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Old 02-07-2013, 06:10 PM   #21
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I am still searching for what causes the next sector to out perform. So far the rules I have come to support are; The Dogs of the DOW, & last year winner seldom repeats.

It seems the normal events that move sectors are anticipated in the stock price, so I stopped trying to figure it out, and have arrive at diversified ETF AA with a tilt towards; technology, healthcare, EM.

FWIW Here are 2 correlation calculators. =2

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Old 02-07-2013, 06:30 PM   #22
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Originally Posted by pb4uski View Post
What I've never been able to decide is whether I need/should have REITs in addition to the 4% real estate that is included in the stock market as a whole (in the Total Stock Market Index Fund), and if so, how much.
Originally Posted by Midpack View Post
That's the main reason I own a REIT fund, typically low/negative correlation with other equity funds. I assume it's the reason many investors do, Dr B taught me...
What Midpack says. When I was doing the Asset Allocation tutorial I looked up as much historical and return data as I could find. IIRC, the correlation between REITs and bonds differs slightly from that between equities and bonds, providing some diversification benefit and giving a smoother-riding, less volatile portfolio without much if any decrease in expected return from one with stocks & bonds only. The effect is pretty slight--my target AA is 70% bonds and the rest split evenly between stock and REIT, but I found that in practical terms there was very little difference in expected return and volatility between 5% stock/25% REIT and 25% stock/5% REIT. Last time I checked (which may have been over a year ago) I was approaching that 5% rebalancing trigger. I won't have access to that account info until I get my own computer out of storage and set back up, but I suspect rebalancing will be on my to-do list once that happens. I was also attracted by the fact that REITs generate some income, like dividend paying stocks. Yeah, I know, money is fungible, but I still find the idea of just spending my income and retaining the principal an attractive one. (added later) I may at some time want to move into a retirement community and at that point I would consider spending some of the principal for buy-in if sale of my house didn't generate enough money.

So to answer your question, if you want a slightly less volatile portfolio, add a dash of REIT fund. If you want the simplest portfolio, leave it out. I think you can get nearly the same effect by tweaking your stock/bond rebalancing point.

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Old 02-07-2013, 08:07 PM   #23
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Originally Posted by pb4uski View Post
What I've never been able to decide is whether I need/should have REITs in addition to the 4% real estate that is included in the stock market as a whole (in the Total Stock Market Index Fund), and if so, how much.
Take a look at Merriman's ultimate buy and hold article. He compares several different portfolios and you can see the impact on return/variance.

When you look at the numbers, they will be small in absolute scale. You have to decide for yourself if it's worth the extra complexity (and the chance that something goes wrong). But also keep in mind that +0.3% annualized return is huge compared to a 4% or lower SWR.

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