Asset Allocation for Renters

[Houston]

Hello,

Forgive me if this topic has been addressed elsewhere, I can't seem to find any posts on it.

My wife and I are in our early 30s, and we are planning to rent for the next 10 years while we continue to save a large percent of our income. Given that we own neither a house nor a rental property, we have zero dollars in real estate. Our plan is to use REIT ETFs to fill in the gap (presumably ZRE as we are Canadian Couch Potato investors).

my question is this: what percent of our asset allocation should we putting towards REITs?

Thanks in advance for your comments!

[2Birds1Stone]

REITS should be treated as stock, I don't believe you need REIT's simply because you rent.

[Houston]

Hey 2Birds,

Thanks for your comment. It led me to your fantastic journal which I am now following!

[Saving in Austin]

This column on REITs is part of Jim Collins' stock series:

http://jlcollinsnh.com/2014/05/27/stocks-part-xxii-stepping-away-from-reits/

It is most definitely worth a read.

http://jlcollinsnh.com/stock-series/

[forummm]

Nationally, housing appreciates over the long run with the rate of inflation. It's not a great investment for its appreciation--it's an investment as a business. REITs are a business using that real estate to generate income (say by renting properties to people like you). It's just another kind of stock. Just buy broad-market index funds and you'll be fine. REITs are also tax inefficient in taxable accounts.

[ioseftavi]

I agree with 2birds1stone.  It's simply not critical enough that you really need to worry about it.  You'll have exposure to real estate (indirectly) through your standard equity portfolio: things like homebuilders, home furnishing stores, carpet and wallpaper manufacturers, etc. 

I wouldn't sweat it.  My wife and I have basically all of our networth in long-term investments - with no REITs in our asset allocation - and we're renters just like you.  If you really, really decided you wanted / needed REITs, the typical suggestion is something like 5-10% of your portfolio. 

[Houston]

Thanks very much for the replies above. I have reviewed each of the suggested resources. They are fantastic, and they turned me on to a handful of other ER blogs that I am really enjoying!

[rafiki]

I'm going to diverge from the other opinions you have seen here. I don't think it is a bad idea to get a little extra diversification and adding a REIT fund like Vanguard's REIT Index Fund to your portfolio is easy enough to do.

Generally speaking it's something like commodities or emerging markets - icing on the cake, a further hedge from "volatility", and not something you want to dedicate a huge portion of your portfolio to. Personally I am shooting for 5%. I would suggest researching further before either dismissing or investing in an REIT.