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Where Does Real Estate Fall into this Asset Allocation?
Old 11-04-2010, 10:20 AM   #1
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Where Does Real Estate Fall into this Asset Allocation?


I work with an Investment Advisory Service through T Rowe Price. Based on my goals and risk profile, they recommend the following asset allocation:

Stock 80%

Large Cap 48%
Mid/Small Cap 16%
International 16%
Specialty 0%

Bond 20%

Investment Grade 15%
High Yield 0%
International 5%

Short Term 0%

For the purpose of this question, please assume that I do not own real estate, so that it would make sense for me to include a portion of my investment in REITs. Based on the choices available to me above, what is the best place to substitute in the REIT portion of my investments (Since the T Rowe Price recommendation for Specialty is 0%, please assume that Specialty is not an available choice).

Is a Real Estate investment most similar to Large Cap Stock, Mid/Small Cap Stock, International Stock, Investment Grade Bond, International Bond or Short Term investment?

Thank you for your advice.

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Old 11-04-2010, 10:53 AM   #2
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I am not an asset allocation specialist, but I do own ~12% REITS and real estate. Morningstar box puts VGSIX in the middle ie midcap blend.

However, in no way do I think REIT such as this is equivalent to midcap blend or real "real estate" in return/risk performance... that is why they are usually classified under specialty. They are extremely volatile compared to the rest of your portfolio... so according to your asset allocation they should be 0%.

If you are certain you want them in your asset allocation - then I think it is a matter reconsidering the reasons that determined your current allocation... that reasoning (with the additional reasoning for REITs) will provide your new allocation.
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