Time to buy REITS?

[sgeeeee]

Quote:

Historically, that has been true for US stocks, but is there any evidence that's also true for REITs?

I think so. The underlying reason why your odds are better for a lump sum movement from cast to stocks is that stocks outperform cash more times than not. I've seen similar comparisons between REITs and cash. Although the odds may not be as good as they are with stocks, they still are with the investor that moves the money as a lump sum from cash to REITs.

Of course you can play the odds and still lose.

[charlie]

Somewhere on gummy's website he shows that
plunging into a risky asset class "wins" 60-70%
over DCA, as best I recall. However, I got the
impression from an AAII journal that studied
this back in the late 80's, that the extra return
is not large on average. To me, at 70, it is far
better to give up the marginal extra return than
run the risk of jumping in at the market peak. We
saw the wisdom of this in the recent market crash
in 2000, 2001 and 2002. That is why I am value
averaging into REITs (and TIPS as well) over the
next 3 years. If either takes a dive sooner I will
be more aggressive as I posted earlier in this
thread. BTW, Bernstein suggests 2-3 years and
Bogle recommends "several quarters" as I recall.
IMHO, their advice trumps anything else I have
heard so far, but I value your opinions as well.

Cheers,

Charlie

[sgeeeee]

DCA?
http://www.moneychimp.com/features/dollar_cost.htm
"Does Dollar Cost Averaging Work?
Dollar cost averaging means investing a fixed amount at fixed intervals of time. That's a sensible approach, for example, if it means committing yourself to investing a fixed amount of your salary every month toward your retirement.
However, some people also think you should dollar cost average a lump sum. For example, if you had $12,000 that you wanted to invest in a stock index fund, they would tell you to invest $1000 per month over a year, rather than investing the whole amount immediately. The rationale is that market volatility should then work in your favor, because you will automatically be purchasing more shares when the price is low, and fewer shares when the price is high.
As appealing as that theory is, its advantage looks like a myth, as this calculator shows. It uses market data to let you compare dollar cost averaging with lump sum investing for the start date you specify.
. . . (A calculator is included with this link)
Each strategy wins at least some of the time, but after a few runs you'll see that DCA is the statistical "dog", losing about two times out of three.
Of course, dollar cost averaging will win if your start date falls right before a dramatic crash (like October 1987) or at the start of an overall 12 month slump (like most of 2000). But unless you can predict these downturns ahead of time, you have no scientific reason to believe that dollar cost averaging will give you an advantage.
So why do so many people persist in believing that this old dog really knows how to hunt? Maybe because it has a psychological appeal: if the market dips, people will be happy because DCA will be saving them money; and if the market goes up, people will be happy regardless. "

https://customers.directadvice.com/a...fullarticle/ar mstrong_LumpSumJumpInNow.htm
" Lump Sum? Jump In Now.
By Frank C. Armstrong, CFP
Last in a series
Congratulations! You won the lottery, inherited some money from a distant relative, sold your company or rolled your pension into your IRA. You have designed an asset allocation plan that meets your needs and have selected the funds you want to invest in.
But just how should you invest that large sum? Should you invest it all in one fell swoop? Or should dollar cost averaging be part of your strategy - investing your money in small bits and pieces over time?
In this case, don’t use dollar cost averaging. While it works well in many circumstances, as we’ve pointed out during the past couple weeks, it actually works against you when you have a large lump sum to invest. Here’s why.
Looking ahead
The market’s upward bias is so strong that it’s unlikely that market prices will be more favorable at some future point than they are today. No matter how you measure it, the market has more good periods than bad ones, and the good periods are better than the bad periods are bad."

This article goes on to show a table of S&P500 performance since 1926 and discusses the implications of using DCA.

"Based on past history, and depending on the period we selected, we would have been right between 62% and 90% of the time had we invested the entire sum immediately rather than waiting until the end of the period to invest part or all of it.
Stalling for time
It may feel good (or more prudent) to delay making the commitment with all or part of your lump sum in hopes that tomorrow’s prices will be more attractive than today’s. Especially in unsettled times, the temptation to "wait and see what happens" or other excuses to delay making a commitment to the market can be overwhelming.
But these delaying tactics are nothing more than thinly disguised attempts to time the market. And delaying investing like that actually decreases your chances of success. Dollar cost averaging with a lump sum is an attempt to "split the baby," and that has historically been a losing strategy. . ."

[sgeeeee]

and some more DCA

The article below is less tactful in it's criticism of DCA when lump sums are available.
http://www.efmoody.com/planning/dollarcost.html
". . .If you have money to invest as a lump sum, DCA produces a LOWER return than investing the money all at once. Two researchers (Williams and Bacon) have discounted dollar cost averaging by statistically showing that putting all the funds in at one time outproduces dollar cost averaging by two to one. They invested a theoretical sum in 90 day T-bills and moved into the S&P 500 over a year's period. They compared these results with investing all the funds at once- starting with different periods from 1926 to 1991. . ."
================================================== ================

http://www.stockfirst.com/strategies...r_Cost_Avg.htm
"Dollar Cost Averaging :
Making a Little Go a Long Way
. . . As previously noted, dollar cost averaging is probably best suited to the investor who is starting to build a portfolio and does not have sufficient funds to purchase a meaningful number of shares in several companies. . .
As with any other aspect of investing, there are no guarantees that this will produce cost benefits. Some studies that have been done on simple investment plans have not provided conclusive evidence and there are too many variables to simplify any in-depth analysis. However, there is evidence that for the investor that has the capital to make a significant one time investment in a company, there may be no benefit to dollar cost average the investment. However, for the small investor, the discipline demanded by dollar cost averaging may be the greatest benefit. And as in other aspects of life, discipline is essential for good behavior!"
================================================== ===============
What DCA is really good for is reducing stress of needing to make a decision every paycheck and forcing a discipline to your investing. This article states that very well.
http://www.2globalinvest.com/Toolbox/dollar.htm
"Dollar-Cost Averaging
Investors who do not wish to be stressed by market volatility adopt the dollar-cost averaging method for secured long term investment planning. . .
By adopting this method, one will be less tempted to make decisions based on short-term phenomena. . .
Instead of trying to time the market in response to greed or fear, the two most common emotional influences; you invest in an installment plan knowing that your money will grow over the long term.

[charlie]

SG,

I believe I conceded the point that plunging
"wins" 60-70%. Will you grant me the point
that for some old pharts like myself it is perhaps
better to play it safe? I define playing it safe as
minimizing the risk of jumping in at a market peak.
You may thump me with your approach most of
the time, but I will try to refrain from smirking
the other 30-40%. The last few trading days
have demonstrated that REITS are in dangerous
territory, having tanked 8.9% from the market
peak of $16.98 NAV on 4/1. If I had plunged
my desired allocation of $61k when I first started
this thread, I would be down about $5k right
now.

Thank you, but no thanks!

Charlie

[charlie]

Excuse me for stepping on my own post but
gummy's very find analysis of DCA va Plunging is
located here:

http://home.golden.net/~pjponzo/DCA_stuff.htm

Charlie,

Either you believe what you read in 4 pillars or you don't. It's your choice. I happen to believe it. I happen to believe that nobody can time the market consistently, not even Wabmester!

You only timed the REIT Fund correctly, if you buy now. If it gains 12% next week and you didn't buy, then you didn't time it correctly. Investing in hindsight is always 20/20.

Your initial question implied that someone knew when to buy REITs. My answer is no one knows! So based on that do whatever makes you comfortable.

Hi Chuck-Lyn:

I am in total agreement with you on not wanting to dive headlong into Reits, (Or any other asset class that has reached the nose bleed territory). They took another hit today, and I still believe they are way too high.
You've got the right idea, by just establishing a small position now, and adding to that as the situation dictates.
Reits up to about 15 years ago were not being recommended by many main stream investors. (planners, etc.). Because of the large amount of money being placed in and out of reits, they have really been much more volatile than they used to be.
In any case, i am of your generation, and taking a large hit on a lump sum, is not something that you or I should be doing.
Reits about 6 years ago had -18 and -5 back to back years. (I am with Vanguard Reit index). They have come so far since then, that I believe it is very likely to have a repeat performance real soon.
Keep your powder dry, and good luck.

[cute fuzzy bunny]

There is the part of it that says as long as you're not selling, the price isnt that relevant...if you're just looking for the dividend and some diversity...

Chuck...I reply to myself all the time...in fact, some of the nicest conversations I've had in my life were with myself

[charlie]

Cut,

The great guru Bernstiin himself recommended
value averaging over a 2-3 year time frame.

Get out your copy of "4 Pillars...." and read
what it says on page 285. If you consider
DCA or Value Averaging to be market timing,
then so be it. I just think it is prudent.

I grow weary of this discussion.

Cheers,

Charlie

[sgeeeee]

Quote:

SG, I believe I conceded the point that plunging "wins" *60-70%. * Will you grant me the point that for some old pharts like myself it is perhaps better to play it safe? *. . .

I'm just supplying data, Charlie. You should definately do what you feel comfortable with.

I tend to try to play the mathematical odds when I can calculate them. I know a lot of people who post here have other fears and downside risk aversion that play into their decisions more than I tend to consider them.

I don't know how to evaluate the safety of one approach over the other. Depending on where you are moving the money from, it seems to me that either approach could be risky.

[cute fuzzy bunny]

I went through the same thing last december Charlie.

Had a big lump of cash sitting in a MM account losing ground to inflation.

I "knew" the market and most asset classes were overvalued. I "knew" that DCA'ing and lump summing both carry lots of facts and figures and the right thing to do according to those was dive right in.

But I still think theres something about wrapping some bargain shopping mindset about getting into an asset class...once i'm there i'm in and done.

I did REITS in early january even though they were run up, because I moved money from another fund that was similarly run up. I figured, REITS could and probably will drop a little, but I'm losing gained ground if they do, not losing ground period. They went up another 10% and now are off 8, putting me up 2. If they decline another 10-20%, thats ok, they'll bounce back in a year or two.

Then again, I also bought them in my IRA, and wont be touching that for almost 20 years, so it wasnt really THAT brave of a move.

I'm still holding the bulk of that cash in a high dividend, low volatility fund...and I like it there and can live off the dividends...but if prices fall and/or dividend spreads improve in some asset classes like stocks, GNMA's, or high yield corporates, I would divest some of that holding in those directions.

So it was kind of a half move. Better than a MM considering its paying almost 4% and has appreciated another 2% since 1/4. Probably wont crater this year, or until interest rates make a strong upside move. And if it does, the crater should be smaller than some.

Choice is of course yours. The statistics are sometimes wrong, they dont have a heart, and theres something in we bargain shoppers that makes us uneasy about paying top dollar for anything...

[charlie]

TH, Salaryguru, Cut-Throat, et al,

As you might guess, I love an earnest and thoughtful
discussion. Sometimes I like to play "devil's advocate"
just to stir things up a bit. Your opinions are valuable
to me. TH, as you will see below, your comments
in particular helped me decided to tilt my IRA more
toward value funds.

Philosophically, we are not that far apart on investment issues. The main reason I have been hesitating on REITS and TIPS is because I just don't understand them as well as I do other asset classes.

The same holds true for Emerging Markets and Precious Metals. I know some gurus advocate using these asset classes mainly because volatility and low correlation with US stocks adds a little extra return. But they
are not for me.

I would not describe myself as risk adverse. I mainly took ER in '89 to get my hands on the lump sum retirement package. I was fully invested in individual stocks and bonds and some funds within one month after retirement.

Over the years I have gradually moved to all index
funds. Late last year I converted my wife's IRA, my
IRA and our after tax money to Target Retirement 2025.

My IRA is 2/3 of the total. As I posted earlier this
week, I have started VA at $5K/qtr into REITS and
TIPS in my IRA. Then I decided just a few days ago, "what the hell", and I decided to be a "splitter"
on my IRA only.

As we speak, my IRA is allocated as follows:

15%.....Value Index
15%.....Small Cap Value Index
7.5%... European Index
7.5%... Pacific Index
15%.... REIT Index (getting there)
20%.... TIPS fund (getting there)
20%.... Short Term Corporate

I am value averaging out of the 2025 fund into
REITS and TIPS and juggling Short Term Corporate
to maintain an overall 60/40 mix for the IRA

The value tilt of this portfolio is balanced by the
growth tilt of the Total Stock Market funds in
the other 1/3 of my overall portfolio.

Now, if I can just resist the temptation to ...........

Cheers,

Charlie (aka Chuck-Lyn)

[cute fuzzy bunny]

Well for what its worth, my money is where my mouth is on value stocks. Off the top of my head I think I have about 300k in large cap value and about 125k in small cap value.

Thus, your pleasure and pain will be broadly shared here.

Emerging markets are simple. Countries with stock markets that are in their infantcy. Eastern Europe, some african, south american and some asian countries. The high risk premium on these markets gives very high volatility, with the prospect of very high returns. The risk/return profile is very similar to small cap value stocks only a little more volatile.

Precious metals, as in vanguards soon to reopen fund, tend to puff up when everything else goes to hell in a handbasket.

A 3% or so allocation dip into either of these in my opinion is just a top and bottom finish layer on a portfolio. A very aggressive offensive weapon that can generate an extra 1-2% that can be asset balanced to something doing weakly, and a very stout defensive weapon that can fill in a percent or two during down cycles.

I dont think either is critical or even of major importance. Sort of like upgrading the rims on your ferrari.

I've got just a hair over 4% in emerging markets index, nothing in precious metals but I'll think about it more once the fund reopens. Metals seem to be taking a beating the last few months, after every pundit proclaimed them as a "must have", once again reproving that you should never listen to pundits.

[charlie]

The REIT Index fund dropped another 4.98% today.
It is now 13.4% off the 4/1 peak of $16.98. and
down about 3% YTD from $15.16 on 1/2/04.

It looks to me like the momentum players are
jumping ship. There is no rational reason for
this volatility. If/when the yield gets to 6% I
will I will do a John Gault and "damn the torpedoes,
full steam ahead!"


Cheers,

Charlie (aka Chuck-Lyn)

Hey Charlie! Actually it was a relative of mine who
originally
said "Damn the Torpedoes, full speed ahead!"
Admiral David G. Farragutt; Battle of Mobile Bay.
That's your history lesson for today.

John Galt

[Bob_Smith]

Quote:

If/when the yield gets to 6% I will I will do a John Gault and "damn the torpedoes, full steam ahead!"

Charlie, where are you getting the current yield?

[charlie]

Bob,

You can estimate the current yield from the
last annual report or prospectus which are
available on-line at WWW.VANGUARD.COM
or, click on the "other Information" tab then
select "distributions".

Cheers,

Charlie (aka Chuck-Lyn)

[cute fuzzy bunny]

I'm waiting for it to go below 13. Its been as low as 10-12 and that seems to be its floor.

Yeah, I know...Dirty Market Timer.

[unclemick]

Below 13! - 'Dirty Market Timer' OR an acceptable value purchase based on analysis. At times the difference is a knit in the eye of the beholder.