Which REIT for Portfolio, should I even get one?

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leo28
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Which REIT for Portfolio, should I even get one?

Post by leo28 » Tue Dec 04, 2018 2:53 pm

My current AA is the following:

VTSAX - 76%
VBTLX - 18%
VTIAX - 5%

30 yr old.

I have some extra cash I don't need and was thinking about getting a RETI for diversification (I know VTSAX already holds them), about 50k. There are some many options that Im getting confused, the further I read into it the more I start to wonder if I even need this?

Thanks for your help!

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vineviz
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Re: Which REIT for Portfolio, should I even get one?

Post by vineviz » Tue Dec 04, 2018 3:02 pm

leo28 wrote:
Tue Dec 04, 2018 2:53 pm
My current AA is the following:

VTSAX - 76%
VBTLX - 18%
VTIAX - 5%

30 yr old.

I have some extra cash I don't need and was thinking about getting a RETI for diversification (I know VTSAX already holds them), about 50k. There are some many options that Im getting confused, the further I read into it the more I start to wonder if I even need this?
You don't need more REITS: they aren't a very good diversifier anyway, and you already own more than enough.

If you want a better diversified portfolio, add more to your VTIAX: 20% would be a whole lot better diversified than just 5%.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

sksbog
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Re: Which REIT for Portfolio, should I even get one?

Post by sksbog » Tue Dec 04, 2018 3:06 pm

If you check wiki on tax implications here, REITs , if at all you choose, would be suitable in tax sheltered account s like 401k..

megabad
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Re: Which REIT for Portfolio, should I even get one?

Post by megabad » Tue Dec 04, 2018 3:08 pm

leo28 wrote:
Tue Dec 04, 2018 2:53 pm
My current AA is the following:

VTSAX - 76%
VBTLX - 18%
VTIAX - 5%

30 yr old.

I have some extra cash I don't need and was thinking about getting a RETI for diversification (I know VTSAX already holds them), about 50k. There are some many options that Im getting confused, the further I read into it the more I start to wonder if I even need this?

Thanks for your help!
Honest question, why do you want REITS in greater proportion than you already own? If you decide they are a (separate) part of your investment plan, I would strongly recommend a low fee REIT index fund such as Vanguard REIT index. I do not generally recommend most non index fund REITs due to illiquidity, high fees, and lack of control. As above, I would likely only hold REIT in IRA/QRP for tax reasons.

Jack FFR1846
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Re: Which REIT for Portfolio, should I even get one?

Post by Jack FFR1846 » Tue Dec 04, 2018 3:10 pm

I'm with JL Collins on this:

https://www.youtube.com/watch?v=T71ibcZAX3I

VTSAX
Bogle: Smart Beta is stupid

averagedude
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Re: Which REIT for Portfolio, should I even get one?

Post by averagedude » Tue Dec 04, 2018 3:13 pm

I think you are right, you dont need REITS in your portfolio since you already have it in VTSAX. If diversification is what you are looking for, i would suggest you up your percentage in VTIAX.. Currently you only have 6% of stocks in international. Of course if you are comfortable with this thats ok, but if diversification is your greatest concern, this should be the first place you should look at.

pdavi21
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Re: Which REIT for Portfolio, should I even get one?

Post by pdavi21 » Tue Dec 04, 2018 3:16 pm

Do you own real estate property?
If yes, most would consider you over invested in REITs...

If not, I like VNQ (.12%) and VNQI (0.14%).

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leo28
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Re: Which REIT for Portfolio, should I even get one?

Post by leo28 » Tue Dec 04, 2018 3:18 pm

thanks everyone, going over some of the resources you sent now.

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leo28
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Re: Which REIT for Portfolio, should I even get one?

Post by leo28 » Tue Dec 04, 2018 3:19 pm

pdavi21 wrote:
Tue Dec 04, 2018 3:16 pm
Do you own real estate property?
If yes, most would consider you over invested in REITs...

If not, I like VNQ (.12%) and VNQI (0.14%).
I do not own real estate.
megabad wrote:
Tue Dec 04, 2018 3:08 pm
leo28 wrote:
Tue Dec 04, 2018 2:53 pm
My current AA is the following:

VTSAX - 76%
VBTLX - 18%
VTIAX - 5%

30 yr old.

I have some extra cash I don't need and was thinking about getting a RETI for diversification (I know VTSAX already holds them), about 50k. There are some many options that Im getting confused, the further I read into it the more I start to wonder if I even need this?

Thanks for your help!
Honest question, why do you want REITS in greater proportion than you already own? If you decide they are a (separate) part of your investment plan, I would strongly recommend a low fee REIT index fund such as Vanguard REIT index. I do not generally recommend most non index fund REITs due to illiquidity, high fees, and lack of control. As above, I would likely only hold REIT in IRA/QRP for tax reasons.
Im not exactly sure what part of VTSAX they really make up and if its enough to be diversified in them.

pdavi21
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Re: Which REIT for Portfolio, should I even get one?

Post by pdavi21 » Tue Dec 04, 2018 3:25 pm

leo28 wrote:
Tue Dec 04, 2018 3:19 pm
I do not own real estate.
Before I owned real estate, I had 5% of allocation in VNQ and VNQI.
I sold it the day I bought a house.
I do not necessarily think holding a small tilt in real estate is good or bad so long as you stick to it (unless you buy real estate).

One thing to consider is VNQ is like 30+% 10 companies which rent malls and office buildings. It only holds 184 stocks. So you should have a good reason to invest in a small basket of corporate real estate and personal real estate companies before making your decision.
Last edited by pdavi21 on Tue Dec 04, 2018 3:29 pm, edited 1 time in total.

pdavi21
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Re: Which REIT for Portfolio, should I even get one?

Post by pdavi21 » Tue Dec 04, 2018 3:27 pm

leo28 wrote:
Tue Dec 04, 2018 3:19 pm
Im not exactly sure what part of VTSAX they really make up and if its enough to be diversified in them.
3-4%

Jack FFR1846
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Re: Which REIT for Portfolio, should I even get one?

Post by Jack FFR1846 » Tue Dec 04, 2018 3:30 pm

leo28 wrote:
Tue Dec 04, 2018 3:19 pm

Im not exactly sure what part of VTSAX they really make up and if its enough to be diversified in them.
Here's how I look at it. Think of a company who doesn't own ANY real estate, and is part of VTSAX.

There ya go.
Bogle: Smart Beta is stupid

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ruralavalon
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Re: Which REIT for Portfolio, should I even get one?

Post by ruralavalon » Tue Dec 04, 2018 6:29 pm

leo28 wrote:
Tue Dec 04, 2018 2:53 pm
My current AA is the following:

VTSAX - 76%
VBTLX - 18%
VTIAX - 5%

30 yr old.

I have some extra cash I don't need and was thinking about getting a RETI for diversification (I know VTSAX already holds them), about 50k. There are some many options that Im getting confused, the further I read into it the more I start to wonder if I even need this?

Thanks for your help!
You don't "need" this.

I believe that real estate is a rare sector that might warrant an additional allocation beyond what is included in a total stock market index fund.

We used Vanguard Real Estate Index Fund Admiral Shares (VGSLX), the ETF version is VNQ. This has a relatively low correlation, 0.74, to the stock market as a whole. Not as good a diversifier as total bond market, but potentially useful.

The fund also may provide some inflation protection.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

justsomeguy2018
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Re: Which REIT for Portfolio, should I even get one?

Post by justsomeguy2018 » Tue Dec 04, 2018 7:41 pm

leo28 wrote:
Tue Dec 04, 2018 3:18 pm
thanks everyone, going over some of the resources you sent now.
I second VNQ and VNQI, and in a tax sheltered account if your marginal rate is high, since REIT dividends are taxed as ordinary income.

heyyou
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Re: Which REIT for Portfolio, should I even get one?

Post by heyyou » Tue Dec 04, 2018 8:56 pm

REITs' future does not look as good as their history. They probably own significant exposure to shopping malls which are great places for kids to congregate and price shop, before actually buying the merchandise from internet marketers.

bluquark
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Re: Which REIT for Portfolio, should I even get one?

Post by bluquark » Tue Dec 04, 2018 9:58 pm

I held REIT for a while on the basis of the argument that they're uncorrelated with the rest of the stock market, but I eventually learned that their correlation factor is just average for a sector fund (the least correlated sector fund in the last decade has not been REITs, but rather Utilities).

And even if you hold them in nontaxable, their tax inefficiency is still a problem in that they steal nontaxable space from the next-most-inefficient asset in your portfolio (probably bonds).

I gather there was a hype cycle for REITs in the 90s and it had a good period of uncorrelation during the 2002 recession, so it stuck in many portfolio recommendations since then. But IMO fundamentally the arguments in favor don't seem decisive enough to justify a tilt, even if you don't own property. There are equally strongish arguments for many tilts and I don't see what's special about REITs.

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leo28
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Re: Which REIT for Portfolio, should I even get one?

Post by leo28 » Tue Dec 04, 2018 11:07 pm

Thanks everyone very much, this has been very insightful.

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nisiprius
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Re: Which REIT for Portfolio, should I even get one?

Post by nisiprius » Tue Dec 04, 2018 11:23 pm

First, REITs are not the same as an actual direct investment in real estate, so comments on "real estate" as an investment don't necessarily apply. The Talmud was not talking about REIT index funds.

I used to have a small allocation to the Vanguard REIT Index Fund, VGSIX, based on Burton Malkiel's strong recommendations in A Random Walk Down Wall Street and his assertion that they had similar return to the rest of the stock market, but low correlation with it. During 2008-2009, REITS tanked worse than the rest of the market. A wag in this forum commented that "low correlation just means you get to watch your funds crash at different speeds." Anyway, 2008-2009 convinced me that REITs were not doing what I'd expected them to do. Regardless of whether my expectations were right or wrong, they were not doing what I'd expected them to do. A year or so later, when my REIT fund had gotten back to even, I sold it and have never looked back.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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leo28
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Re: Which REIT for Portfolio, should I even get one?

Post by leo28 » Wed Dec 05, 2018 4:57 pm

So the general suggestion Im getting here is to add the extra money to my AA and forget about it :happy Nice and boring.

UpperNwGuy
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Re: Which REIT for Portfolio, should I even get one?

Post by UpperNwGuy » Wed Dec 05, 2018 5:09 pm

leo28 wrote:
Wed Dec 05, 2018 4:57 pm
So the general suggestion Im getting here is to add the extra money to my AA and forget about it :happy Nice and boring.
I think you should change your AA to allocate a higher percentage to international. That won't be so boring.

Scassi
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Re: Which REIT for Portfolio, should I even get one?

Post by Scassi » Wed Dec 05, 2018 6:55 pm

nisiprius wrote:
Tue Dec 04, 2018 11:23 pm
I used to have a small allocation to the Vanguard REIT Index Fund, VGSIX, based on Burton Malkiel's strong recommendations in A Random Walk Down Wall Street and his assertion that they had similar return to the rest of the stock market, but low correlation with it. During 2008-2009, REITS tanked worse than the rest of the market. A wag in this forum commented that "low correlation just means you get to watch your funds crash at different speeds." Anyway, 2008-2009 convinced me that REITs were not doing what I'd expected them to do. Regardless of whether my expectations were right or wrong, they were not doing what I'd expected them to do. A year or so later, when my REIT fund had gotten back to even, I sold it and have never looked back.
Hi. Can you please provide specifics or expand as to how VGSIX "did not do what (you) expected them to do", ... which I take from your post to mean did (or maybe did not .. ??) 'provide a 'low correlation' to the 'rest of the market'.

Your post is a bit cryptic... and we have a small % in the tax deferred so would love to learn. :happy

TIA!

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nisiprius
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Re: Which REIT for Portfolio, should I even get one?

Post by nisiprius » Wed Dec 05, 2018 7:17 pm

Scassi wrote:
Wed Dec 05, 2018 6:55 pm
nisiprius wrote:
Tue Dec 04, 2018 11:23 pm
I used to have a small allocation to the Vanguard REIT Index Fund, VGSIX, based on Burton Malkiel's strong recommendations in A Random Walk Down Wall Street and his assertion that they had similar return to the rest of the stock market, but low correlation with it. During 2008-2009, REITS tanked worse than the rest of the market. A wag in this forum commented that "low correlation just means you get to watch your funds crash at different speeds." Anyway, 2008-2009 convinced me that REITs were not doing what I'd expected them to do. Regardless of whether my expectations were right or wrong, they were not doing what I'd expected them to do. A year or so later, when my REIT fund had gotten back to even, I sold it and have never looked back.
Hi. Can you please provide specifics or expand as to how VGSIX "did not do what (you) expected them to do", ... which I take from your post to mean did (or maybe did not .. ??) 'provide a 'low correlation' to the 'rest of the market'.

Your post is a bit cryptic... and we have a small % in the tax deferred so would love to learn. :happy

TIA!
I was so stupid that I'm embarrassed enough that I hate spelling out the details.

I had previously been invested in the TIAA Real Estate account, which invests directly in commercial real estate. I had decided to consolidate everything at Vanguard, and foolishly, without checking or looking into things, expected VGSIX to be similar to the TIAA Real Estate Account.

I. Was. Stoopid. To. Expect. That.

Also, I was more or less blindly following Burton Malkiel's high praise in A Random Walk Down Wall Street. I can't find a way to plot more than ten years of TIAA Real Estate, but this old chart posted in Bogleheads compares it (blue) with Total Stock (green).
Image

I expected REITs to be relatively conservative (because of the high dividend payouts), relatively tame, and uncorrelated with stocks.

I missed out on one great shining moment in 2000-2002, when stocks in general went down, and a number of well-known "diversifiers" indeed went up, including REITs.

Image

I got in just in time to see VGSIX lose -70% while Total Stock was "only" losing -50%.

There are various combinations of VGSIX and stocks, over various periods of time, during which VGSIX would have modestly improved a portfolio. Unfortunately, the time I was in VGSIX wasn't one of them. (Because. I. Was. Stoopid.)
Last edited by nisiprius on Wed Dec 05, 2018 10:00 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

youngpleb
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Re: Which REIT for Portfolio, should I even get one?

Post by youngpleb » Wed Dec 05, 2018 7:52 pm

leo28 wrote:
Tue Dec 04, 2018 3:19 pm
Im not exactly sure what part of VTSAX they really make up and if its enough to be diversified in them.
Here's a nice list of a whole lot of Vanguard index funds and what percentage they are made up of REITs.

https://www.bogleheads.org/wiki/Percent ... ndex_funds
27. Always learning.

JimmyD
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Re: Which REIT for Portfolio, should I even get one?

Post by JimmyD » Wed Dec 05, 2018 8:33 pm

Obviously a small sample group, but the largely negative sentiment in this thread alone is almost reason enough to start, keep, or add to a REIT fund position. As the Oracle has proclaimed, be fearful when others are greedy and greedy when others are fearful. That advice has always served me incredibly well.

Also, have you seen the top holding in many REIT funds these days? It’s no longer Simon Property Group and the like. Check it out...

averagedude
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Re: Which REIT for Portfolio, should I even get one?

Post by averagedude » Wed Dec 05, 2018 9:19 pm

I find it amazing how the gurus of portfilio construction had REITS as part of a diversified portfolio. Now that the asset class has lagged recently, some of these same gurus don't even mention them. Me personally i dont view REITS as a diversifier, i view them as a sector tilt.

Scassi
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Re: Which REIT for Portfolio, should I even get one?

Post by Scassi » Wed Dec 05, 2018 9:56 pm

nisiprius wrote:
Wed Dec 05, 2018 7:17 pm
....... I expected REITs to be relatively conservative (because of the high dividend payouts), relatively tame, and uncorrelated with stocks......
:happy @ your entire post...

Thank you for the intel! I too 'expect(ed)' the quoted part above esp re the 'uncorrelation' ...

Hmmmm.

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