Author Topic: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond  (Read 4487 times)

Mother Fussbudget

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Originally posted in June 2016 (I rebalanced to include more REIT's & less VTSAX/FSTVX in March 2016):

I've recently changed my portfolio balance to favor REIT's over VTSAX (60% REITs /30% VTSAX /10% bonds).
{OMITTED mention of being SHORT the S&P500. I got out of the short position quickly. I'm no longer short the S&P. Markets have since made new high's keeping the 'bull market' running for now}

Based on the real-estate market being really hot, (especially in Seattle) and not in the same way it was in 2007, but in a more sustainable but still constantly upward trend movement, I decided to move to REITS - and be a lazy landlord, taking advantage of the upward move in real-estate without buying more houses ( as MMM puts it).  People are still going to need places to live no matter what happens on the macro economic front, so from that perspective I think the real-estate market will be more reliable than the overall market this year (and possibly the next 4 years).

In Seattle, it's almost impossible to buy a home today - supply is low, and demand is very high, so prices are up, similar to the story in the CA-Bay-Area. I was researching ways to get more exposure [to real estate] in my own retirement accounts, did the math on several REIT's, and liked what I was seeing.  So I've moved to split my 60% into 3 different REIT's, 20% each (SNH, LADR, and NRZ).   So far, I'm up 15% in price+dividends since March (mostly SNH), and more dividends to come later in the year.

Since this post, SNH is up ~47%.  LADR(+14%) and NRZ(+10%) are also up, but not nearly as much as SNH.
(Thanks for the recommendation back in 2011, MMM!)

Anyone else in REIT's?  Are you seeing similar results in your REIT selections for 2016?

Proud Foot

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #1 on: September 07, 2016, 02:51:24 PM »
Currently just holding VGSIX for my REIT allocation.  YTD up 15.32% and return of 22.86% since purchase in July 2015.

TXScout2

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #2 on: September 07, 2016, 03:20:38 PM »
I have about 30% invested in a REIT fund, up 16% YTD.  Held it for a few years now, it's been a bumpy ride but it's still outpacing the rest of my investments.  Wonder how long it can keep going.

Thinkum

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #3 on: September 07, 2016, 03:25:53 PM »
I have VGSLX, and individual stocks O and OHI. I used to hold EXR, but sold it on it's way up. Had I held, it would have been up a total of about 40%. REITS have been a good call thus far and I see them as long term holdings.

bacchi

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #4 on: September 07, 2016, 06:48:05 PM »
I have some O, VNQ/VGSIX, and VNQI in the portfolio. The VNQ will be rebalanced out later this year. It's getting a bit tipsy. The O may be sold with a covered call.


Financial.Velociraptor

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #5 on: September 07, 2016, 07:48:05 PM »
I am overweight MORL, a double levered REIT ETN.  The recent changes in S&P sector allocations breaks real estate out from "financials".  The big institutional investors will have to unload banks and buy REITs as a result.  Now is a good time to have broad exposure to REIT.

PhysicianOnFIRE

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #6 on: September 07, 2016, 10:45:48 PM »
Why so much?

I have 10% of my portfolio in Vanguard's REIT index fund, and VTSAX is another 3% to 4%, so I've got about 13% to 14% exposure, which I think is rather high. I believe REITs lost 3/4 of their value when the S&P lost half back in 2008-9.

MustacheAndaHalf

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #7 on: September 07, 2016, 11:27:42 PM »
Looking on Morningstar for U.S. Total Stock Market ETF ("VTI") and Vanguard REIT ETF ("VNQ"):
Total Market)  5 year @ 15.0% .... 10 year @ 7.9%
REIT)  .......   5 year @ 14.0% .... 10 year @ 7.2%

Authors like Swensen and Swedroe describe a past benefit to holding a REIT tilt.  But it looks like a really long wait is required, and the benefit could be uncertain.

jjandjab

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #8 on: September 08, 2016, 09:10:19 AM »
I am not brave enough to go to 60%, although I wish I was - always easy in retrospect, right?

I am also in NRZ, up about 20% for me, not including the effective yield of 14%. I am up almost 50% in MPW not including an effective yield of 9%. I have these instead of REIT fund. I almost put a huge 50% of all assets chunk in MPW when it dropped under $10 per share for no good reason and the dividend was almost 10%... But still happy regardless

I am currently at about 25% REITs (MPW/NRZ), 55% total stock (Fidelity Total Stock Index) and 20% bonds (Fidelity Total Bond) with a stated AA of 20/60/20. 

I haven't felt the need to rebalance quite yet. I may soon though... There is alot of money chasing the yield on these pushing prices up. But I feel the same about stocks in general, so if REITs keep outperfoming and I get near 30% overall, I'll take some profit and rebalance...

Mother Fussbudget

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #9 on: September 08, 2016, 09:32:39 AM »
Why so much?

I have 10% of my portfolio in Vanguard's REIT index fund, and VTSAX is another 3% to 4%, so I've got about 13% to 14% exposure, which I think is rather high. I believe REITs lost 3/4 of their value when the S&P lost half back in 2008-9.

A long answer, but hopefully it helps answer 'why so heavy' in REIT's...

I've been following the Case Schiller (sic?) reports for over a year, and the trend is up due to lack of housing inventory, and other factors that seem to form a long-term-trend - much like the long-term-trend of housing prices expanding in the San Francisco bay area.  I foresee this long-term increase in housing prices becoming a trend in many other urban areas - Miami, Seattle, Denver, Houston, Dallas, etc. 

Also, I'm worried that the markets will take a hit after the November election - regardless of the winner in the presidential race.  Given I think the overall market will take a hit, I'm predicting the housing market's hit will not be as bad as other sectors of the economy.  In fact, after the shakeout from 2007-2009, the housing sector looks to be one of the strongest sectors. 

And, I have many friends, parents friends, etc who have made money over the years owning real-estate.  I myself have made money on 7 of 9 homes I've owned, and I haven't even gotten into renters, lease agreements, etc.  I would LOVE to have a 'fleet of rental houses' to provide long-term recurring passive income, but do not want to deal with the paperwork or the 'rental maintenance' hassles (even if I could hire someone to do-the-actual-work).  REIT's are the best way I see of owning a 'fleet-of-rental-houses' to generate regular passive income without actually owning more houses, and hoping the houses I bought were purchases at the best price, at the right time, in the right location/location/location. 

After last year's poor return on the S&P500, I'm hoping to beat that return long-term thru investing in REIT's. 

Least important reason, but probably the highest emotional reason (and the reason I've spent so much time analyzing the markets):  I'm close to my FIRE date, and feeling the need to do *something* that's not too risky to super-charge my savings/earnings.  I see dividend generating REIT funds as a reasonable way to do that.  Any large changes in the REIT market should be visible in the broader market indexes before real-estate takes the hit. [put another way - I've noticed real estate tends to be slower to react to downward pressure than the overall market].

AdrianC

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #10 on: September 08, 2016, 10:20:06 AM »
Authors like Swensen and Swedroe describe a past benefit to holding a REIT tilt.  But it looks like a really long wait is required, and the benefit could be uncertain.

Larry Swedroe 6/22/16 on Bogleheads: "I would not own them currently".

And it's easy to see why.

VNQ
The current adjusted effective yield is 2.32% as of 07/31/2016

REITs pay out 90% of income. 90% amounts to a 2.32% yield, a PE of 43.

jjandjab

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #11 on: September 08, 2016, 10:30:03 AM »
Authors like Swensen and Swedroe describe a past benefit to holding a REIT tilt.  But it looks like a really long wait is required, and the benefit could be uncertain.

Larry Swedroe 6/22/16 on Bogleheads: "I would not own them currently".

And it's easy to see why.

VNQ
The current adjusted effective yield is 2.32% as of 07/31/2016

REITs pay out 90% of income. 90% amounts to a 2.32% yield, a PE of 43.

Can you explain your math in the last sentence? Not sure what you are talking about there.

AdrianC

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #12 on: September 08, 2016, 10:49:32 AM »

Can you explain your math in the last sentence? Not sure what you are talking about there.

REITs pay out 90% of income.

90% of the income produced by the REITs in Vanguard REIT ETF VNQ amounts to a 2.32% yield, that is, it's like companies paying out 90% of earnings as dividends.

If we say that 90% of earnings is all the investor is ever going to see we get a Price to Earnings ratio of 43. That's high-tech growth stock territory, not stodgy property companies.

bacchi

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #13 on: September 08, 2016, 12:09:56 PM »

Can you explain your math in the last sentence? Not sure what you are talking about there.

REITs pay out 90% of income.

90% of the income produced by the REITs in Vanguard REIT ETF VNQ amounts to a 2.32% yield, that is, it's like companies paying out 90% of earnings as dividends.

If we say that 90% of earnings is all the investor is ever going to see we get a Price to Earnings ratio of 43. That's high-tech growth stock territory, not stodgy property companies.

Morningstar has a yield of 3.3% for VNQ.

PE isn't really a great measure of REITs, though, due to depreciation.

Mother Fussbudget

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #14 on: September 08, 2016, 12:41:59 PM »
I use dividend yield as a primary indicator on REIT's, and then follow up on reading the balance sheets, and annual reports of the one's that look promising.  Using Google Finance, and showing 'Dividend Yields' (under "Add or remove columns"), a sample of REIT Dividend yields (as of 11:39am 9/816) shows:
VNQ = 3.89%
SNH = 6.57%
LADR = 16.43%
NRZ = 12.59%
« Last Edit: September 08, 2016, 08:37:12 PM by Mother Fussbudget »

AdrianC

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #15 on: September 08, 2016, 05:33:10 PM »

Morningstar has a yield of 3.3% for VNQ.


https://personal.vanguard.com/us/FundsYieldDisclaimerREITFund?FundId=0986
The current adjusted effective yield is 2.32% as of 07/31/2016. The adjusted yield reflects a reduction in the income included in the yield based on the average return of capital and capital gain distributions received from the fund's REIT investments for the past 2 calendar years.

Quote
PE isn't really a great measure of REITs, though, due to depreciation.
Sure, not a great measure. I was just trying to show how high valued REITs are compared to stocks. A better measure is effective yield...

Individual REITs could be worth owning. As a group they appear to be very richly valued. Folks reaching for yield, perhaps?

Depreciation is a real expense. Buildings don't last forever and need maintenance.


mizzourah2006

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #16 on: September 14, 2016, 08:17:43 AM »

Morningstar has a yield of 3.3% for VNQ.


https://personal.vanguard.com/us/FundsYieldDisclaimerREITFund?FundId=0986
The current adjusted effective yield is 2.32% as of 07/31/2016. The adjusted yield reflects a reduction in the income included in the yield based on the average return of capital and capital gain distributions received from the fund's REIT investments for the past 2 calendar years.

Quote
PE isn't really a great measure of REITs, though, due to depreciation.
Sure, not a great measure. I was just trying to show how high valued REITs are compared to stocks. A better measure is effective yield...

Individual REITs could be worth owning. As a group they appear to be very richly valued. Folks reaching for yield, perhaps?

Depreciation is a real expense. Buildings don't last forever and need maintenance.

A better measure is Price/AFFO. So for example, OHI's trailing Price/AFFO is 11.36. There are definitely some pretty richly valued REITs Reality Income comes to mind, but there are plenty of undervalued REITs as well.

Having said that, REITs are typically involved in owning and leasing commercial real estate property, which isn't necessarily correlated with residential real estate. I wouldn't jump into REITs because the residential real estate market is doing well. In fact, REITs will probably go down as the FED raises interest rates as many people searching for yield are flooding into REITs.
« Last Edit: September 14, 2016, 08:19:55 AM by mizzourah2006 »

Scandium

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Re: Update: Rebalanced to 60% REIT's / 30% Total Stock / 10% Total Bond
« Reply #17 on: September 14, 2016, 10:33:06 AM »
Last post stole my point.
OP keep talking about housing, and a few specific markets going up etc. Ignoring all the speculative presumptions in that; aren't most (almost all?) REITs in commercial real estate? At least the major ones you'll find in ETFs. And that's probably why they behave like stocks. When the economy goes down businesses do worse, meaning REIT's renters do worse, hence REITS go down.

"People need houses, I'll buy REITs" is not the most compelling argument I've heard, but knock yourself out. Even if people always need houses doesn't mean you'll necessarily will make money on it. Even less certain is whether this will outperform the market. Real estate is a though business.

My small REIT holdings have shot up last few years so if anything I expect them to drop at some point soon. (perhaps with a rate rise coming?)