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Time to minimize exposure to REIT?
Old 05-02-2006, 10:31 PM   #1
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Time to minimize exposure to REIT?

It appears that the real estate market is slowing down.* In Florida for sure.* It seems that south california is also experiencing some pain, though not as severe as Florida yet.

Do you think it's time to reduce REIT holding?

Sam
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Re: Time to minimize exposure to REIT?
Old 05-02-2006, 10:54 PM   #2
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Re: Time to minimize exposure to REIT?

The yield of REITs is only slightly higher than 3%. Therefore, REITS are considered over-valued. However, they are good diversifiers since their correlation to stock is low. Thus, maintaining a fixed percentage, say 3%, of your portfolio is fine.
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Re: Time to minimize exposure to REIT?
Old 05-02-2006, 11:04 PM   #3
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Re: Time to minimize exposure to REIT?

REITs primarily hold commercial real estate, which responds to different variables than housing. Housing is a rabid dog right now, but strip malls and office buildings aren't currently insanely valued relative to rents.

Jon
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 02:23 AM   #4
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Re: Time to minimize exposure to REIT?

I have been considering the same thing recently. It is another year where REITs YTD are doing rather well, up about 8-9%. 10% of my base-portfolio is in REITs (VNQ).

But since I have no idea where to put the money I instead just re-balance mechanically thereby at least ensuring I do not hold even MORE of a possibly over-valued asset class.

Cheers!
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 07:56 AM   #5
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Re: Time to minimize exposure to REIT?

Quote:
Originally Posted by ben
I have been considering the same thing recently. It is another year where REITs YTD are doing rather well, up about 8-9%. 10% of my base-portfolio is in REITs (VNQ).

But since I have no idea where to put the money I instead just re-balance mechanically thereby at least ensuring I do not hold even MORE of a possibly over-valued asset class.

Cheers!
My thoughts exactly. If you've been rebalancing this shouldn't be a problem

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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 08:02 AM   #6
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Re: Time to minimize exposure to REIT?

I dumped 'em a few months back.
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 08:12 AM   #7
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Re: Time to minimize exposure to REIT?

My REIT ETFs are up big time, but their percentage in the port is about the same.
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 08:53 AM   #8
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Re: Time to minimize exposure to REIT?

Oh. My. Gosh. I'm agreeing with CFB AGAIN. What is this day coming to??!!
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 08:55 AM   #9
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Re: Time to minimize exposure to REIT?

Quote:
Originally Posted by Cute Fuzzy Bunny
I dumped 'em a few months back.
That's just semantics.
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 09:07 AM   #10
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Re: Time to minimize exposure to REIT?

Some antics... :
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 09:15 AM   #11
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Re: Time to minimize exposure to REIT?

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Originally Posted by brewer12345
That's just semantics.
No come on, put a word into my post that wasnt there or at least take some miniscule irrelevant portion of the discussion and start a major rant on it. Its whats expected. Save the "thats just semantics" until the end when "my bad" is an unacceptable option!

Besides, when you do it this way, it looks like you're just copying my lame efforts, and thats just too sad to accept.
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 09:19 AM   #12
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Re: Time to minimize exposure to REIT?

I'm about 2%-3% (of total portfolio) over my target on REIT and am wondering if it's enough to bother rebalancing. I haven't rebalanced in about 18 months, and with a combination of performance and new contributions I have just about exactly the same AA I did 18 months ago. (When I accidentally overweighted REIT and didn't fix it because of the 1% redemption fee.)

I'm thinking I may let it ride since I'm putting new contributions into other asset classes and REIT will naturally shrink its AA unless it continues to outperform.
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 05:07 PM   #13
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Re: Time to minimize exposure to REIT?

Quote:
Originally Posted by BigMoneyJim
I'm thinking I may let it ride since I'm putting new contributions into other asset classes and REIT will naturally shrink its AA unless it continues to outperform.
It seems that REITs have been declining lately.
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 05:24 PM   #14
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Re: Time to minimize exposure to REIT?

I "minimized my exposure to REITS" early last year, which serves as a reminder for why I usually avoid trying to time the market.
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 07:06 PM   #15
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Re: Time to minimize exposure to REIT?

Quote:
Originally Posted by Spanky
It seems that REITs have been declining lately.
Really - how lately?

My REIT funds are up 10% YTD through April of 2006. Pretty darn impressive considering.

Oh - you mean the last couple of weeks? Gosh - that's pretty short term.....

You just never know!!

Audrey
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 07:11 PM   #16
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Re: Time to minimize exposure to REIT?

Quote:
Originally Posted by BigMoneyJim
I'm about 2%-3% (of total portfolio) over my target on REIT and am wondering if it's enough to bother rebalancing. I haven't rebalanced in about 18 months, and with a combination of performance and new contributions I have just about exactly the same AA I did 18 months ago. (When I accidentally overweighted REIT and didn't fix it because of the 1% redemption fee.)

I'm thinking I may let it ride since I'm putting new contributions into other asset classes and REIT will naturally shrink its AA unless it continues to outperform.
How much over is that with respect to your REIT allocation itself - 10% or more over? For example, if REITS are supposed to be 5% of your portfolio, but they have grown to 7%, that's 40% over where you intended them to be. I tend to trim under those circumstances.

Do you reinvest the distributions?* Not reinvesting distributions is another way to trim a position, but it might not be enough.

Trim, then let them shrink below allocation (if they ever do), and after that add money to bring them back up to allocation - that's how it is supposed to work.* Otherwise you aren't getting the benefit of rebalancing.

Audrey
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 07:14 PM   #17
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Re: Time to minimize exposure to REIT?

Quote:
Originally Posted by BigMoneyJim
I'm thinking I may let it ride since I'm putting new contributions into other asset classes and REIT will naturally shrink its AA unless it continues to outperform.
It'll shrink even faster if it underperforms-- no problem!

Our general rule of asset allocation is that if spouse and I have a conversation about a sector or a stock, then we should be selling or buying. Usually it's pretty clear which action is appropriate, and standing pat is definitely not the right answer.
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 08:39 PM   #18
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Re: Time to minimize exposure to REIT?

Quote:
Originally Posted by audreyh1
How much over is that with respect to your REIT allocation itself - 10% or more over? For example, if REITS are supposed to be 5% of your portfolio, but they have grown to 7%, that's 40% over where you intended them to be. I tend to trim under those circumstances.

Do you reinvest the distributions? Not reinvesting distributions is another way to trim a position, but it might not be enough.

Trim, then let them shrink below allocation (if they ever do), and after that add money to bring them back up to allocation - that's how it is supposed to work. Otherwise you aren't getting the benefit of rebalancing.

Audrey
I'm aiming for 10% REIT but have 12%. I reinvest. I'm not sure how far out of whack to let it go.

Quote:
Originally Posted by Nords
It'll shrink even faster if it underperforms-- no problem!

Our general rule of asset allocation is that if spouse and I have a conversation about a sector or a stock, then we should be selling or buying. Usually it's pretty clear which action is appropriate, and standing pat is definitely not the right answer.
In my case I'm just looking at it because I haven't rebalanced in a while. I don't have a feel for how REITs are going to perform. I guess your wisdom still applies, though.
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Re: Time to minimize exposure to REIT?
Old 05-03-2006, 08:53 PM   #19
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Re: Time to minimize exposure to REIT?

Quote:
Originally Posted by BigMoneyJim
I'm aiming for 10% REIT but have 12%. I reinvest. I'm not sure how far out of whack to let it go.

In my case I'm just looking at it because I haven't rebalanced in a while. I don't have a feel for how REITs are going to perform. I guess your wisdom still applies, though.
Well the whole point of allocation is because you don't know what's how things are going to perform. People get faked out all the time. I know people who pulled out of REITs in 2004, and early 2005. They missed out on a lot of gains.

According to your model, you are 20% over allocation. That's quite a bit.

At the very least, don't let your distributions reinvest into the REIT funds - put those towards your other asset classes.

The fact that you are still in the accumulation phase and adding monies to your portfolio at this time means it's not such a major issue since you can add your monies to the asset classes that are under allocated.

Audrey
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