REITs - Where is the benefit again?
- abuss368
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REITs - Where is the benefit again?
Bogleheads -
Anyone notice that both Total Stock and REIT are down close to the same year to date?
Total Stock - down 9.47%
REIT - down 10.82%
Where is the diversification benefit? Has there been one since a the 2000 tech bubble where REITs outperformed?
Since that time period, it appears as if REITs have become more correlated with the overall market. They were separated from the Finance sector of the S&P 500 into their own sector (real estate) in 2016.
Keep investing simple.
Total Market index funds.
Tony
Anyone notice that both Total Stock and REIT are down close to the same year to date?
Total Stock - down 9.47%
REIT - down 10.82%
Where is the diversification benefit? Has there been one since a the 2000 tech bubble where REITs outperformed?
Since that time period, it appears as if REITs have become more correlated with the overall market. They were separated from the Finance sector of the S&P 500 into their own sector (real estate) in 2016.
Keep investing simple.
Total Market index funds.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
- AllMostThere
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Re: REITs - Where is the benefit again?
That's kind of why I dumped Reits couple of years ago. Their performance seemed to be more turbulent with large swings, even on a daily basis. After much review and contemplation, I just dumped them all. At this point in my life, I desire more simplicity and not uncertainty. I no longer have an allocation to Reits other than the default percentages in the index funds I own.
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Re: REITs - Where is the benefit again?
International is down too.
What diversification benefit are you specifically looking for?
What diversification benefit are you specifically looking for?
Re: REITs - Where is the benefit again?
27 days isn’t a lot to base a conclusion on.
Since 2000:
$10,000 in Vanguard REIT index became $109,784
$10,000 in Vanguard Index 500 became $48,191
I owned REIT Index in 2000 and I still own it. It’s worked out well for me.
You can look at some of the additional differences between how the two funds behave here:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Look especially at the Annual Returns section. Sometimes the funds do move together but often when one zigs, the other zags.
Since 2000:
$10,000 in Vanguard REIT index became $109,784
$10,000 in Vanguard Index 500 became $48,191
I owned REIT Index in 2000 and I still own it. It’s worked out well for me.
You can look at some of the additional differences between how the two funds behave here:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Look especially at the Annual Returns section. Sometimes the funds do move together but often when one zigs, the other zags.
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Re: REITs - Where is the benefit again?
There sure as heck wasn't one in 2008-2009. The Vanguard REIT index fund lost ⅔ of its value when the market was "only" losing ½.
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Re: REITs - Where is the benefit again?
If you are looking at return figures with a 3 week horizon, you should not invest in either stocks or REITs.
30% US Stocks | 30% Int Stocks | 40% Bonds
- abuss368
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Re: REITs - Where is the benefit again?
Last I looked international was not down as much as US. But last year started the same.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: REITs - Where is the benefit again?
Not a day thing at all - 27 or what have you days. More along lines of market pullback a little perspective. But yes, they have had a nice 20 year run!Kenkat wrote: ↑Thu Jan 27, 2022 7:39 pm 27 days isn’t a lot to base a conclusion on.
Since 2000:
$10,000 in Vanguard REIT index became $109,784
$10,000 in Vanguard Index 500 became $48,191
I owned REIT Index in 2000 and I still own it. It’s worked out well for me.
You can look at some of the additional differences between how the two funds behave here:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Look especially at the Annual Returns section. Sometimes the funds do move together but often when one zigs, the other zags.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: REITs - Where is the benefit again?
Interesting considering the time frame.TheDoctor91 wrote: ↑Thu Jan 27, 2022 9:14 pm https://www.portfoliovisualizer.com/bac ... tion2_1=50
Though, I don’t personally own any REIT ETF.
Thanks!
Tony
John C. Bogle: “Simplicity is the master key to financial success."
Re: REITs - Where is the benefit again?
So, we are looking at the diversification effects of 2 asset over a period of less that a month. And on this scant data are willing to make a call?
Sigh.
Lets look at a simplified model and f equity returns.
Expected Returns = risk free bond yield + equity risk premium.
As interest rates have fallen like a rock the influence of interest rate yield has increased, so the correlation between all stocks have increased. The current debate over inflation and fed policy has been dragging all stocks around the pen like a 800 pound gorilla.
I personally believe that REITs are a unique diversifier it is not a magical immutable property.
Sigh.
Lets look at a simplified model and f equity returns.
Expected Returns = risk free bond yield + equity risk premium.
As interest rates have fallen like a rock the influence of interest rate yield has increased, so the correlation between all stocks have increased. The current debate over inflation and fed policy has been dragging all stocks around the pen like a 800 pound gorilla.
I personally believe that REITs are a unique diversifier it is not a magical immutable property.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
- mrpotatoheadsays
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Re: REITs - Where is the benefit again?
Reduced long-term portfolio volatility.
Investment strategies (equities only) (CAGR 1990-2019):
2-Fund Portfolio
--------------------------
70% US Total Stock Market + 30% Int'l Total Stock Market (Bogleheads): 8.8% [Standard Deviation 17.1%]
3-Fund Portfolio
--------------------------
60% US Total Stock Market + 30% Int'l Total Stock Market + 10% US REITs (Bogleheads/Ferri): 8.9% [Standard Deviation 16.4%]
Re: REITs - Where is the benefit again?
You shouldn't expect any risk asset to hold up during a correction.
What matters for equity diversification is long term outcomes.
Holding REITs might make sense if one doesn't own property oneself.
What matters for equity diversification is long term outcomes.
Holding REITs might make sense if one doesn't own property oneself.
Re: REITs - Where is the benefit again?
REIT's were never an uncorrelated asset class. At best, they were only moderately correlated. Over the past decade, their correlation with the overall market has been about 0.70, so you wouldn't expect REIT's to zig when the market zags.
The diversification benefit is that the yearly performance of REIT's doesn't always correspond closely with the performance of the overall market. e.g. In 2013 and 2020, REIT's hugely underperformed the market; and in 2014 and 2021, they hugely outperformed. A portfolio with a set allocation to REIT's would've rebalanced when they were low and gotten rewarded when they outperformed the market the following year.
That being said, research has determined that REIT's are not a unique asset class, and that their returns can be explained by known risk factors (size, value, term). REIT's tend to behave similarly to a portfolio of 2/3 small value stocks and 1/3 long term corporate bonds, so one doesn't need REIT's to get exposure to those unique sources of risk.
The diversification benefit is that the yearly performance of REIT's doesn't always correspond closely with the performance of the overall market. e.g. In 2013 and 2020, REIT's hugely underperformed the market; and in 2014 and 2021, they hugely outperformed. A portfolio with a set allocation to REIT's would've rebalanced when they were low and gotten rewarded when they outperformed the market the following year.
That being said, research has determined that REIT's are not a unique asset class, and that their returns can be explained by known risk factors (size, value, term). REIT's tend to behave similarly to a portfolio of 2/3 small value stocks and 1/3 long term corporate bonds, so one doesn't need REIT's to get exposure to those unique sources of risk.
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Re: REITs - Where is the benefit again?
I understand that the real benefit comes from rebalancing the REIT asset regularly. Otherwise its just another class of stocks.
Look at the "periodic chart" of asset class returns.
https://awealthofcommonsense.com/wp-con ... 1143-1.png
Look at the "periodic chart" of asset class returns.
https://awealthofcommonsense.com/wp-con ... 1143-1.png
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Re: REITs - Where is the benefit again?
A number of the largest REITs are not what I would consider traditional real estate. https://www.millionacres.com/real-estat ... ded-reits/
I have no expectation of REIT index funds to be uncorrelated with total stock market index funds.
I have no expectation of REIT index funds to be uncorrelated with total stock market index funds.
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Re: REITs - Where is the benefit again?
For those running backtests and calculating efficient frontiers: you need to include bonds in the asset mix for a fair comparison, since REITs have interest rate exposure. When including bonds in a portfolio, REITs have historically offered very little additional diversification.
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Re: REITs - Where is the benefit again?
No. Wait.
That was diversification proving its value.
Your equity portfolio protected you against losses in your REIT portfolio (and in Mortgage Backed Securities)
Re: REITs - Where is the benefit again?
The main problem with market REITs such as VGSLX is that like other broad indexes (VTSAX for example) their performance is directly tied to that of the real estate companies within the fund. No different than when we see declines in other broad indexes such as VTSAX and VFIAX.
If you want to benefit from true diversification from a real estate fund then I would invest in crowdfunding platforms such as Crowdstreet and Fundrise. With these you are directly invested in a real estate project and thus your capital is tied to the performance of that property or properties.
If you want to benefit from true diversification from a real estate fund then I would invest in crowdfunding platforms such as Crowdstreet and Fundrise. With these you are directly invested in a real estate project and thus your capital is tied to the performance of that property or properties.
Wealth is not about having a lot of money; it's about having a lot of options.
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Re: REITs - Where is the benefit again?
Real estate is a major category of productive asset, and REITs make it relatively easy for personal investors to make diversified, low-cost, leveraged investments in those assets.
Of course some ordinary companies own some real estate, and some stock index funds include REITs. But my personal feeling is that if your general aim is to track the different sorts of investments that are made in productive assets, subject to screens for reasonable costs and such, then you are likely going to end up "underweight" in real estate if you only invest in it through ordinary company stocks and broad stock index funds.
Unless perhaps you own a home and account for that as a real estate investment. But I don't like to do that, including because it isn't diversified, and also because so much of the expected return on home ownership is implied rent savings, which to me is properly accounted for on the income side and not the investment side.
Anyway, that to me is the benefit of REITs--they allow me to widen the scope of my investment in productive assets in a way that is consistent with my investment philosophy. Backtesting, other anecdotal reasoning, and such doesn't really play a role in my reasoning.
But at the end of the day, if you would only be investing a smallish amount in REITs anyway, then the amount you get from stock index funds may be close enough that it doesn't much matter one way or another.
Of course some ordinary companies own some real estate, and some stock index funds include REITs. But my personal feeling is that if your general aim is to track the different sorts of investments that are made in productive assets, subject to screens for reasonable costs and such, then you are likely going to end up "underweight" in real estate if you only invest in it through ordinary company stocks and broad stock index funds.
Unless perhaps you own a home and account for that as a real estate investment. But I don't like to do that, including because it isn't diversified, and also because so much of the expected return on home ownership is implied rent savings, which to me is properly accounted for on the income side and not the investment side.
Anyway, that to me is the benefit of REITs--they allow me to widen the scope of my investment in productive assets in a way that is consistent with my investment philosophy. Backtesting, other anecdotal reasoning, and such doesn't really play a role in my reasoning.
But at the end of the day, if you would only be investing a smallish amount in REITs anyway, then the amount you get from stock index funds may be close enough that it doesn't much matter one way or another.
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Re: REITs - Where is the benefit again?
+1AllMostThere wrote: ↑Thu Jan 27, 2022 7:12 pm That's kind of why I dumped Reits couple of years ago. Their performance seemed to be more turbulent with large swings, even on a daily basis. After much review and contemplation, I just dumped them all. At this point in my life, I desire more simplicity and not uncertainty. I no longer have an allocation to Reits other than the default percentages in the index funds I own.
I reached the same conclusion and dumped REITs in my portfolio about 4 years ago.
Debt is dangerous...simple is beautiful
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Re: REITs - Where is the benefit again?
I think there are probably arguments both for, and against, holding REITs, and in the end it's a do whatever you feel like situation. Same goes for holding international, small-cap, etc.
I'm sure everyone knows David Swensen advocated for a large allocation. Jeremy Siegel recently said "real estate [and] REITs still are good assets to own.”
On the other hand, dumping your REITs in the toilet in exchange for Total Stock is a perfectly valid thing to do. I really do believe that. It comes down to that one simple word. Whatever.
I'm sure everyone knows David Swensen advocated for a large allocation. Jeremy Siegel recently said "real estate [and] REITs still are good assets to own.”
On the other hand, dumping your REITs in the toilet in exchange for Total Stock is a perfectly valid thing to do. I really do believe that. It comes down to that one simple word. Whatever.
Re: REITs - Where is the benefit again?
Valuation matters though.Kenkat wrote: ↑Thu Jan 27, 2022 7:39 pm 27 days isn’t a lot to base a conclusion on.
Since 2000:
$10,000 in Vanguard REIT index became $109,784
$10,000 in Vanguard Index 500 became $48,191
I owned REIT Index in 2000 and I still own it. It’s worked out well for me.
You can look at some of the additional differences between how the two funds behave here:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Look especially at the Annual Returns section. Sometimes the funds do move together but often when one zigs, the other zags.
In 2000 REITs were yielding 7 or 8% as I recall, well above inflation.
Now in 2022 with REITs yielding 2 or 3%, and inflation running 6 or 7%?
In 2000, sure back up the truck and I'll jump on. Today? Not so much.
"The safe assumption for an investor is that over the next hundred years, the currency is going to zero." - Charlie Munger
Re: REITs - Where is the benefit again?
You could say the exact same thing about bonds, so I still think there can be a benefit to holding REITs long term as a diversifier. They may not be as attractive from a short term valuation perspective but I don’t play that game.loukycpa wrote: ↑Fri Jan 28, 2022 11:01 amValuation matters though.Kenkat wrote: ↑Thu Jan 27, 2022 7:39 pm 27 days isn’t a lot to base a conclusion on.
Since 2000:
$10,000 in Vanguard REIT index became $109,784
$10,000 in Vanguard Index 500 became $48,191
I owned REIT Index in 2000 and I still own it. It’s worked out well for me.
You can look at some of the additional differences between how the two funds behave here:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Look especially at the Annual Returns section. Sometimes the funds do move together but often when one zigs, the other zags.
In 2000 REITs were yielding 7 or 8% as I recall, well above inflation.
Now in 2022 with REITs yielding 2 or 3%, and inflation running 6 or 7%?
In 2000, sure back up the truck and I'll jump on. Today? Not so much.
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Re: REITs - Where is the benefit again?
Are you sure you're just supposed to look at the dividend? I mean, after all, Total Stock Market's dividends don't keep up with inflation, either, yet it's supposedly a good inflation protector, e.g. "Jeremy Siegel says owning ‘real assets’ like stocks is best defense against inflation". Even Vanguard High Dividend Yield Index with its 2.64% 30 day SEC doesn't come close to 6 or 7%.loukycpa wrote: ↑Fri Jan 28, 2022 11:01 amValuation matters though.Kenkat wrote: ↑Thu Jan 27, 2022 7:39 pm 27 days isn’t a lot to base a conclusion on.
Since 2000:
$10,000 in Vanguard REIT index became $109,784
$10,000 in Vanguard Index 500 became $48,191
I owned REIT Index in 2000 and I still own it. It’s worked out well for me.
You can look at some of the additional differences between how the two funds behave here:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Look especially at the Annual Returns section. Sometimes the funds do move together but often when one zigs, the other zags.
In 2000 REITs were yielding 7 or 8% as I recall, well above inflation.
Now in 2022 with REITs yielding 2 or 3%, and inflation running 6 or 7%?
In 2000, sure back up the truck and I'll jump on. Today? Not so much.
Re: REITs - Where is the benefit again?
S&P 500 companies (the rest other than REITs) pay out maybe 30 or 40% of their operating earnings as dividends. These companies retain most of their earnings and reinvest in their business, buy back stock, etc.Robot Monster wrote: ↑Fri Jan 28, 2022 11:29 amAre you sure you're just supposed to look at the dividend? I mean, after all, Total Stock Market's dividends don't keep up with inflation, either, yet it's supposedly a good inflation protector, e.g. "Jeremy Siegel says owning ‘real assets’ like stocks is best defense against inflation". Even Vanguard High Dividend Yield Index with its 2.64% 30 day SEC doesn't come close to 6 or 7%.loukycpa wrote: ↑Fri Jan 28, 2022 11:01 amValuation matters though.Kenkat wrote: ↑Thu Jan 27, 2022 7:39 pm 27 days isn’t a lot to base a conclusion on.
Since 2000:
$10,000 in Vanguard REIT index became $109,784
$10,000 in Vanguard Index 500 became $48,191
I owned REIT Index in 2000 and I still own it. It’s worked out well for me.
You can look at some of the additional differences between how the two funds behave here:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Look especially at the Annual Returns section. Sometimes the funds do move together but often when one zigs, the other zags.
In 2000 REITs were yielding 7 or 8% as I recall, well above inflation.
Now in 2022 with REITs yielding 2 or 3%, and inflation running 6 or 7%?
In 2000, sure back up the truck and I'll jump on. Today? Not so much.
REITs pay out 90%. (Actually with REITs you look more at FFO than GAAP earnings, more relevant).
So yes with REITs the dividends matter more relatively speaking, because it drives more of the return.
"The safe assumption for an investor is that over the next hundred years, the currency is going to zero." - Charlie Munger
Re: REITs - Where is the benefit again?
This is the point where I can't quite get with the rest of the Bogleheads. Seems to me we are all in the game whether we acknowledge it or not. We have choice whether or not we open our eyes I suppose.Kenkat wrote: ↑Fri Jan 28, 2022 11:27 amYou could say the exact same thing about bonds, so I still think there can be a benefit to holding REITs long term as a diversifier. They may not be as attractive from a short term valuation perspective but I don’t play that game.loukycpa wrote: ↑Fri Jan 28, 2022 11:01 amValuation matters though.Kenkat wrote: ↑Thu Jan 27, 2022 7:39 pm 27 days isn’t a lot to base a conclusion on.
Since 2000:
$10,000 in Vanguard REIT index became $109,784
$10,000 in Vanguard Index 500 became $48,191
I owned REIT Index in 2000 and I still own it. It’s worked out well for me.
You can look at some of the additional differences between how the two funds behave here:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Look especially at the Annual Returns section. Sometimes the funds do move together but often when one zigs, the other zags.
In 2000 REITs were yielding 7 or 8% as I recall, well above inflation.
Now in 2022 with REITs yielding 2 or 3%, and inflation running 6 or 7%?
In 2000, sure back up the truck and I'll jump on. Today? Not so much.
"The safe assumption for an investor is that over the next hundred years, the currency is going to zero." - Charlie Munger
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Re: REITs - Where is the benefit again?
So when you own productive assets, including real estate but also IP, equipment, labor contracts, and so on, the reason they might track up with unexpected high inflation is basically just that you are hypothesizing that you will be able to sell what they produce for higher prices. And in fact, to the extent you bought those assets with fixed nominal debt with rates implying a lower inflation expectation, then that could work out quite well!Robot Monster wrote: ↑Fri Jan 28, 2022 11:29 am Are you sure you're just supposed to look at the dividend? I mean, after all, Total Stock Market's dividends don't keep up with inflation, either, yet it's supposedly a good inflation protector, e.g. "Jeremy Siegel says owning ‘real assets’ like stocks is best defense against inflation". Even Vanguard High Dividend Yield Index with its 2.64% 30 day SEC doesn't come close to 6 or 7%.
The real world is complicated, though, and lots of things can happen. Maybe the prices you can get are sticky in some way, including if you have given your customers fixed pricing for some period (including in the form of a lease). Maybe your input costs for things you don't already own go up higher than the prices you can charge. Maybe your debt moves to higher rates. Maybe higher inflation is associated with a general economic malaise or recession that reduces demand for your products. And so on.
So yes, in broad theory both stocks and real estate should provide something of an unexpected inflation, and in fact generally in the long run they do to SOME extent.
But it doesn't always work out that way as much or as quickly as one might hope.
That being said, they are obviously a better bet to respond well to unexpectedly high inflation than, say, nominal bonds.
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Re: REITs - Where is the benefit again?
That's a good point. So I guess we can say rent increases are not keeping up with inflation, otherwise we'd be seeing much higher dividends? However, I do read that, “even if rent increases are not able to keep pace with inflation in the short term, the property values generally are still increasing.” article source So, perhaps we shouldn't just look at the dividend?loukycpa wrote: ↑Fri Jan 28, 2022 12:04 pmS&P 500 companies (the rest other than REITs) pay out maybe 30 or 40% of their operating earnings as dividends. These companies retain most of their earnings and reinvest in their business, buy back stock, etc.Robot Monster wrote: ↑Fri Jan 28, 2022 11:29 amAre you sure you're just supposed to look at the dividend? I mean, after all, Total Stock Market's dividends don't keep up with inflation, either, yet it's supposedly a good inflation protector, e.g. "Jeremy Siegel says owning ‘real assets’ like stocks is best defense against inflation". Even Vanguard High Dividend Yield Index with its 2.64% 30 day SEC doesn't come close to 6 or 7%.loukycpa wrote: ↑Fri Jan 28, 2022 11:01 amValuation matters though.Kenkat wrote: ↑Thu Jan 27, 2022 7:39 pm 27 days isn’t a lot to base a conclusion on.
Since 2000:
$10,000 in Vanguard REIT index became $109,784
$10,000 in Vanguard Index 500 became $48,191
I owned REIT Index in 2000 and I still own it. It’s worked out well for me.
You can look at some of the additional differences between how the two funds behave here:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Look especially at the Annual Returns section. Sometimes the funds do move together but often when one zigs, the other zags.
In 2000 REITs were yielding 7 or 8% as I recall, well above inflation.
Now in 2022 with REITs yielding 2 or 3%, and inflation running 6 or 7%?
In 2000, sure back up the truck and I'll jump on. Today? Not so much.
REITs pay out 90%. (Actually with REITs you look more at FFO than GAAP earnings, more relevant).
So yes with REITs the dividends matter more relatively speaking, because it drives more of the return.
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Re: REITs - Where is the benefit again?
Thank you for the detailed response!NiceUnparticularMan wrote: ↑Fri Jan 28, 2022 12:30 pmSo when you own productive assets, including real estate but also IP, equipment, labor contracts, and so on, the reason they might track up with unexpected high inflation is basically just that you are hypothesizing that you will be able to sell what they produce for higher prices. And in fact, to the extent you bought those assets with fixed nominal debt with rates implying a lower inflation expectation, then that could work out quite well!Robot Monster wrote: ↑Fri Jan 28, 2022 11:29 am Are you sure you're just supposed to look at the dividend? I mean, after all, Total Stock Market's dividends don't keep up with inflation, either, yet it's supposedly a good inflation protector, e.g. "Jeremy Siegel says owning ‘real assets’ like stocks is best defense against inflation". Even Vanguard High Dividend Yield Index with its 2.64% 30 day SEC doesn't come close to 6 or 7%.
The real world is complicated, though, and lots of things can happen. Maybe the prices you can get are sticky in some way, including if you have given your customers fixed pricing for some period (including in the form of a lease). Maybe your input costs for things you don't already own go up higher than the prices you can charge. Maybe your debt moves to higher rates. Maybe higher inflation is associated with a general economic malaise or recession that reduces demand for your products. And so on.
So yes, in broad theory both stocks and real estate should provide something of an unexpected inflation, and in fact generally in the long run they do to SOME extent.
But it doesn't always work out that way as much or as quickly as one might hope.
That being said, they are obviously a better bet to respond well to unexpectedly high inflation than, say, nominal bonds.
Re: REITs - Where is the benefit again?
....but aren't REITs now treated like plain ole financial sector stocks and included in the plain vanilla index funds. Doesn't this mean their benefit is baked into the total market's movements?
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Re: REITs - Where is the benefit again?
At 60/40 they effect on risk-adjusted return is diluted so that only a minimal REIT tilt inproved risk-adjusted return since 2010:MeanVarianceOptimal wrote: ↑Fri Jan 28, 2022 4:48 am For those running backtests and calculating efficient frontiers: you need to include bonds in the asset mix for a fair comparison, since REITs have interest rate exposure. When including bonds in a portfolio, REITs have historically offered very little additional diversification.
https://www.portfoliovisualizer.com/opt ... Weight3=40
But variance and conditional-value-at-risk were both minimized with significant tilts to REITs in the most recent market period of interest to the OP:
https://www.portfoliovisualizer.com/opt ... Weight3=40
https://www.portfoliovisualizer.com/opt ... Weight3=40
What is true is that magnitude of risk reduction at these minima points is not dramatic. I don't tilt to REITs myself.
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Re: REITs - Where is the benefit again?
I think there was a large benefit just last year (2021):
vanguard reit went up in 2021 +40.40% compared to total stock market's +25.71%:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
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Re: REITs - Where is the benefit again?
Where are you getting your information from? What is the bias for this assertion?
No. Why would you think that?
I think your error here is that you think that the most diversified portfolio - as defined as the highest return for the lowest risk - is the market cap weighted portfolio of large publicly traded equities. The arguments for this are weak. On the other hand the arguments against are nuanced and complex where the answer is dynamic. That the question is hard results in many Bogleheads throwing up their hands as saying, incorrectly, that "nobody knows nothing."
Now, a market cap portfolio is a fine, decent portfolio. And it is pretty efficient. But probably not the most efficient.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: REITs - Where is the benefit again?
There is a real estate sector that was split off from the financial sector by S&P and CRSP. I'm not sure if MSCI split it off. It is less than 4% of the total market and includes REITs as well as other stocks in the sector (e.g. homebuilders, property managers). I'm not sure whether mortgage REITs stayed in the financial sector or are in the real estate sector.
The rationale for a REIT tilt is that real estate as a share of the economy far exceeds what is captured by the REITs in a total market index, so overweighting REITs better aligns the portfolio with the economy.
Re: REITs - Where is the benefit again?
Mortgage REITs stayed in the financial sector.Northern Flicker wrote: ↑Fri Jan 28, 2022 1:09 pm I'm not sure whether mortgage REITs stayed in the financial sector or are in the real estate sector.
The rationale for a REIT tilt is that real estate as a share of the economy far exceeds what is captured by the REITs in a total market index, so overweighting REITs better aligns the portfolio with the economy.
The primary reason to overweight REITs is that they have a diversifying property. Or you just like making sector bets.
The "If" and "Why" are hotly debated. That real estate is under represented in the total stock market indexes is argument. That they are deeply influenced by their illiquid brethren is a corollary agreement. Their unique tax code is another.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: REITs - Where is the benefit again?
I expect nothing special from REITs. I do not own them in a large enough increment that diversification/excess return benefits would be dramatic, even if present. That being said, I also don't expect REITs to do terribly over long time periods in comparison to the broader market, and there is always the chance some marginal benefits will show up.
I own REITs because financially, and lifestyle-wise I cannot/should not buy a house or otherwise directly invest in real estate right now. By owning REITs I can tell myself that yes, even though everyone else I know that owns property is sitting on big gains right now, I am also benefiting somewhat, maybe, from rising prices/rents as well.
I own REITs because financially, and lifestyle-wise I cannot/should not buy a house or otherwise directly invest in real estate right now. By owning REITs I can tell myself that yes, even though everyone else I know that owns property is sitting on big gains right now, I am also benefiting somewhat, maybe, from rising prices/rents as well.
You will have to give back your multiples.
Re: REITs - Where is the benefit again?
You're right. I had it backwardsalex_686 wrote: ↑Fri Jan 28, 2022 1:07 pm
Where are you getting your information from? What is the bias for this assertion?
No. Why would you think that?
I think your error here is that you think that the most diversified portfolio - as defined as the highest return for the lowest risk - is the market cap weighted portfolio of large publicly traded equities. The arguments for this are weak. On the other hand the arguments against are nuanced and complex where the answer is dynamic. That the question is hard results in many Bogleheads throwing up their hands as saying, incorrectly, that "nobody knows nothing."
Now, a market cap portfolio is a fine, decent portfolio. And it is pretty efficient. But probably not the most efficient.
Re: REITs - Where is the benefit again?
The diversification benefit of REITs had to do with tax treatment and profit payouts to shareholders. Does that still apply?abuss368 wrote: ↑Thu Jan 27, 2022 7:07 pm Bogleheads -
Anyone notice that both Total Stock and REIT are down close to the same year to date?
Total Stock - down 9.47%
REIT - down 10.82%
Where is the diversification benefit? Has there been one since a the 2000 tech bubble where REITs outperformed?
Since that time period, it appears as if REITs have become more correlated with the overall market. They were separated from the Finance sector of the S&P 500 into their own sector (real estate) in 2016.
Keep investing simple.
Total Market index funds.
Tony
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Re: REITs - Where is the benefit again?
Mortgage REITs remain in the financial sector. Equity REITs (equity in buildings) moved to the new real estate sector.Northern Flicker wrote: ↑Fri Jan 28, 2022 1:09 pm I'm not sure whether mortgage REITs stayed in the financial sector or are in the real estate sector.
Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: REITs - Where is the benefit again?
The diversification benefit of REITs had to do with tax treatment and profit payouts to shareholders. Does that still apply?
[/quote]
I think it does as REITs by law must pay out 90% of income.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: REITs - Where is the benefit again?
GAAP is largely irrelevant for REITs. Perhaps small and mid businesses too but that is another topic to debate. REITs use FFO (Funds from operations) and often AFFO (Adjusted FFO). Problem is in the REITs world, there is an inconsistency in terms of defining FFO and AFFO. The REIT profession is moving towards more clearly defined standards of reporting and consistency in measurement.loukycpa wrote: ↑Fri Jan 28, 2022 12:04 pm
S&P 500 companies (the rest other than REITs) pay out maybe 30 or 40% of their operating earnings as dividends. These companies retain most of their earnings and reinvest in their business, buy back stock, etc.
REITs pay out 90%. (Actually with REITs you look more at FFO than GAAP earnings, more relevant).
So yes with REITs the dividends matter more relatively speaking, because it drives more of the return.
Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
Re: REITs - Where is the benefit again?
Yea so that’s what really separates them as an asset class. They’ve definitely had their moments. Small cap value indexes include a large dollop of REITs, and so a further question might consider that.
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Re: REITs - Where is the benefit again?
That is my understanding. REITs and Small Cap Value have some similarities. Small Cap Value holds a material amount of REITs.
Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: REITs - Where is the benefit again?
The midcap sector has a slightly larger percentage of REITs than the small cap sector, but they are close, so the comparison will depend on where you slice the market.
Re: REITs - Where is the benefit again?
Come on Tony. My Fundrise portfolio YTD return is 0% with the individual funds in the portfolio between -0.3% and +0.3% YTD.abuss368 wrote: ↑Thu Jan 27, 2022 7:07 pm Bogleheads -
Anyone notice that both Total Stock and REIT are down close to the same year to date?
Total Stock - down 9.47%
REIT - down 10.82%
Where is the diversification benefit? Has there been one since a the 2000 tech bubble where REITs outperformed?
Since that time period, it appears as if REITs have become more correlated with the overall market. They were separated from the Finance sector of the S&P 500 into their own sector (real estate) in 2016.
Keep investing simple.
Total Market index funds.
Tony
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Re: REITs - Where is the benefit again?
Awesome Nate. Did they pay any dividends yet?Nate79 wrote: ↑Fri Jan 28, 2022 7:34 pmCome on Tony. My Fundrise portfolio YTD return is 0% with the individual funds in the portfolio between -0.3% and +0.3% YTD.abuss368 wrote: ↑Thu Jan 27, 2022 7:07 pm Bogleheads -
Anyone notice that both Total Stock and REIT are down close to the same year to date?
Total Stock - down 9.47%
REIT - down 10.82%
Where is the diversification benefit? Has there been one since a the 2000 tech bubble where REITs outperformed?
Since that time period, it appears as if REITs have become more correlated with the overall market. They were separated from the Finance sector of the S&P 500 into their own sector (real estate) in 2016.
Keep investing simple.
Total Market index funds.
Tony
Do you also invest in Vanguard REIT?
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: REITs - Where is the benefit again?
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Last edited by AerialWombat on Fri Feb 04, 2022 1:08 pm, edited 1 time in total.
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