Author Topic: REIT or not?  (Read 10940 times)

webcat86

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REIT or not?
« on: November 05, 2015, 11:34:21 AM »
I'm ready to start investing and am lucky to work at a company of financial advisers, who prefer passive over active investing.

I had a quick chat with my boss yesterday (and will have another one soon to clarify a couple of things) and he recommended a Vanguard global fund, all equities given it's a long term investment. So I'm thinking the LifeStrategy 100% equities.

But I was also wondering if i should hold any REIT investments too?

It'll be about £10,000 (I think that's currently $16,000) I have to invest, and i was thinking a 10-15% allocation in REITs. I also found a website that is like crowdfunding property - the company owns residential houses, and people buy a percentage of it, similar to P2P lending in that you can tie it up for 5 years or sell your share to another investor. I'm not sure how risky it is so I was just going to use a couple hundred pounds to dabble in it and see what the returns are like.

Would the REITs be a waste of time and i should just go all-in on the index fund, or is it worth having the extra diversity?

RWD

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Re: REIT or not?
« Reply #1 on: November 05, 2015, 11:45:19 AM »
There's a good post on jlcollinsnh:
http://jlcollinsnh.com/2014/05/27/stocks-part-xxii-stepping-away-from-reits/

A total market index fund like VTSAX already has REITs included. Including a dedicated REIT fund in your portfolio will not really be adding diversity but instead just weighting your portfolio more toward real estate.

Frankies Girl

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Re: REIT or not?
« Reply #2 on: November 05, 2015, 12:04:29 PM »
I originally set up my portfolio based off of Jim Collins' recommendations, and as such included a small amount of REITs. I also read with interest when he stepped back from them and sold off his position. But I still like holding it separately, so as of now, my portfolio still contains a small percentage of the REIT fund.

I justify it to myself as being slightly weighted into real estate by holding a seperate REIT, since I don't own actual real estate property, and I believe that it is a good basic diversification. I've seen it go up with the total stock market when down and down with it as well, so I know it won't behave exactly the same as the total stock market fund. I like it even though I do still agree with Jim's basic premise. SO I guess you can say I'm being slightly irrational. ;)
« Last Edit: November 05, 2015, 01:10:12 PM by Frankies Girl »

Jon_Snow

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Re: REIT or not?
« Reply #3 on: November 05, 2015, 12:06:38 PM »
I'm of the opinion that REIT's should be a component of a well diversified portfolio. I think REIT's account for around $500 of my monthly investment income. Most of it tax free because I keep the bulk of them in our TFSA's.

I like my REIT's. :)

GGNoob

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Re: REIT or not?
« Reply #4 on: November 05, 2015, 12:09:26 PM »
A total market index fund like VTSAX already has REITs included. Including a dedicated REIT fund in your portfolio will not really be adding diversity but instead just weighting your portfolio more toward real estate.

This. With a Lifestrategy fund, you'll already have the market weight of REITs.

Personally though, 20% of my portfolio is in REITs.

Kaspian

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Re: REIT or not?
« Reply #5 on: November 05, 2015, 12:11:53 PM »
With £10,000, I wouldn't worry about this too much--at the beginning of investing it's really only semantics.  Just get started.  General advice in Canada is (if you are going to do REITs), 5-10% is plenty. 

Tyler

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Re: REIT or not?
« Reply #6 on: November 05, 2015, 12:15:37 PM »
Also, be aware that REITs have different tax rules than stocks and may not be particularly tax efficient.  If possible, it's better to hold them in a tax-deferred account than in a taxable one. 

FWIW, you can play with calculators like this one to see how REITs (and other assets) would have affected your portfolio throughout history.  Just be careful about over-fitting the perfect portfolio based on past performance while ignoring good diversification for an uncertain future. 

I'd personally stay away from the RE crowdfunding site.  There are better more established options for this kinda thing. 
« Last Edit: November 05, 2015, 02:00:16 PM by Tyler »

webcat86

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Re: REIT or not?
« Reply #7 on: November 05, 2015, 12:52:19 PM »

Also, be aware that REITs have different tax rules than stocks and may not be particularly tax efficient.  If possible, it's better to hold them in a tax-deferred account than in a taxable one. 

FWIW, you can play with calculators like this one to see how REITs (and other assets) would have affected your portfolio throughout history.  Just be careful about over-fitting the perfect portfolio based on past performance while ignoring good diversification for an uncertain future. 

I'd personally stay away from the RE crowdfunding site.  There are better more established options for this kinda thing.

Sorry should have clarified, this will be in an ISA - taxed earnings go in and everything thereafter is tax free.

webcat86

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Re: REIT or not?
« Reply #8 on: November 05, 2015, 12:58:11 PM »

A total market index fund like VTSAX already has REITs included. Including a dedicated REIT fund in your portfolio will not really be adding diversity but instead just weighting your portfolio more toward real estate.

This. With a Lifestrategy fund, you'll already have the market weight of REITs.

Personally though, 20% of my portfolio is in REITs.

I looked at the fund and it doesn't mention REIT, are they excluded or part of the equity funds eg US equity index fund?

RWD

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Re: REIT or not?
« Reply #9 on: November 05, 2015, 01:11:32 PM »

A total market index fund like VTSAX already has REITs included. Including a dedicated REIT fund in your portfolio will not really be adding diversity but instead just weighting your portfolio more toward real estate.

This. With a Lifestrategy fund, you'll already have the market weight of REITs.

Personally though, 20% of my portfolio is in REITs.

I looked at the fund and it doesn't mention REIT, are they excluded or part of the equity funds eg US equity index fund?

The LifeStrategy funds use total stock market index as part of their equities which in turn includes stocks that overlap with a REIT fund. For example, both VTSAX (Total Stock Market Index) and VGSLX (REIT index) hold Simon Property Group Inc.

Financial.Velociraptor

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Re: REIT or not?
« Reply #10 on: November 05, 2015, 01:15:18 PM »
Do you have a feel for what interest rates will do in your country of investment?  REITs can suffer a great deal in a rising interest rate environment.  The very best ones are hedged against rising rates but you never know who is swimming naked until the tide goes out.  I carry a basket of REITs as REM and MORL (US)

Left

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Re: REIT or not?
« Reply #11 on: November 05, 2015, 01:25:05 PM »
I cheat and use govt funded reits :D (hey, at least they won't "default" on you...
http://www.govreit.com/home/default.aspx

but I moved away from reits... they just aren't what I want anymore. I have $8k left in gov but that's it. It sets there and just gets dividends reinvested. I originally got it because of MMM's post on reits vs landlording... then heard about gov reit and decided it was better than MMM's reit pick

it's sibling SIR reit does a bit better if someone wants to chase yield... but well... I'd rather chase yield using total market index...

but between gov reit, g fund, fed paycheck... I was kind of "heavy" on the US govt tilt... so I'm "diversifying" into the stock market...

your terms of ISA/pounds.. you aren't a US person then? I'm not sure how other counties do with reits, I hear mixed stories of not good returns on landlords to it beating the market depending on country
« Last Edit: November 05, 2015, 01:34:19 PM by eyem »

Cornbread OMalley

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Re: REIT or not?
« Reply #12 on: November 09, 2015, 12:59:40 AM »
There's a good post on jlcollinsnh:
http://jlcollinsnh.com/2014/05/27/stocks-part-xxii-stepping-away-from-reits/

A total market index fund like VTSAX already has REITs included. Including a dedicated REIT fund in your portfolio will not really be adding diversity but instead just weighting your portfolio more toward real estate.
+1.  I read the same and am reconsidering my REIT holdings.

candymaldy

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Re: REIT or not?
« Reply #13 on: November 09, 2015, 01:12:43 AM »
REITS do allow you to create a portfolio that is more in line with the actual economy.

Although REITS are included in total stock market funds, real estate plays a much larger role in the actual economy than the capitalization weighting of REITS.  (Most real estate is privately held.)

But I also agree that with $16k, you are probably going to be better off just keeping it simple and skipping REITS altogether
For now.

webcat86

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Re: REIT or not?
« Reply #14 on: November 13, 2015, 07:25:45 AM »


your terms of ISA/pounds.. you aren't a US person then? I'm not sure how other counties do with reits, I hear mixed stories of not good returns on landlords to it beating the market depending on country

No I'm in the UK

webcat86

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Re: REIT or not?
« Reply #15 on: November 13, 2015, 07:26:49 AM »
Thanks for the replies guys. I'd like to get the investment set up in the next week or so and have decided on the LifeStrategy fund but am uncertain of how much equities. Is it wise to be 100% equities with no diversification?

Tyler

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Re: REIT or not?
« Reply #16 on: November 13, 2015, 09:11:02 AM »
Is it wise to be 100% equities with no diversification?

I think that's the wrong question.  100% stocks is wise for some people but not for others, and it comes down to your personal goals.  Will investing in 100% equities meet both your financial and emotional needs? 

Here are two relevant charts.  They're for the US stock market, but should be similar enough to the UK to be educational.





If losing money for more than a decade or watching your portfolio drop nearly 40% in a single year is unpalatable, then 100% stocks may not be for you and there are better options (here's a collection for comparison).  Likewise, if you have a specific retirement year in mind and want more certainty in your financial path to get there, diversifying outside of stocks can help you with your time-sensitive goals.  The same goes for something like saving for a college fund. 

On the other hand, if you have a long investing time horizon, the personality to handle the ups and downs, and no real time-sensitive goals for the money, then 100% stocks may be a perfectly fine choice.  It's also a great foundation for new investors just getting started.  If you can't decide where to put your money, buying something like VTSMX today and taking the time to learn how to diversify new money in the future is a great choice.  There's no need to wait until you have the "perfect" portfolio plan to start moving in the right direction. 

Basically, one cannot know if a particular portfolio is a wise choice until they first understand themselves and how various portfolio options may affect their personal life goals.  If you're not sure about either, then start simple and build up as you learn more. 
« Last Edit: November 13, 2015, 09:13:48 AM by Tyler »

webcat86

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Re: REIT or not?
« Reply #17 on: November 13, 2015, 09:49:05 AM »

Is it wise to be 100% equities with no diversification?

I think that's the wrong question.  100% stocks is wise for some people but not for others, and it comes down to your personal goals.  Will investing in 100% equities meet both your financial and emotional needs? 

Here are two relevant charts.  They're for the US stock market, but should be similar enough to the UK to be educational.





If losing money for more than a decade or watching your portfolio drop nearly 40% in a single year is unpalatable, then 100% stocks may not be for you and there are better options (here's a collection for comparison).  Likewise, if you have a specific retirement year in mind and want more certainty in your financial path to get there, diversifying outside of stocks can help you with your time-sensitive goals.  The same goes for something like saving for a college fund. 

On the other hand, if you have a long investing time horizon, the personality to handle the ups and downs, and no real time-sensitive goals for the money, then 100% stocks may be a perfectly fine choice.  It's also a great foundation for new investors just getting started.  If you can't decide where to put your money, buying something like VTSMX today and taking the time to learn how to diversify new money in the future is a great choice.  There's no need to wait until you have the "perfect" portfolio plan to start moving in the right direction. 

Basically, one cannot know if a particular portfolio is a wise choice until they first understand themselves and how various portfolio options may affect their personal life goals.  If you're not sure about either, then start simple and build up as you learn more.

Thank you, appreciate the answer!

I think I'm comfortable with that, knowing losses are inevitable and hopefully will be recovered. I'm 29, and hoping to retire at 55, so best part of 30 years before touching the money.

CoderNate

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Re: REIT or not?
« Reply #18 on: November 13, 2015, 04:23:12 PM »
I cheat and use govt funded reits :D (hey, at least they won't "default" on you...
http://www.govreit.com/home/default.aspx

but I moved away from reits... they just aren't what I want anymore. I have $8k left in gov but that's it. It sets there and just gets dividends reinvested. I originally got it because of MMM's post on reits vs landlording... then heard about gov reit and decided it was better than MMM's reit pick

it's sibling SIR reit does a bit better if someone wants to chase yield... but well... I'd rather chase yield using total market index...

but between gov reit, g fund, fed paycheck... I was kind of "heavy" on the US govt tilt... so I'm "diversifying" into the stock market...

your terms of ISA/pounds.. you aren't a US person then? I'm not sure how other counties do with reits, I hear mixed stories of not good returns on landlords to it beating the market depending on country

Why GOV out of curiosity? I looked at them a while ago due to the high yield but ended up not since it seemed like there wasn't a lot of management buy in. Has your investment been successful with the reinvested dibs despite the share price drop?

Left

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Re: REIT or not?
« Reply #19 on: November 13, 2015, 05:41:26 PM »
i did gov because i wanted a good office type reit, so why not a government rented space? at least they wont bankrupt. it hasnt been bad to me, but i never kept that much of it to start with.

while i havent sold off the shares, i just reinvest everything to vt now. ive switched to just vt without selling old shares since i still like them, just not enough to add new.

my thinking was if i wanted a residential reit, i could be a landlord myself... then i get cold feet over it, and that ended that plan.

mizzourah2006

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Re: REIT or not?
« Reply #20 on: November 16, 2015, 10:01:49 AM »
REITS do allow you to create a portfolio that is more in line with the actual economy.

Although REITS are included in total stock market funds, real estate plays a much larger role in the actual economy than the capitalization weighting of REITS.  (Most real estate is privately held.)

But I also agree that with $16k, you are probably going to be better off just keeping it simple and skipping REITS altogether
For now.

I agree with this. REITS are tiny companies compared to the behemoth's like Apple, Microsoft, Exxon, etc. I would assume if you just use VTSMX no more than 2-3% of your holdings are in REITs. Because I don't hold any physical real estate as an investment I'd like my REIT holdings to be closer to 8-10% of my portfolio. I am nowhere near that now (probably around 2-3%) but would like to add more as it is true that real estate is a huge part of our economy.

Jack

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Re: REIT or not?
« Reply #21 on: November 16, 2015, 10:33:52 AM »
REITS do allow you to create a portfolio that is more in line with the actual economy.

Although REITS are included in total stock market funds, real estate plays a much larger role in the actual economy than the capitalization weighting of REITS.  (Most real estate is privately held.)

But I also agree that with $16k, you are probably going to be better off just keeping it simple and skipping REITS altogether
For now.

I agree with this. REITS are tiny companies compared to the behemoth's like Apple, Microsoft, Exxon, etc. I would assume if you just use VTSMX no more than 2-3% of your holdings are in REITs. Because I don't hold any physical real estate as an investment I'd like my REIT holdings to be closer to 8-10% of my portfolio. I am nowhere near that now (probably around 2-3%) but would like to add more as it is true that real estate is a huge part of our economy.

That makes me wonder: if you want to invest in "the economy" then what would your asset allocation actually look like? Stocks, bonds, REITs, commodities, ____ ? And if you wanted to invest in the world economy (instead of just the US, where approximately every kind of asset is commodified or securitized), how would you actually even accomplish it?

My Own Advisor

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Re: REIT or not?
« Reply #22 on: November 19, 2015, 01:17:10 PM »
About 10% of our portfolio are in REITs.  Happy to own them for cash flow.

Mighty-Dollar

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Re: REIT or not?
« Reply #23 on: November 20, 2015, 11:05:25 PM »
Why would you invest in non-traded REIT's?????  You're trying to make things complicated. Non-traded REIT's are famous for under-performing the indexes. If you really love real estate that much then invest in VNQ the Vanguard index fund.

71% of non-traded REIT's under performed their benchmarks

Non-traded REIT's under performed comparable publicly traded REIT's by about 1.4 percent per year during a 21 year period ending in 2011

http://yourinvestmentadvise.com/non-traded-reits.html

Davids

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Re: REIT or not?
« Reply #24 on: November 21, 2015, 02:48:34 PM »
I have a few bones in VNQ, I would say REIT should be no more than 10% of an investment portfolio.

A simple "lazy" ETF portfolio.

50% VTI
25% VIG
10% VXUS
10% VNQ
5% BND

cerat0n1a

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Re: REIT or not?
« Reply #25 on: November 21, 2015, 03:27:47 PM »
My ISA is directly invested in shares rather than Vanguard ETFs and I do have a small amount in British Land, which is one of the better known and bigger REITs in the UK, along with Land Securities. Wouldn't dream of going for any unquoted one though, particularly anything that sounded slightly scammy (there's Hansteen, Segro & Hammerson in the FTSE too, so plenty of options.)

If you're starting out with £10k and have a 30yr outlook, I would probably go for 100% equities and would not be considering REITs. From your post, it might be a good plan to spend time reading on sites like monevator, motley fool etc and get to learn more about UK investing.