Time to buy REITS?

[sgeeeee]

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)

 

[John Galt]

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]

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.

 

[cute fuzzy bunny]

I kinda like to be called "Dirty Market Timer".

Even though I usually only do it once, while getting in.

I did do it once, pulling everything out in January of 2000. But that just seemed to make good sense and it made all the difference in the world...

I love the "buy and hold low cost index" mantra, but sometimes you just gotta look at stuff and say "wow, thats cheap" or "holy cow, thats expensive".

A good philosophy shouldnt include making clearly boneheaded decisions. Or non-decisions.

 

[charlie]

If you want a good analysis of what's happening
with REITs, check out the following:

http://www.ireizine.com/reit/essentialreit.html

Cheers,

Charlie (aka Chuck-Lyn)

 

[cute fuzzy bunny]

Good article, I think they captured the gist of it. I think its a short term downdraft that fed itself. If things drop a little more I'll buy some in my taxable account for the dividend boost.

Other notes: The dog looks very smart. Someone needs to tell the author that the Ayatollah Khomeini is dead.

 

[charlie]

I decided to take another bite out of the REIT
apple today and will be 1/3 invested tomorrow
at the closing price. I think Mr Greenspan will
scare the poop out of the momentum players
when he testifies tomorrow and the price will take another hit

There will probably be at least one more leg
down before it settles out. REITS are now down
15% off the 4/1 high. When they are down 20-25%
I will take another bite. Otherwise, I will continue
value averaging until I get fully invested.

Like TH, I too am sometimes a dirty market timer.

Mavs Rule! ( or "drool"? ,,, we will find out soon)

Charlie (aka Chuck-Lyn, ever hopeful)