REIT allocation

[tdv2]

I am holding a tiny position in VNQ, it represents about 0.5% of my portfolio. I bought it more than 10 years ago and it certainly has under performed the broad market. For some reason, I know....the psychological biases I have and the need to tinker some, I want to add to this position using fixed income assets. I always try to resist making changes but I am thinking it may have some benefit as an inflation hedge.

Just want to put it out there for feedback. To qualify my current situation, I am a die hard indexer holding more than 90% of my assets in Total US stock market, Total Bond Market, and Total international market indexes. I have a small tilt to small cap holding about 7% in Russell 2000 index fund.

One thing I noticed was that VNQ is holding stocks like American Tower and Prologis so I already have them by being invested in a broad market index. So adding to VNQ would only represent a tilt further to the real estate asset class. I always bounce up against my firm belief that it's a fools errand to try and pick sectors or individual stocks successfully when I have these thoughts.

 

[JoeWras]

I dabbled in VNQ a bit, but last year I bailed and simplified. REITs just don't do it for me anymore. Look around, we're all seeing skyrocketing home sales, but this doesn't translate to the REIT sector.

No more sectors for me. YMMV, but yeah, it was a fool's errand for me.

 

[sengsational]

If you're rebalancing, then having a small position in something that doesn't correlate, in theory, gets you a higher risk adjusted return. The large cap US has been unbeatable, so it's tempting to look back and say "why wasn't I all-in?" but that's probably not the best way to look at it...there will always be a "coulda"

 

[Onward]

As of a few yrs ago, publicly traded REITs had a superior 30-yr performance to the S&P 500.

I haven't checked since then, but I consider VNQ an important part of my holdings.

 

[Animorph]

For 0.5% of the portfolio I don't think it's worth the hassle. I held VNQ as 5% of my portfolio. I bought a bunch of shares in late 2008 in the $20-$30 range. That worked out well, though yes it hasn't been very exciting after that.

I just sold the last of our VNQ in January. It was a pain in the taxable account with the weird distributions and the delays it caused in receiving our 1099 tax forms every year.

If you like to rebalance it may still be a good diversifier if you have a decent amount of it.

 

[RonBoyd]

I am holding a tiny position in VNQ, it represents about 0.5% of my portfolio. I bought it more than 10 years ago

I am interested in this thread because I am in the same position -- VNQ is 5.3% of our portfolio and was purchased well over ten years ago. I, too, struggle with what to do with it... every time (every year or so) I decide to dump it but always chicken out. Worse, still I have a smaller position in RWX and go through the same exercise.

Let's see where this thread goes maybe I will gain some insight into my mental instability -- these two are the only tickers I have issue with.

 

[tdv2]

For 0.5% of the portfolio I don't think it's worth the hassle. I held VNQ as 5% of my portfolio. I bought a bunch of shares in late 2008 in the $20-$30 range. That worked out well, though yes it hasn't been very exciting after that.

I just sold the last of our VNQ in January. It was a pain in the taxable account with the weird distributions and the delays it caused in receiving our 1099 tax forms every year.

If you like to rebalance it may still be a good diversifier if you have a decent amount of it.

It is an insignificant percentage of my portfolio. I was thinking about adding a couple of percentage points to solve that problem.....if I do, I will add to pre-tax bucket. I hear you on receiving the tax forms....I usually get them in March....same is going to happen this year.

 

[tulak]

I simplified my AA last year and got rid of all my sector/style tilts, including REITs. I found that the tilts didn’t add much benefit over a simpler allocation.

 

[Sunset]

It is an insignificant percentage of my portfolio. I was thinking about adding a couple of percentage points to solve that problem.....if I do, I will add to pre-tax bucket. I hear you on receiving the tax forms....I usually get them in March....same is going to happen this year.

If it's insignificant, and you don't derive joy from actively trading it, sell it and put the money into what you already own. Have less clutter.

 

[target2019]

In my Roth-IRA I hold VGSLX Vanguard REIT Index Fund Admiral Shares. AA is sitting at 4.5%, and my target is 5.0%.

In taxable I use Realty Income (O) and HTA.

I can hang in there with these investments. They will come back and outperform someday.

 

[yakers]

In my Roth-IRA I hold VGSLX Vanguard REIT Index Fund Admiral Shares. AA is sitting at 4.5%, and my target is 5.0%.

In taxable I use Realty Income (O) and HTA.

I can hang in there with these investments. They will come back and outperform someday.

Would those not be better in tax favored account?

 

[pb4uski]

IMO, anything less than 5% probably isn't worth the bother.

 

[WhenIsItTime]

I hold some VGSLX. I subscribe to the 3 fund portfolio, but follow it in concept. I like to hold small % in other investments including individual stocks, which help keeps me interested in the market. Having all my assets in 3 funds would be boring and submissive. Why DIY if you are not going to have some leeway for independent thought?

 

[Onward]

Having all my assets in 3 funds would be boring and submissive. Why DIY if you are not going to have some leeway for independent thought?

Because your "independent thought" is very likely to lose you money.

So is mine.

Good investing is b-o-r-i-n-g.

 

[RonBoyd]

Good investing is b-o-r-i-n-g.

Yeah, how bored Warren Buffet must be.

 

[WhenIsItTime]

Yeah, how bored Warren Buffet must be.

Not sure what you mean about Warren. But, he is using public company funds to invest & trade individual stocks.

Here is the first paragraph of his recent letter...

Berkshire earned $42.5 billion in 2020 according to generally accepted accounting principles (commonly called “GAAP”). The four components of that figure are $21.9 billion of operating earnings, $4.9 billion of realized
capital gains, a $26.7 billion gain from an increase in the amount of net unrealized capital gains that exist in the stocks we hold and, finally, an $11 billion loss from a write-down in the value of a few subsidiary and affiliate businesses
that we own.

It's the majority of Berkshire 2020 earnings! This is one reason (and that I wasn't smart enough 30 years ago) I don't hold Berkshire. Certainly his performance over time is legendary, but the past 10 years aren't (see first page of his letter).

Since Warren partakes in trading individual stocks, do you consider him an example of what not to do?

 

[RonBoyd]

Not sure what you mean about Warren.

Bored by investing. I guess I should have said must have been.

 

[cooch96]

I traded my REIT fund for Vanguard's Total World Fund in January. I love the concept of REITs, but they seem so overvalued right now.

 

[Dash man]

I dumped my REITs at the beginning of the pandemic, fortunately before the big market drop. I did put a little back into a healthcare REIT, but regretted that later and sold at a loss. I won’t be touching them for a while.

 

[Golden sunsets]

We own VNQ in both our tax deferred and taxable accounts. We received our 1099 gor our taxable brokerage on 2/24. Only a miniscule percentage of the annual dividends were Qualified or Ordinary Income. Another percentage was classified as 199a which translates to a Qualified Business Income credit equal to 20% of the line 199a. So essentially nothing taxable and in fact a small credit to taxable income.

My conclusion was that it should be held in a taxable account rather than deferred. Am I missing something?

 

[Lawrencewendall]

Just did the math and I have 16.17% of my portfolio in REITs in 11 funds. That includes Agency Backed REIT, Mortgage REITs, Prison REIT, Data Center REIT, Triple Net Lease REIT and Telecommunication REIT. Average forward returns is 8.25%. There are over 100 different sectors of REITs. REIT is just a business model. I like that they HAVE to pay ME 90% of their profits. I'll be long with them.

 

[USGrant1962]

We own VNQ in both our tax deferred and taxable accounts. We received our 1099 gor our taxable brokerage on 2/24. Only a miniscule percentage of the annual dividends were Qualified or Ordinary Income. Another percentage was classified as 199a which translates to a Qualified Business Income credit equal to 20% of the line 199a. So essentially nothing taxable and in fact a small credit to taxable income.

My conclusion was that it should be held in a taxable account rather than deferred. Am I missing something?

I'm interested in analysis of this too. I get QBI deduction for my consulting income and it makes self-employment tax somewhat palatable. My REIT exposure is currently in tIRA, and I wonder if it might fit in my taxable accounts.

I have 10% of my equities in REIT (~6% of my portfolio) following Rick Ferri's Core 4 model. His argument for REITs is that the national commercial real estate market is under-represented in the stock market because so much commercial real estate is privately held. Further, most people consider real estate a separate asset class, not a "tilt" or "sector" in the stock market. That view is buttressed by the different tax treatment of REITs versus stock mutual funds.

I have no interest in putting my capital and labor into the business of being a landlord, so to me REITs are a passive way to get a more proportional exposure to the commercial real estate market.

 

[Dash man]

I'm interested in analysis of this too. I get QBI deduction for my consulting income and it makes self-employment tax somewhat palatable. My REIT exposure is currently in tIRA, and I wonder if it might fit in my taxable accounts.



I have 10% of my equities in REIT (~6% of my portfolio) following Rick Ferri's Core 4 model. His argument for REITs is that the national commercial real estate market is under-represented in the stock market because so much commercial real estate is privately held. Further, most people consider real estate a separate asset class, not a "tilt" or "sector" in the stock market. That view is buttressed by the different tax treatment of REITs versus stock mutual funds.



I have no interest in putting my capital and labor into the business of being a landlord, so to me REITs are a passive way to get a more proportional exposure the the commercial real estate market.

REIT’s income is taxed at ordinary income tax rates, so you need to consider that in your decisions.

 

[USGrant1962]

REIT’s income is taxed at ordinary income tax rates, so you need to consider that in your decisions.

So are all proceeds from tIRA accounts. So it is a question of REITs in tIRA without QBI vs REITs in taxable with QBI.

I haven't done all the math so would be interested in hearing from those who have.

 

[Dash man]

So are all proceeds from tIRA accounts. So it is a question of REITs in tIRA without QBI vs REITs in taxable with QBI.

I haven't done all the math so would be interested in hearing from those who have.

What the difference is, is that you have to pay the tax for the year the dividend is paid from a REIT in a taxable account. In an tIRA you can choose when to distribute from the account unless subject to RMDs.