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What's driving VGSIX (reit) for the last 2 years?
Old 10-05-2004, 06:30 AM   #1
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What's driving VGSIX (reit) for the last 2 years?

I'd like to hold 5-10% of my portfolio in a REIT index like VGSIX...but looking at the chart, it's had an incredible run up in the last two years and is now at an all time high. I would like to take a "set it and forget it" approach to investing but I would hate to buy in at the top of the market. This sounds like market timing to me (which I don't want to be doing) but I can't help looking at the chart and thinking that all these gains won't be sustainable over the short term (that is to say, I'll buy it today and it'll "correct" -20% next week).

Does anyone know what factors have contributed to the gains in REITS in the last two years?
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Re: What's driving VGSIX (reit) for the last 2 yea
Old 10-05-2004, 07:05 AM   #2
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Re: What's driving VGSIX (reit) for the last 2 yea

Many investors view REITS as a substitute for bonds in a portfolio. With bond yields so low over the last two years, many investors flocked to the high yields offered by REITS, driving up the prices.

I have owned individual REIT stocks for many years, mostly bought through DRIPS. With the nice yields, I don't really worry too much about the price changes. I intend to hold these long-term

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Re: What's driving VGSIX (reit) for the last 2 yea
Old 10-05-2004, 07:33 AM   #3
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Re: What's driving VGSIX (reit) for the last 2 yea

Quote:
I'd like to hold 5-10% of my portfolio in a REIT index like VGSIX...but looking at the chart, it's had an incredible run up in the last two years and is now at an all time high. I would like to take a "set it and forget it" approach to investing but I would hate to buy in at the top of the market. This sounds like market timing to me (which I don't want to be doing) but I can't help looking at the chart and thinking that all these gains won't be sustainable over the short term (that is to say, I'll buy it today and it'll "correct" -20% next week).

Does anyone know what factors have contributed to the gains in REITS in the last two years?
Hi Soupcxan:

Actually, the last 5 years has been a sweet spot for Reits. Using Fidelity (Index), up 35% in 2000, up 9.1 in 2001, up 6% in 2002, and up 35% in 2003.
I purchased Reits in 1999, and was slightly down for the year. -2%
I took off half my gains in Jan. of 04., figuring they were in nose-bleed territory at that time. (They are now up another 18 percent since that time )

The run-up in Reits, have been fueled (in my opinion) from the same dynamics that have given individual property owners something to smile about in the last 5 years or so. (Low interest rates, and the feeling that regardless of the underlying price of the property, if you don't get in now, you're likely to be left behind.

If you are going to establish a position in Reits for the long haul, you might consider DCA into them.

How much individual real estate you currently own, should be given also some weight.

Good luck, Jarhead







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Re: What's driving VGSIX (reit) for the last 2 yea
Old 10-05-2004, 07:51 AM   #4
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Re: What's driving VGSIX (reit) for the last 2 yea

A lot of people feel they get more than enough real estate exposure by owning their own home, and in many cases, just that alone can put Real Estate as your #1 asset class. *I'd consider that before I increased real estate exposure even more in REITs, especially considering the runups of the last several years, which you pointed out.
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Re: What's driving VGSIX (reit) for the last 2 yea
Old 10-05-2004, 08:38 AM   #5
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Re: What's driving VGSIX (reit) for the last 2 yea

Correlation among asset classes - that's why. REITs and small cap value have similar correlation.

Depending on the mission asigned to your portfolio and your fundamental investment approach (value, slice and dice, balanced index, growth, etc., etc). That should determine what you buy and when you buy it.

11 plus years into ER, I bought in 98 as a low correlation counterbalance to the total stock market index part of my portfolio.

If I were young and in the accumulation phase - I probably would have bought small cap - the value corner ala Bernstein.
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Re: What's driving VGSIX (reit) for the last 2 yea
Old 10-05-2004, 08:45 AM   #6
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Re: What's driving VGSIX (reit) for the last 2 yea

Interesting points all. I need to do more research on my own...but if interest rates continue to rise and home values fall, will REITs suffer? Or do they mostly invest in commercial properties (not residential) that wouldn't be affected? On the other hand, if interest rates go up and owning a home becomes more expensive, will more people choose to rent (at apartment complexes owned by REITS)?

Also, I don't own a home so a REIT would be my only real estate exposure. DCA is a good idea but if REITS are over-inflated I'd just as soon wait to add it to my portfolio. Grumpy's response would seem to indicate that if interest rates rise, bonds will become more attractive and investors will sell REITs, depressing the price.
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DCA isn't about more shares at lower prices.
Old 10-05-2004, 10:36 AM   #7
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DCA isn't about more shares at lower prices.

Although that's why DCA is advocated as a reason to make monthly purchases, others have pointed out that the market goes up about three times as often as it goes down. This implies that DCA buys FEWER shares at HIGHER prices three-quarters of the time. Investors would be better off by lump-sum investing. Now all they need is the lump sum...

Another school of thought claims that DCA's greatest value is disciplined investing. You put it on autopilot (or automatic paycheck deduction) and forget about it. It's not in your hands so you don't spend it on Starbucks & CDs. You're not agonizing over timing the market or reading candle charts.

So if you think you already have the discipline to continue investing in the market each month, whether valuations are insane or not, then try value averaging.

http://invest-faq.com/articles/strat-dol-val-avg.html

As for the current value of that REIT fund, consider rebalancing!
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Re: What's driving VGSIX (reit) for the last 2 yea
Old 10-05-2004, 12:35 PM   #8
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Re: What's driving VGSIX (reit) for the last 2 yea

Quote:
Does anyone know what factors have contributed to the gains in REITS in the last two years?
REITS come and go in cycles. In late 1999 and early 2000 REITS were cheap. Everyone wanted tech, and ignored REITS. When tech crashed, many people decided that over concentration was their downfall, and decided to diversify into formerly unloved areas like REITS. As a result, there are not too many bargains today.
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Re: What's driving VGSIX (reit) for the last 2 yea
Old 10-05-2004, 06:56 PM   #9
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Re: What's driving VGSIX (reit) for the last 2 yea

I was reading a book this week from the library titled "Investing in REITs" by Ralph Block. I believe it was published in 1998 or 1999. It really helped me have a better understanding of REITS (even though it is a little dated).

I recent added VGSIX to my overall portfolio. One of the points the author makes is that "REIT's high current yields act as a shock absorber against market fluctuations". It was also interesting to read about the REIT's low "beta" compared to other stocks.

I chose my Roth IRA as the vehicle of choice for the REIT investments (REIT's are not real tax friendly due to the amount of dividends they throw off).

I also am a little concerned about a major correction. I remember what Bernstein says about what normally happens in the future with the latest high performing asset. However, I went ahead an bit the bullet since this will be a long term investment.

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Re: What's driving VGSIX (reit) for the last 2 yea
Old 10-06-2004, 02:36 PM   #10
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Re: What's driving VGSIX (reit) for the last 2 yea

I think we've just uncovered another reason for the run-up.

Lots of books on buying reits, and the increased popularity as an asset class for diversification.

As far as not adding reits because you own a home...I dont really consider the two to be in the same ballpark. I do have some control over my homes asset value by maintaining/investing in it, and by choosing where and what type of market I buy into. I cant possibly equate a residence in suburban california with apartment buildings, medical offices and strip malls spread all over america.

Its use as a diversification tool is still valuable.

I own about as much reits in dollars as the valuation of my home. They're in my IRA and the dividends feed the small cap value index.
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Re: What's driving VGSIX (reit) for the last 2 yea
Old 10-06-2004, 06:00 PM   #11
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Re: What's driving VGSIX (reit) for the last 2 yea

I believe that REIT stocks as a class are more volatile
now than they were a few years ago. Big REITS are
now included in the S&P 500 and institutional investors
have been playing the momentum game.

That being said, REITs are a good diversifier and you
should consider adding them to your portfolio. They
are pricey right now so DCA or value averaging is
appropriate.

Cheers,

Charlie
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