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REIT funds - Do they belong in a retirement portfolio
Old 10-28-2011, 03:42 PM   #1
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REIT funds - Do they belong in a retirement portfolio

I have been reading a few articles that advocate moving about 5 percentage points of stock allocations from a total stock index fund to an REIT index fund. (so a 60/40 would end up as 55/5/40 stocks/reit/bonds.)

I am curious what others think of this. I know people who lost fortunes in REIT in the 70's and 80's and, because of that, have never gone near the things. But... I am wiling to learn if other think they are worth while. I would rebalance them about once a year along with the stock index funds and the bond index funds.
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Old 10-28-2011, 03:53 PM   #2
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I have 15% FWIW...only problem is they tend to move with the market the last 5 yrs.
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Old 10-28-2011, 04:09 PM   #3
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I'm in for 5% VNQ and 5% RWX (foreign RE). The returns looked similar to equities, but they should provide some diversification. One of the more volatile funds I owned 2007-2009, which was good for rebalancing.
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Old 10-28-2011, 04:19 PM   #4
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I have been adding to a Roth holding of Vanguard REIT Index (VGSLX) for diversification. However I don't feel strongly since REIT's also represent about 3% of the total stock market which is a core holding. The payout currently isn't too spectacular at 4% unadjusted and 2.8% adjusted returns.
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Old 10-28-2011, 04:24 PM   #5
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I can't find it now, but we had a thread within the last few years on REITs that indicated they had lost a good deal of their ability to reduce risk in a typical portfolio. IIRC, because they hold primarily commercial property, the fate of RE prices is fairly tightly bound to the business cycle. If stocks go down, REITs tend to go down at abut the same rate.

OTOH, during the 2008 downturn almost everything went down, so REITs can't be singled out.
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Old 10-28-2011, 04:35 PM   #6
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Quote:
Originally Posted by Chuckanut View Post
I have been reading a few articles that advocate moving about 5 percentage points of stock allocations from a total stock index fund to an REIT index fund. (so a 60/40 would end up as 55/5/50 stocks/reit/bonds.)

I am curious what others think of this. I know people who lost fortunes in REIT in the 70's and 80's and, because of that, have never gone near the things. But... I am wiling to learn if other think they are worth while. I would rebalance them about once a year along with the stock index funds and the bond index funds.

Your new allocation adds up to 110%
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Old 10-28-2011, 04:38 PM   #7
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I've been holding REIT funds (VG REIT Index and Fidelity Real Estate Investor) in Roth and 403(b) accounts since around 2005. I added them after reading "A Random Walk Down Wall Street" and have been very satisfied with them (as a buy-and-hold). Malkiel argues they should be viewed as a separate asset class. They can be volatile, however.
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Old 10-28-2011, 05:18 PM   #8
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Originally Posted by Texas Proud

Your new allocation adds up to 110%
That's the best way to improve your portfolio's performance!
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Old 10-28-2011, 06:56 PM   #9
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Your new allocation adds up to 110%
That is my secret way to fight these low interest rates. I instantly increase my yield by 10% overnight!!!
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Old 10-29-2011, 09:43 AM   #10
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I'm in for 5% VNQ and 5% RWX (foreign RE). The returns looked similar to equities, but they should provide some diversification. One of the more volatile funds I owned 2007-2009, which was good for rebalancing.
I have roughly the same allocations. 6% Vanguard REIT and 5% WPS (foreign RE/REIT).

It seems like they are somewhat uncorrelated with their US or international stock indexes. For example, looking at all of vanguard's funds, the REIT fund is the #2 equity performer (second to healthcare fund). Often it will be up when other stuff is down, or flat when other stuff is up.

It is also good if you are looking for dividend paying ETFs or mutual funds. The div yield is typically on the high end of equities. Again, looking at vanguard, only a couple of dividend focused mutual funds and the Value index fund beat it out. Current div yield of Vanguard REIT fund is 2.83%
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Old 10-29-2011, 09:58 AM   #11
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Our allocation to Vanguard REIT is 5% in our tax-deferred account. REIT does provide diversification as the correlation between REIT and S&P 500 for the last 8 years is 62%.
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Old 10-29-2011, 10:09 AM   #12
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A thought: maybe one should overweight smallcap value and get the small + value premiums plus the REIT exposure.

M* shows that Vanguard Smallcap Value fund (VISVX) has 13% REITs.

FWIW: I don't have a REIT fund but have a value tilted portfolio. I notice Vanguard Wellington which has done quite well over the years has 0% REIT right now.
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Old 10-29-2011, 11:36 AM   #13
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I have a basket of reits/preferreds that represents about 8% of my port.
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Old 10-29-2011, 11:41 AM   #14
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I am curious what others think of this.<> I know people who lost fortunes in REIT in the 70's and 80's and, because of that, have never gone near the things.
Much of that was in highly levered mortgage reits, a totally diffent animal from property owning reits. Also many of these were vigorously sold by brokers, and were pretty bad. As he got old, my dad tended to be a sucker for junk like this, until my brothers took over. US Treasuries from then on, plus Exxon.

Many property owning reits are really blue chips. However, as with all markets, prices go through some pretty extreme cycles, and you don't want to buy at a high point.

Be sure you understand before you buy, as always.

Ha
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Old 10-29-2011, 11:41 AM   #15
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For example, looking at all of vanguard's funds, the REIT fund is the #2 equity performer (second to healthcare fund).
I have both, in small proportions. I have been very happy with their performances.
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Old 10-29-2011, 12:56 PM   #16
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I keep 5% in REITs.

While I generally eschew market timing, I got out of REITs in 2006 when we were buying a new, more expensive house due to a job relo into a higher cost market. Figured that I was increasing my real estate exposure via the house so I sold the REITs to help the down payment. (Even a blind squirrel finds a nut once in a while...)

After the great real estate implosion, I was interested in buying into depressed real estate but I lack the time/focus to do this myself. So I'm doing it by buying REITs.

Intend to keep my 5% exposure going forward.
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Old 10-29-2011, 02:01 PM   #17
 
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VG Total Stk Mkt Index & VG Total Int'l Stk Index hold 3% each in real estate. Would this be equivalent to my owning a REIT fund?
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Old 10-29-2011, 02:03 PM   #18
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The investment options I have in my 401k are not the greatest. Fortunately, they contribute 9% annually, as long as I contribute at least 6%. The best performing fund over the last three years has been a REIT. Over all, this fund accounts for about 15% of my retirement balance. I'll rebalance it at the end of the year to take it down a little, but I'll continue to fund it.
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Old 10-29-2011, 09:53 PM   #19
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VG Total Stk Mkt Index & VG Total Int'l Stk Index hold 3% each in real estate. Would this be equivalent to my owning a REIT fund?
You won't be able to rebalance.
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Old 10-30-2011, 10:00 AM   #20
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...They can be volatile, however.
I own REITs.
Good Gawd are they volatile however.
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