opinions on move into VGSIX/VNQ ?

[JohnEyles]

I've been contemplating establishing a position in REITs
for awhile now, in line with my allocation targets. Looks
like VGSIX (aka. VNQ) is really down now, way down from
its recent 87+ peak.

Opinions on whether now is a good time ? I don't know anywhere
near enough about this stuff to know how the subprime crisis
plays into this.

Thanks.

 

[brewer12345]

Subprime shouldn't matter, although REITs thrive on cheap money so if the credit markets shut down it would not be good for them.

 

[cute fuzzy bunny]

Its off a little, but I wouldnt even come close to putting it in 'bargain' or 'reasonably cheap' status.

I'd wait a little bit more...

 

[Brat]

I have been considering buying either VNQ or O.

At what point would VNQ be a buy?

 

[twaddle]

I have been considering buying either VNQ or O.

At what point would VNQ be a buy?

Like any investment, you probably want to look at discounted cash flow.

I simply look at yield. Historically, REIT yields have paid a premium above treasury yields.

VNQ yield is about 3.5%. Treasuries are around 5%. Just a few years ago, REITs yielded about 200bp more than treasuries.

Even during the last REIT bull market (1993ish), REITs yielded about 200bp more than treasuries.

In theory, the spread shouldn't really be that high since REITs should be inflation protected in practice, but they still need a yield risk premium far in excess of TIPS to be attractive.

 

[cute fuzzy bunny]

I would think that nobody would be as surprised as I am that I agree with Wab/Twaddle.

I'd like to see REIT yields top 5.7-5.9% before I'd consider wading in.

Thats a LONG way from where they are today.

 

[wildcat]

What twaddle said.

 

[JohnEyles]

I'd like to see REIT yields top 5.7-5.9% before I'd consider wading in.

Thats a LONG way from where they are today.

Kinda thinking out loud here, but how are yields reported ?

If you go to finance.yahoo.com and enter VNQ, it shows a
yield of 3.55%, but the fine print says that was as of June 30th.

If I look at my portfolio I have set up at finance.yahoo.com, and
click on "Detailed" view, I see a yield of 5.23% based on the most
recent dividend of $3.53/share on June 25th, and computing
backwards ($3.53/0.0523) a price of $67.495, which looks about
like yesterday's close. So the yield RIGHT NOW is a bit higher.

If you accept CFB's trigger point of 5.8% yield, this says to think
about buying when price drops below $61 or so.

 

[cute fuzzy bunny]

Unadjusted yield is 4.04%, adjusted yield is 3.5% - both as of 6/30. Get it from the vanguard site by looking up the fund and clicking 'note' next to the yield field.

By the way, that 'trigger point' is where I think owning it stops sucking, not necessarily a great buy.

Whether we'll visit those levels is another question. A lot of money has poured into reits since it became fashionable for everyone to have a slice in their asset allocation strategy.

 

[JohnEyles]

Unadjusted yield is 4.04%, adjusted yield is 3.5% - both as of 6/30. Get it from the vanguard site by looking up the fund and clicking 'note' next to the yield field.

Ok, thanks for clarifying.

But I think my point remains, that one must manually calculate
yield, based on the current price, to see if the current
price represents a good buy based on some yield criterion.

 

[cute fuzzy bunny]

Yeppers.