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Learning, Sharing, and Teaching => Investor Alley => Topic started by: DeniseNJ on March 06, 2019, 08:12:39 AM

Title: REIT recommendations?
Post by: DeniseNJ on March 06, 2019, 08:12:39 AM
I read the MMM post re REITs but it was from years ago.  Does anyone have recommendations that I can research?  I can google but wondering if anyone has any recent experience in this and what to watch out for or red flags to be concerned about.
Title: Re: REIT recommendations?
Post by: bacchi on March 06, 2019, 08:29:40 AM
VNQ and VNQI for international exposure.
Title: Re: REIT recommendations?
Post by: MustacheAndaHalf on March 06, 2019, 09:57:48 AM
Something I find strange: looking at the correlations in returns between the U.S. stock market, U.S. REITs, and international REITs.  I plugged "VTI, VNQ, VNQI" into portfolio visualizer and got back:

VNQ is 0.71 correlated with VTI
VNQI is 0.81 correlated with VTI

Meaning international REITs are more correlated with the U.S. stock market than U.S. REITs.  Does anyone know why that would be, or have another source?  Based on the above, I'd favor VNQ for it's lower correlation to the U.S. market.
Title: Re: REIT recommendations?
Post by: Abe on March 06, 2019, 11:24:25 PM
Some smart people at Bogleheads give a possible explanation:

VNQ invests only in REITs, while VINQI invests in property holding companies that may or may not be structured as "REITs". Thus you're not getting the diversification of the REITs' tax structure and distribution requirements.

I personally don't find either ones' correlation with VTI low enough to justify the sector risk, and divested out of REITs some years ago.
Title: Re: REIT recommendations?
Post by: SeattleCPA on March 07, 2019, 07:17:36 AM

A while back, attempting to explain how the rebalancing bonus works and also how (in simple terms) one benefits by building a portfolio using less than perfectly correlated asset classes, I did this post:

It includes a graph (shown below) that compares 100% stocks (the blue line) with two other portfolios... one with higher return and same risk (50/50 international stocks and REITs shown as a red line)... and one with same return but lower risk (a sort of Swensen style portfolio with 35% stocks, 35 REITs and 30% treasuries shown in an orange line):
Title: Re: REIT recommendations?
Post by: DeniseNJ on March 07, 2019, 10:21:13 AM
I really liked that article--very helpful.  Thanks!
Title: Re: REIT recommendations?
Post by: ChpBstrd on March 13, 2019, 12:12:28 PM
I recommend not concentrating in any given sector as an attempt to reach for yield. A few scary things about REITs include the end of physical retail (space that will be converted to offices, apartments, and warehouses, leading to a supply glut) signs of unaffordable commercial RE valuations, and the certainty that eventually rising interest rates will permanently impair these leveraged companies' earnings.

ERN did a nice 3 part blog post comparing the performance of a dividend-chasing portfolio with a simple total market portfolio. It was ugly. Be sure to read all 3 parts, starting with: (

Past performance depends a lot on the comparison timeframe, but there is reason to believe chasing dividends enhances sequence of return risk.
Title: Re: REIT recommendations?
Post by: Rob_bob on March 13, 2019, 02:30:21 PM
From Portfolio Visualizer Jan. 1995-Feb 2019

Dividends not reinvested:

SPDR S&P 500   (SPY)          CAGR 7.78%      US Market Correlation 0.99

Realty Income Corp.  (O)      CAGR 9.03%      US Market Correlation 0.29

Dividends reinvested:

SPY       CAGR    9.75%     Initial Balance: $10,000    Final Balance:  $94,735

O          CAGR    16.24%   Initial Balance: $10,000    Final Balance:  $379,573
Title: Re: REIT recommendations?
Post by: HeadedWest2029 on March 13, 2019, 02:45:53 PM
First and foremost, I would not do private REITs.  For all the reasons listed here (

Keep in mind, if you buy the oft suggested VTSAX, it already includes publicly traded REITs based on their market cap relative to the total market.  So you already own REITs if you own the total stock market index. 

Also, REITs are less tax efficient so it may make sense to keep those in a tax sheltered account

And further reading from the excellent JL Collins NH (
Title: Re: REIT recommendations?
Post by: Financial.Velociraptor on March 14, 2019, 04:59:29 PM
I've been happy with Two Harbors (TWO).  Distribution over 10%.  I'm down 30% at first blush but that is largely the result of a spin-off with a large one time distribution.  After the value of the spin off shares I sold and all distributions, I'm up 71% (since February 2014). 

I like that management is looking at ways to generate revenue from things like mortgage processing that lets them stay under the REIT tax umbrella but reduce exposure to the yield curve.  They also have a significant portion of their portfolio in adjustable rate mortgages.  Safer than many REITs in my estimation.

Title: Re: REIT recommendations?
Post by: Tyler on March 14, 2019, 07:32:39 PM
My two favorite REIT index funds are VNQ and SCHH.  VNQ is the largest and most well-established option out there, and SCHH follows a relatively similar index but with lower fees.  IYR and RWR are also pretty good options depending on your favorite fund provider.

The biggest thing to look out for with REITs is taxes.  They're not taxed the same way as your typical stocks and bonds, so read up on what you're getting into before adding them to a taxable account.
Title: Re: REIT recommendations?
Post by: MustacheAndaHalf on March 14, 2019, 09:42:56 PM
The best signal of future stock returns is P/E, even though it's only 0.40 correlated with stock returns 10-20 years from now.  Here's the P/E values for the world stock markets, for U.S. REITs, and the two companies mentioned earlier:

Vanguard Total World ("VT") 14.26
Vanguard REIT ("VNQ") 36.29
Realty Income Corp ("NYSE:O") 52.91

I'm not sure what to make of Two Harbors Investment Corp ("TWO"):
Price/Earnings 276.00
Consensus Forward P/E 7.46
Price/Book 1.08
(on price/earnings, it's an extreme growth stock... on forward P/E or price/book it's a value stock... Hmm!)