Anyone invest in REITs?

[boilerman]

I've recently become interested in REITs for my 401k as a way of diversifying. Sites like Vanguard say that they provide diversification from stock market holdings and I have always been a fan of real estate. The problem is that when plotting the performance of REITs against the S&P 500, the REIT funds seem to behave similar to stocks.

For those who hold REITs, where do they fit into your asset allocation? Do you think REITs provide diversification from stocks?

 

[CyclingInvestor]

I have invested in property REITs (not mortgage) since around 1997. While REITs have performed similarly to the SP500 recently, sometimes (1998-2003) they diverge quite a bit.

 

[target2019]

If it is a REIT mutual fund you speak of, I have Vanguard REIT Index Fund Admiral Shares (4.33% of our total portfolio) VGSLX. I started buying into this for my Roth, and did so at the great recession bottom.

This link has a pdf which answers many questions about REITs.

In my allocation plan, I have assigned REIT fund to small/mid stock fund. You are correct that the NAV swings at the same time as the overall market. But the correlation is not 100% as the chart posted shows.

I have a REIT in my 401k too. I just never went with it as I had this covered in my Roth.

 

[boilerman]

Thanks for the responses. I had been looking at the last 5 to 10 years when it seems to track more closely to stocks. Good to see that it is not always the case. Because real estate is usually more stable than stocks, I figured a REIT would behave similarly.

I will probably consider the REIT to be more of a stock-like class in my asset allocation.

 

[Meadbh]

Publicly traded REITs tend to show volatitility and are liquid, hence they resemble equities. I do have a small holding in REITs within my portfolio, and I classify them as equities. The income is taxed as income, not dividends, so I limit my taxable exposure. Recent expert opinion suggests that publicly traded Canadian REITs are priced on the high side right now, but YMMV.

Private REITs are a different animal. They are less liquid. They were promising regular annual incomes of 10% two years ago but their share values have risen and incomes are now 7-8%. My balanced portfolio has been achieving those returns so I do not think the extra risk involved in private REITs is justified at present. They did look very good a few years ago and I gave them (and MICs) serious consideration, but did not bite.

 

[Mill]

REITs fall under the stocks asset class. They help diversify a portfolio, but if youre going to utilize REITs most recommendations Ive seen say that they should be kept to a smallish amount of your portfolio. I personally own REITs only because I would like some real estate exposure, and I dont ever plan to own a home or rental of my own.

 

[FUEGO]

I keep 11% of my portfolio in REITs. 6% in US based REITs (Vanguard's REIT index fund - institutional shares in a 401k), and 5% International REITs/Real Estate (VNQI or WPS exchange traded funds).

International REITs have done pretty well this last year. I consider it one of those (relatively) lesser correlated asset classes so a good diversifier.

 

[Animorph]

I use 5% VNQ (US) and 5% RWX (foreign) for REITs. I think VNQ was my most volatile holding through 2007-2013. I have VNQ shares at $22.37 from the dip that are now at $71.11 today. If you can tolerate that kind of movement in both directions, they won't behave exactly the same as other asset classes.

 

[Midpack]

If it is a REIT mutual fund you speak of, I have Vanguard REIT Index Fund Admiral Shares (4.33% of our total portfolio) VGSLX. I started buying into this for my Roth, and did so at the great recession bottom.

+1. I have about 5% VGLSX in my AA too. I include it for historically higher returns and slightly less correlation with most equity funds (though correlations have seemingly converged in the past few years...).

 

[bots2019]

My target allocation has 2.5% US REITS and 2% foreign REITS.

I had originally set these targets higher, but read something here that their are 'hidden' REIT allocations within standard indexes.

 

[veremchuka]

Many creditable people say they are a good diversifier even though they are an equity position. I have 2.5% of total portfolio in Vanguard Reit index in my Roth though it may be 2% with the nav drop over the past 2 weeks. The Vanguard Total Stock Market Index is about 2.3% REITS so keep that in mind if it applies. Max I'd have in Reits is about 8%.

 

[SVHoper]

Funnily enough, I found this wonderful forum while I was searching for REIT information.

Here is some REIT wisdom written over a decade ago ! DATAQUEST

I am sure you can many more hits about correlation coefficients. I think it comes down to personal taste - general advice I have read is 0% - 10% portfolio.

During 2008, owning REIT did not reduce our losses - it increased them and I never expect them to act like e.g. single family home investment. However, there is certainly divergence from say .inx and VB and I have learned to embrace their volatility. Personally we have had an increasingly larger investment VNQ since ~2002 but more seriously since 2006. Since we just kept adding through the crisis - the volatility worked for our personal return.

During the very recent dip, I was happy to buy a small chunk VNQI at last years prices... and if they dip more, I will buy another chunk. But due to their recent run (and asset allocation adjustments) I have not been buying VNQ for a couple of years.

I expect VNQ to perform less well in the next 5 years than the last (15% pa), but will keep the asset allocation.

 

[jon-nyc]

+1. I have about 5% VGLSX in my AA too. I include it for historically higher returns and slightly less correlation with most equity funds (though correlations have seemingly converged in the past few years...).

+1, also 5%.

 

[chasesfish]

REITs are publically traded and subject to people's fear, causing them to fall when stocks fall. Some REITs also invest in property types subject to the general economy (office, hospitality). My favorite REIT for a long time was EPR, which specialized in movie theaters. They made a premium return for taking an asset class banks really don't like. The movie business also does better when the economy stinks.

Unfortunately that company is a bit big for its britches now, doing things like water parks and charter schools. I'm not as big of a fan as I once was,


Vanguards REIT index is a good choice

 

[LakeTravis]

After a good two year run with >15% dividends, I'm currently losing my butt SP-wise with mREIT stock AGNC.

I'm trying to stay the course, ignore the static, and hold on for better times. Scary ride right now, though.

 

[target2019]

Here is a link to gummy spreadsheet, "Asset Correlation." I tried several functions and it seems to work. Just need to find 4 funds/stocks for which there is 8 years of data at Yahoo.

 

[haha]

REITs fall under the stocks asset class. They help diversify a portfolio, but if youre going to utilize REITs most recommendations Ive seen say that they should be kept to a smallish amount of your portfolio.

I am sure you are correct about what the average investment pundits might recommend about REITs.

But why on earth should this be true? If you are not going to do analysis, or valuation measuring, sure, better just taste a bite of this and a bite of that, since even most poison is less harmful in small doses.

But most of these industries are cyclical at the industry level, and even more so at the level of stock market popularity.

For example, around the end of the 20th century and beginning of the 21st, the only way to make mistakes with REITs was to buy crappy ones with questionably honest managers, or to go too lightly. Back then, I held only oil and gas, tobacco, REITs, and gold equities. I foolishly avoided GLD, because I thought it had a vulnerable organization.

I would say that now, REIT bargains are likely sparse, as they are in most sectors.

Ha