT or No REIT

Post by bling » Sun Dec 24, 2017 11:47 am

i started bogleheading just after the 2008 crash. at the time i picked Swensen's portfolio to start. over time i tweaked it for my stock/bond allocation, and simplified it just holding TBM instead of intermediate+TIPS due to lack of 401k choices. however, i've always held a large REIT allocation and currently have my target at 15%. it takes up the majority of my Roth space.

naturally, i've paid more attention this year than others because equities are on a roar. VNQ dropped 5% the day the tax bill passed.

back when i first started, REITs were incredibly popular. nowadays it seems the opposite.

if i rebalance out of REITs then i wouldn't be staying the course and would be selling low buying high. but something tells me i might be better replacing it all with TSM (for reasons already stated). someone give me a crystal ball!

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Re: REIT or No REIT

Post by livesoft » Sun Dec 24, 2017 11:56 am

bling wrote:
Sun Dec 24, 2017 11:47 am
VNQ dropped 5% the day the tax bill passed.
[...]
if i rebalance out of REITs then i wouldn't be staying the course and would be selling low buying high. but something tells me i might be better replacing it all with TSM (for reasons already stated). someone give me a crystal ball!
That's the dilemma I noted earlier in the thread. A consolation though: 1.5% of the 5% drop in the past week is due to going ex-dividend. And VNQ did rise about 2.6% from 12/06/2017 to its peak, so this weekend VNQ is down less than 0.5% from 12/6 when looking at total return which is a huge difference from down 5%. :)
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Re: REIT or No REIT

Post by Atgard » Sun Dec 24, 2017 12:08 pm

Sounds like a lot of market timing in here. Sure, if you had some way to really know how things would perform in 2018, there'd be no point in discussing everything we talk about on here. Just pick whatever will go up the most, mortgage the house & borrow all you can, and go buy yourself an island.

If your allocation chose REITs for whatever reasons (diversification, inflation hedge, dividend income, feeling the value of the real estate asset class is not fully captured in the stock market, etc.), then keep them or rebalance into them, as your investment plan states. One sub-par year (what, roughly flat for the year, but with 4% dividends?) isn't a good reason to bail out because it didn't do as well as stocks this year. In fact, that is one of the good arguments (diversification) FOR owning them, that their performance isn't fully correlated with stocks.

That said, they do have a serious tax drag and are ideally held in tax-sheltered accounts.

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Re: REIT or No REIT

Post by bikechuck » Sun Dec 24, 2017 3:20 pm

I hold approx 5% of my portfolio in TIAA Real Estate in an IRA; this is not a REIT, it is a unique fund with a direct ownership interest in Real Estate. I hold it for diversification and I do not try to time it. I just maintain it at 5% through thick and thin.

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Re: REIT or No REIT

Post by abuss368 » Sun Dec 24, 2017 3:28 pm

We have invested in REITs for many years. Years ago this included individual stocks and now we simply invest in the Vanguard U.S. REIT Index and Vanguard International REIT Index Fund. This has worked well and is providing a growing stream of cash flows from dividends. This is a big part of our plan for future retirement.
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Re: REIT or No REIT

Post by abuss368 » Sun Dec 24, 2017 3:30 pm

I like REITs because they seem to offset stocks. Further the U.S. and International REIT funds appear to compliment each other.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: REIT or No REIT

Post by aristotelian » Sun Dec 24, 2017 3:39 pm

I do not buy them because I believe in diversification of the total stock market. I do not need to concentrate in non-correlating sectors because I have a long term time horizon on the stock side. If stocks go down, I am fine with that. I will just wait ten more years.

If I did concentrate in non-correlating sectors, it would be Utilities.

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Re: REIT or No REIT

Post by aristotelian » Sun Dec 24, 2017 3:41 pm

hdas wrote:
Fri Dec 22, 2017 8:48 am


In other words...if a person doesn't have a tax advantaged account, should this person not diversify to REIT's at all based on tax efficiency considerations?

Thanks,
Assuming the core of the portfolio is total stock market, "diversify to REIT's" is a contradiction. What you are attempting to do is concentrate your portfolio in real estate on the theory that real estate stocks have less correlation to the overall market. If you go down this path, at least be clear what it is you are doing so you understand the risks.

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Re: REIT or No REIT

Post by abuss368 » Sun Dec 24, 2017 3:46 pm

aristotelian wrote:
Sun Dec 24, 2017 3:39 pm
I do not buy them because I believe in diversification of the total stock market. I do not need to concentrate in non-correlating sectors because I have a long term time horizon on the stock side. If stocks go down, I am fine with that. I will just wait ten more years.

If I did concentrate in non-correlating sectors, it would be Utilities.
There was an article in The Wall Street Journal about the strengths of the utility sector over the years and the possible impact from clean energy. I found the article very interesting.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: REIT or No REIT

Post by abuss368 » Sun Dec 24, 2017 3:47 pm

aristotelian wrote:
Sun Dec 24, 2017 3:41 pm
hdas wrote:
Fri Dec 22, 2017 8:48 am


In other words...if a person doesn't have a tax advantaged account, should this person not diversify to REIT's at all based on tax efficiency considerations?

Thanks,
Assuming the core of the portfolio is total stock market, "diversify to REIT's" is a contradiction. What you are attempting to do is concentrate your portfolio in real estate on the theory that real estate stocks have less correlation to the overall market. If you go down this path, at least be clear what it is you are doing so you understand the risks.
I always encourage investors to read the prospects before making any investment. The section on risks is invaluable.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: REIT or No REIT

Post by unclescrooge » Sun Dec 24, 2017 4:30 pm

hdas wrote:
Fri Dec 22, 2017 10:33 am
This post seems helpful for the discussion:

https://seekingalpha.com/article/399531 ... ency-reits

This is the gist (imgur file):

https://imgur.com/a/cuqtv
Great read!

Thanks for posting. :beer

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Re: REIT or No REIT

Post by topper1296 » Sun Dec 24, 2017 4:46 pm

I have 5% in a domestic REIT index and 5% in an int'l REIT index in tax deferred with no complaints.

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Re: REIT or No REIT

Post by abuss368 » Sun Dec 24, 2017 8:04 pm

livesoft wrote:
Sat Dec 23, 2017 7:07 am
^At the present time, something like a US Total Stock Market Index fund or Total International Stock Market Index fund is a better investment than a REIT index fund.
Would this run counter to the Bogleheads way of investing by implying market timing?
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: REIT or No REIT

Post by livesoft » Sun Dec 24, 2017 8:05 pm

Bogleheads love to do market timing, but they never call it that.
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Re: REIT or No REIT

Post by abuss368 » Sun Dec 24, 2017 8:07 pm

bling wrote:
Sun Dec 24, 2017 11:47 am
i started bogleheading just after the 2008 crash. at the time i picked Swensen's portfolio to start. over time i tweaked it for my stock/bond allocation, and simplified it just holding TBM instead of intermediate+TIPS due to lack of 401k choices. however, i've always held a large REIT allocation and currently have my target at 15%. it takes up the majority of my Roth space.

naturally, i've paid more attention this year than others because equities are on a roar. VNQ dropped 5% the day the tax bill passed.

back when i first started, REITs were incredibly popular. nowadays it seems the opposite.

if i rebalance out of REITs then i wouldn't be staying the course and would be selling low buying high. but something tells me i might be better replacing it all with TSM (for reasons already stated). someone give me a crystal ball!
You appear to have Rick Ferri’s Core Four Investment Portfolio: Total Stock, Total International Stock, REIT, and Total Bond. This is an excellent portfolio.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: REIT or No REIT

Post by finite_difference » Sun Dec 24, 2017 8:15 pm

livesoft wrote:
Fri Dec 22, 2017 9:13 am
I only like to hold a REIT fund when it has a chance of increasing in value. The past year has not been one of those times, so I have not held a REIT fund in quite a while. I will predict that 2018 will also be such a year of no increase in value.
I believe the recently passed tax bill is favorable to REITs — and commercial RE development and ownership in general — in that tax breaks were preserved for commercial investors but not for individual home owners.

Should that not potentially give some benefit for REITs in 2018 and beyond? Unless that is already priced in :)

Personally I would not own an REIT except for either TIAA CREF’s (TREA) or Vanguard’s (VGSLX), would only hold it in tax advantaged, would not allocate more than 10% and would treat it as “stock” for asset allocation purposes.
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Re: REIT or No REIT

Post by jalbert » Sun Dec 24, 2017 9:06 pm

hdas wrote:
Fri Dec 22, 2017 8:48 am
I'm helping my brother with his long term investing. He does not have access to a tax-advantaged account at the moment. Perhaps in 2-3 years but still uncertain. The allocation I would like for him is:

80% Stocks (US, Dev-Ex US, EM)
10% Reits (US, International)
10% US long term bonds

The Question is: Is the tax drag of REIT such (25% bracket), that it would be preferable to allocate 90% Stocks 10% Bonds instead or 100% Stocks?

In other words...if a person doesn't have a tax advantaged account, should this person not diversify to REIT's at all based on tax efficiency considerations?

Thanks,
Not worth holding REITs directly in taxable space. A total us stock index contains REITs and if qualified dividends are at least 95% of dividends in a given year, the fund provider can round up to 100% QDI for distributions, which will qualify the embedded REIT dividends for favorable tax treatment.

If a 90/10 portfolio is appropriate, perhaps:

60% VTI
30% IXUS
10% VGIT

VGIT interest will be exempt from state income tax.

If brother has earned income, a trad or Roth IRA may be possible.
Last edited by jalbert on Mon Dec 25, 2017 1:58 am, edited 2 times in total.
Index fund investor since 1987.

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Re: REIT or No REIT

Post by fmzip » Sun Dec 24, 2017 10:12 pm

bling wrote:
Sun Dec 24, 2017 11:47 am
i started bogleheading just after the 2008 crash. at the time i picked Swensen's portfolio to start. over time i tweaked it for my stock/bond allocation, and simplified it just holding TBM instead of intermediate+TIPS due to lack of 401k choices. however, i've always held a large REIT allocation and currently have my target at 15%. it takes up the majority of my Roth space.

naturally, i've paid more attention this year than others because equities are on a roar. VNQ dropped 5% the day the tax bill passed.

back when i first started, REITs were incredibly popular. nowadays it seems the opposite.

if i rebalance out of REITs then i wouldn't be staying the course and would be selling low buying high. but something tells me i might be better replacing it all with TSM (for reasons already stated). someone give me a crystal ball!
Ditto, felt the same last year with International

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Re: REIT or No REIT

Post by bling » Mon Dec 25, 2017 11:46 am

abuss368 wrote:
Sun Dec 24, 2017 8:07 pm
You appear to have Rick Ferri’s Core Four Investment Portfolio: Total Stock, Total International Stock, REIT, and Total Bond. This is an excellent portfolio.
i don't think anyone could go wrong with any of the lazy portfolios mentioned around here. Rick Ferri's Core 4 has a much larger US allocation and lower REIT than Swensen's, so i'm definitely much closer to the latter, especially since i still hold the recommended 5% emerging markets, though i hear it's recently been changed to be 10% instead.

however, i think these changes within equities and within bonds are splitting hairs. i have a very heavy tilt towards mid and small cap stocks for my US equity allocation, but because they are so highly correlated i don't think it'll amount to much in the long run -- the primary reason i do it is for more harvesting opportunities rather than added risk/reward.

however, a tilt towards/away from REITs is different primarily because they are _not_ correlated with equities, which affects the overall risk profile of your portfolio.

when i was young, my first mutual fund was an energy fund. i thought to myself, everyone needs electricity, of course it will go up. i eventually stumbled upon lazy portfolios (but before discovering bogleheads). i picked a portfolio which involved having a large commodities allocation -- low correlation with equities = more diversified = good right? i don't hold either anymore. at the time i was young, so in dollar amounts it didn't really matter.

but now is a different matter. i feel like the only way i can get rid of REITs if i want to, is by adjusting my "profile for risk" and replace REITs with bonds. that way i'm no longer timing the market, but rather, just adjusting the need to take risk as i get older.

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Re: REIT or No REIT

Post by BigPrince » Mon Dec 25, 2017 4:48 pm

Does Vanguard have any articles or positions on REITs? Thanks.

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Re: REIT or No REIT

Post by fmhealth » Mon Dec 25, 2017 5:26 pm

It appears that the new tax plan will actually have a very favorable impact on REITS.

https://seekingalpha.com/article/413351 ... form?ifp=0

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