Author Topic: What are THE commodities and REIT indexes that really matter?  (Read 5577 times)

joer1212

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Is there a REIT index fund that is as broad and comprehensive as the Vanguard Total Stock Market Index is for stocks?
What about for commodities? There must be a comprehensive index fund that a novice investor can buy into.
I'm not interested in buying individual REIT's or individual sectors of the commodities market. I want to purchase these two as broad indexes to add to my portfolio to provide additional diversification.
Just so you get an idea of what I am trying to do, I currently invest $34,000 a year in my employee 401k and 457b (the maximum allowable).
This is how my portfolio is broken down:

- 20% bond aggregate index fund (SSgA Passive Bond Market Index)
- 20% Stable Fund
- 25% large-cap index fund (VIIIX)
- 9% mid-cap index fund (SSgA S&P mid-cap 400 index)
- 8% small-cap index fund (SSgA Russell 2000 index)
- 18% international index fund (ACWI)

My employer, unfortunately, does not offer an index fund for REIT's or commodities. So, I must purchase these outside of my job and put them in a Roth IRA.
I've heard of some names, such as the "MSCI US REIT Index", and a couple of funds that track this (VNQ and VGSIX). Is this a benchmark index?
I have also heard of some names for commodities that may be surrogates for the entire commodities market, but I'm not sure if they are (S&P GSCI, RICI, DJ-AIGCI, CRB).
Whatever benchmarks you recommend, please be sure that the REIT index includes residential, commercial and industrial, while the commodities index must include precious metals (including gold), as I don't want to purchase a separate index for these.
I will probably put $2,500 a year into each index to max out my Roth IRA.
The only disadvantage I see to doing this is that I cannot rebalance my entire portfolio annually, as stocks and bonds will be separate from commodities and real estate.
« Last Edit: May 20, 2012, 11:00:59 AM by joer1212 »

arebelspy

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #1 on: May 20, 2012, 09:45:26 AM »
VGSLX is another one similar to the ones you've mentioned, probably worth looking into.
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joer1212

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #2 on: May 20, 2012, 03:20:24 PM »
I just found out that VGSLX is primarily a commercial REIT. Isn't there a comprehensive REIT index fund that covers, both commercial AND residential REIT's. I'm looking for the total market, not just one sector.

arebelspy

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #3 on: May 20, 2012, 06:11:19 PM »
Is there a difference between being in one that's retail and commercial or putting half of your REIT allocation in each of two individual?  That gives you the added benefit of being able to rebalance between the two.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

joer1212

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #4 on: May 20, 2012, 07:15:29 PM »
I guess I could do this, but it would mean having to pay 2 fees for 2 funds. Plus, I also need a commodities index, which would make it 3 fees.
Three separate funds with three separate fees seems excessive for a Roth IRA where I can only put a maximum of 5k a year.

warped

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #5 on: May 21, 2012, 12:03:18 PM »
Are there many REIT's that do SFH's?

I thought REIT's stayed out of that area, and stuck with commercial.

I know there are some mortgage REITs, but those are a different beast, and not invested directly in housing.

tooqk4u22

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #6 on: May 21, 2012, 02:26:33 PM »
Is there a difference between being in one that's retail and commercial or putting half of your REIT allocation in each of two individual?  That gives you the added benefit of being able to rebalance between the two.

In theory they could be the same but practically they companies owned by the fund and weightings could be different.  Sector specific REITS would be great for rebalancing in the subclass of your portfolio - apartment REITS are on fire right now, pay small dividends, have high rental growth expecations....very highly valued right now.  Office REITs are lost child, pay ok dividends (not by historical standards), rents and occupancy rates have been crushed for the recession and space needs have changed.....when others are fearful.  Industrial REITS are somewhere inbetween with high values relative to income (i.e. low cap rate), decent and improving occupancies, but no increases in rents yet (good thing about industrial is that it costs almost nothing to carry vacant space when compared to apartments/office) 

I guess I could do this, but it would mean having to pay 2 fees for 2 funds. Plus, I also need a commodities index, which would make it 3 fees.
Three separate funds with three separate fees seems excessive for a Roth IRA where I can only put a maximum of 5k a year.

I think you are getting this wrong...fund fees are presented as a % of of assets.  $100,000 in one fund with 1% fees is $1000....$100,000 spread among three funds that each have 1% fees is $1000. This would be different with ETF as you would incur brokerage fees for each trade.
« Last Edit: May 21, 2012, 02:35:05 PM by tooqk4u22 »

tooqk4u22

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #7 on: May 21, 2012, 02:28:35 PM »
Are there many REIT's that do SFH's?

I thought REIT's stayed out of that area, and stuck with commercial.

I know there are some mortgage REITs, but those are a different beast, and not invested directly in housing.

REITs have historically not been in SFH but there are few private ones that have recently been buying in bulk. 

joer1212

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #8 on: May 21, 2012, 03:25:09 PM »
Wow, tooqk4u22, I did not think of this at all. I feel really stupid.
It's funny that in my employee 401k I added up all the fees for the 6 funds I'm in and came up with 0.47% in fees. But that's not the case at all. I didn't take into account how my money was spread.
Thanks for enlightening me to this fact. I was treating fees as if each fund charged me a set dollar amount (like a brokerage fee) just for being in it, like a penalty fee. In other words, I thought that the more funds I had the more fees this would incur.
Since this is not the case, I am now free to just divide my money up between as many funds as I need, provided no single fund charges excessive fees.
« Last Edit: May 21, 2012, 03:26:41 PM by joer1212 »

Ben

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #9 on: May 22, 2012, 08:49:25 AM »
Joer1212:

Two arguments to keep it simple.

1. Some funds give you a fee discount for larger sums of money. For example, Vanguard has one price point for funds that have $3,000-9,999, and a cheaper expense ratio for funds that are $10k+.

2. More funds = more effort to track and rebalance, especially if you use multiple investment companies.

Some people like the fun of juggling complex investments, but the ROI or safety margin of having many asset classes and specialty funds (as opposed to total stock market and a couple other broad funds) is negligible.

Since most people invest 3-10% of their portfolio in REITs, I can't think of a single reason why a new investor (less than $250k) would need multiple REIT index funds.

joer1212

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #10 on: May 22, 2012, 02:23:50 PM »
I wouldn't require multiple REIT index funds if one fund alone was comprehensive enough. Since I am relatively new to this, I am sort of just 'asking around' to get enough information before I invest in anything.
The closest thing to a "total" REIT index fund I could find is VGSIX. I even tried doing some research on this, but it is still unclear to me whether this fund invests in commercial and residential REITS. Since residential real estate is at a record low right now, it would be in my best interest to get on board before it rebounds.

tooqk4u22

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #11 on: May 22, 2012, 04:01:24 PM »
The total REIT index has all the REITS - office, industrial, apartment, bio, healthcare, etc.

I don't think there are any publicly traded residential "for-sale" reits, only apartment reits which are highly valued right now.  If you want to play the housing buy the homebuilders- Toll?

Ben

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #12 on: May 23, 2012, 05:22:11 AM »
The Vanguard REIT Index is a comprehensive composite of all publicly traded REITs. There are plenty of residential REITs in there (weighted according to their share of the total REIT market), although (as others have mentioned) there aren't a lot of publicly traded REITs that deal with single family homes.

If you want to take advantage of favorable prices on these homes, you will have to become a homeowner, a landlord, form a limited partnership with other like-minded investors/landlords, or something else. Unfortunately, those are 'riskier' investments in that all those eggs are in a couple of baskets, but they often pay a higher rate of return if you are willing to do the work.

joer1212

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Re: What are THE commodities and REIT indexes that really matter?
« Reply #13 on: May 23, 2012, 03:26:09 PM »
Very well, then. I''m going to max out my Roth IRA every year, and invest $2,500 in VGSIX and $2,500  in an index fund that tracks the Rogers Commodity Index, or DJCI.
That's $39,000 a year invested.