Author Topic: Thoughts on AGNC?  (Read 7813 times)

BryanR

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Thoughts on AGNC?
« on: March 15, 2012, 11:49:49 PM »
Anyone have any thoughts on AGNC? It is an mREIT that I like. It is between buying a lot of AGNC or buying a rental house. The AGNC has better returns and is less of a pain in the butt, more liquid, etc. Thanks.

judgemebymyusername

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Re: Thoughts on AGNC?
« Reply #1 on: March 18, 2012, 12:05:42 PM »
Do you have any reasons for wanting an mREIT as opposed to an S&P 500 index fund, total stock market index fund, a bond index fund, or a combination of any of them?

DryIceZ33

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Re: Thoughts on AGNC?
« Reply #2 on: March 18, 2012, 03:40:44 PM »
I like AGNC, and I've owned it for a little over a year now.  My personal opinion is that it has a place in a well-balance dividend portfolio, composing perhaps less than 10% of one's assets.

The ~20% yield is nice, however, they often finance it with new share issues, which drops the prices, as right now the payout ratio is greater than 100%.   The company's business model is borrowing at low interest rates, high leverage, and investing in guaranteed mortgages - it's a good business for the current economy that we're in with low interest rates.  However, once rates rise, I think the yield will drop, and the price will tank.  So, invest wisely, and use less than 10% of your assets in this type of investment.

arebelspy

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Re: Thoughts on AGNC?
« Reply #3 on: March 18, 2012, 04:11:35 PM »
Do you have any reasons for wanting an mREIT as opposed to an S&P 500 index fund, total stock market index fund, a bond index fund, or a combination of any of them?

I'm assuming the OP wants some real estate exposure in their portfolio, as they noted that:
It is between buying a lot of AGNC or buying a rental house.

Studies have shown though that REITs are correlated with the rest of the market - market goes down, so do REITs, and vice-versa.

Physical real estate is actually a different beast, despite REITs attempts to model it.

If you can handle a rental, and it cashflows nicely (keeping in mind the 50% rule), that's not a bad way to go right now.  Otherwise I'd recommend about 5% of your portfolio in an REIT for diversification purposes and real estate exposure, not more than that.

DryIce: Good insights.  Thanks for the information.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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judgemebymyusername

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Re: Thoughts on AGNC?
« Reply #4 on: March 18, 2012, 04:19:47 PM »
Studies have shown though that REITs are correlated with the rest of the market - market goes down, so do REITs, and vice-versa.

Physical real estate is actually a different beast, despite REITs attempts to model it.

If you can handle a rental, and it cashflows nicely (keeping in mind the 50% rule), that's not a bad way to go right now.  Otherwise I'd recommend about 5% of your portfolio in an REIT for diversification purposes and real estate exposure, not more than that.

Exactly what I was getting at. REIT's should not be considered a replacement for personal real estate ownership.

BryanR

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Re: Thoughts on AGNC?
« Reply #5 on: March 18, 2012, 05:01:26 PM »
What is the 50% rule?

arebelspy

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Re: Thoughts on AGNC?
« Reply #6 on: March 18, 2012, 06:55:34 PM »
What is the 50% rule?

About half of the gross rent will go to expenses (maintenance, repairs, vacancy/collection loss, property management, taxes, insurance, etc.)

The other half is cash flow (if you paid cash for the property) or used to service debt (mortgage) and what's left after that debt service is cash flow.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.