Author Topic: Do you invest in a real estate fund? If so, what percentage?  (Read 7790 times)

Tim1965

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Do you invest in a real estate fund? If so, what percentage?
« on: January 08, 2015, 04:28:20 AM »
One option in my wife's 401K is the Vanguard REIT Index Fund: VGSLX.

Low expense ratio: 0.1.

And yet I'm hesitant to pull the trigger on this because whenever people talk about asset allocation they tend to divvy it up among Large cap, small cap, international, and bonds.

Is a real estate fund too risky because it's too specific? If you do invest in such a fund, what percentage do you throw at it? Five percent, 10 percent?


Pooplips

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #1 on: January 08, 2015, 06:04:37 AM »
I would treat it as if it was a rental property. As in, if you were going to buy a rental property what % of your portfolio would you be willing to invest with.

GGNoob

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #2 on: January 08, 2015, 06:40:32 AM »
I like this article: http://www.rickferri.com/blog/investments/reits-and-your-portfolio/

In this article (http://www.rickferri.com/blog/investments/three-simple-index-fund-portfolios/), Rick mentions that if you want to invest in REITs, then 10% of your stock allocation is a good allocation to have. Since I'm 100% stocks for retirement, 10% of my portfolio is invested in VNQ (Vanguard's REIT ETF).
« Last Edit: January 08, 2015, 06:45:23 AM by Logan T »

Roots&Wings

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #3 on: January 08, 2015, 07:02:19 AM »
Have ~ 5% of my stashe in the Vanguard REIT Index (VGSLX).

wtjbatman

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #4 on: January 08, 2015, 07:18:52 AM »
10% in an REIT index fund in my 401k. Nothing wrong with investing in a real estate fund, just make sure you think of it as a normal part of your portfolio. As in, don't try timing the market or jump in and out of the fund.

GoldenStache

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #5 on: January 08, 2015, 07:23:52 AM »
I was going to jump in the Vanguard REIT but found out they send out the tax paperwork a month late if it is in a taxable account (no tax paperwork if it is in a non-taxable account).

I like to file my taxes as soon as possible so decided against it for now in my taxable account.     

Tim1965

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #6 on: January 08, 2015, 08:00:12 AM »
All right, thanks for the advice, all. And don't worry, I'm not timing anything. If we buy it we'll have it for 10 years, probably.


Dr. A

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #7 on: January 08, 2015, 08:13:47 AM »
Yes. I have been sold on a REIT index as an excellent choice for diversification. I do 15% myself in VGSLX (some may think that's too much). I have been swayed mostly by David Swensen's* arguments. His sees REITs as a nice mid-way point between stocks and bonds, because you get a capital appreciation (increase in property value, and to a lesser extent company value) with a significant income component (dividends, which are generally a pass-through of rents collected after deducting property and corporate expenses). They also tend to be somewhat un-correlated with the market. The exception to that is when the world is coming to an end because of a plummeting real estate market, a la 2009.

The VGSLX is mostly made up of companies that actually own and operate commercial properties, and rent them out to businesses. This is an important distinction, because there are a lot of REITs out there that spend their days buying and selling residential mortgages... they can make crap-loads of money in good times, but I don't want any part of that.

Also, this:
10% in an REIT index fund in my 401k. Nothing wrong with investing in a real estate fund, just make sure you think of it as a normal part of your portfolio. As in, don't try timing the market or jump in and out of the fund.


*Manages Yale's endowment

Kingomri

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #8 on: January 08, 2015, 09:44:00 AM »
10% of my domestic equity allocation is in VNQ (the ETF version of VGSLX).

Since I'm 70/30 stock/bond and 70/30 US/International, that comes out to just around 5% of my total portfolio. I figure it's got a pretty decent, if small, diversification benefit.

RapmasterD

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #9 on: January 08, 2015, 01:33:03 PM »
This is my pure conjectured opinion only.

OPINION: Things are more than a bit bubbly in REIT land right now.

REMEDY: Right about the time when people are pooing their pants, vomiting on the sidewalks and jumping from buildings during the next protracted pullback -- when yields on the Vanguard REIT ETF are >= 7% -- that will be when I allocate a small percentage of my portfolio to REITs. My buying signal will be the yield rather than the pooing, vomiting and jumping.

BarkyardBQ

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #10 on: January 08, 2015, 01:50:26 PM »
VNQ: 5% of total portfolio within Traditional IRAs.
« Last Edit: January 08, 2015, 01:53:09 PM by zdravé »

TheSaver

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #11 on: January 08, 2015, 02:08:33 PM »
I'm re configuring my investments and have been hesitant to jump into REITs. VGSLX is the one I'm contemplating as well. I do think it's a good play for diversification's sake and I like the dividends. Read this blog post by JL Collins. It might sway you one way or another.

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

Holyoak

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #12 on: January 08, 2015, 02:49:11 PM »
I'm at 5% of the total portfolio, all VGSLX.

bigchrisb

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #13 on: January 08, 2015, 03:00:00 PM »
I've got about 10% in REITS explicitly.  At least in the Australian market, they are somewhat uncorrelated with the broad stock index (2014 REITS averaged about 30% total return, while ASX200 averages about 5% - lots of materials, energy and mining services in the broad index!).   The other advantage of REITS here is that a large part of their distributions are concessional taxed - either 50% discount on capital gains distributed, or tax deferred income (treated as a capital gain when the share is sold.  Effectively tax free income if your holding period is forever!)

Not sure about the US indices, but the Australian broad market indices include property.  For example, VAS, the vanguard ASX300 ETF includes 7% REITS.


REfinAnon

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #14 on: January 08, 2015, 03:10:14 PM »
This is my pure conjectured opinion only.

OPINION: Things are more than a bit bubbly in REIT land right now.

REMEDY: Right about the time when people are pooing their pants, vomiting on the sidewalks and jumping from buildings during the next protracted pullback -- when yields on the Vanguard REIT ETF are >= 7% -- that will be when I allocate a small percentage of my portfolio to REITs. My buying signal will be the yield rather than the pooing, vomiting and jumping.

I agree with this opinion. I would add that REITS have a tendency to overrcorrect, possibly even moreso than stocks and if you wait around and are patient there tend to be some pretty tremendous buying opportunities. I would hold off. As soon as the first significant hike in the interest rate comes around, pay more attention.

pdxvandal

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #15 on: January 08, 2015, 07:21:44 PM »
About 10% of my investment portfolio is VGSLX. All held in an T-IRA.

thedayisbrave

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #16 on: January 08, 2015, 08:35:21 PM »
I've got 10% of stocks allocated to VGSLX, which equates to about 7% of my total portfolio.  Plan on hanging onto 'em for the long haul.  I'd argue that yes while REITs are largely based on commercial property and act similar to rental properties, I do not consider them to be the same for allocation purposes.  I have both rental properties and REITs.  You don't HAVE to have a REIT tilt (which is essentially what you are doing if you hold extra REITs - larger than market exposure) so it's purely a style decision.  I respect a lot of Ferri's work and personally I'm not entirely sold on a cap weight allocation so I've got a SCV and REIT tilt to my investment portfolio.

Make sure if you do invest in REITs they are in a tax-advantaged account.  This is because to avoid being taxed as a partnership, REITs must distribute at least 90% of income/cap gains to shareholders, and this is taxed as ordinary income for you.  They are tax inefficient so it is best to hold in tax-advantaged accounts.  I was at a conference late last year at which Rick Ferri said the perfet place was a Roth IRA since REITs combine growth and income.  That's where mine are.

REITs have been on a rip lately.  It wouldn't stop me from investing in them - not a market timer - but just something to be aware of to make sure you're framing your decision to invest vs. not invest correctly (ie not investing solely based on outperformance).

WYOGO

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #17 on: January 08, 2015, 08:59:14 PM »
I personally no longer hold these outside of VTSAX because the expenses are higher, the holdings are mostly contained already within VTSAX and the above average return of VGSLX for example is accompanied by equally above average risk.

rocketpj

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Re: Do you invest in a real estate fund? If so, what percentage?
« Reply #18 on: January 09, 2015, 10:44:05 AM »
I hold about 5% of my ETF portfolio* in the (ZRE) BMO Equal Weight REIT here in Canada.  I bought it based on the recommendation of the Canadian Couch Potato portfolio, and I've been fairly happy with it (about a 4.9% return thus far). 

I see all index ETFs as permanent purchases.  Unless something is very obviously dramatic and looming (i.e. a 1929 stock market crash) I have no intention of selling any of them, ever. 

So every single share of ZRE I have bought is a permanent possession.  It cranks out a dividend every month, which I apply to building the snowball (I tend to buy whichever part of my portfolio is falling behind in my percentages). 

If it goes up or down is less important to me.  Presumably at some point it will go down, but since I am never selling it that won't bother me, and it just means that I will be able to buy a few more next time I am balancing. 

The whole point of indexing is not to have to worry too much.  If you are buying index funds then buy and hold and don't stress about the graphs.  Over the long term (which is the point after all) it will be successful.  Just get the low cost, high quality index funds like Vanguard and some few others.

NOTE:  I'm not sure how it is in the US, but here in Canada you definitely want Real Estate income to be inside a tax sheltered part of your portfolio (RRSP or TFSA).

* I do have some individual equities in a higher risk portion of my portfolio.  So far I do fairly well, but of course time will tell if that is foolish.