REITs - Where is the benefit again?

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Leif
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Re: REITs - Where is the benefit again?

Post by Leif »

David Swenson, author of Unconventional Success, categorize real estate as a core asset class. While we have not had much inflation for a long time (until recently), I think having REITs, in addition to TIPS, provides extra protection.
David Swenson wrote:With its inflation-sensitive nature, real estate provides powerful diversification to investor portfolios.
I have seen zigs and zags with REITs. That is what I'm looking for by diversifying. While not using as high an AA to REITs as David recommends in his book, I have enough to help me with the ups and downs. Being retired and withdrawing some assets from my portfolio I enjoy have choices. I consider that superior to fewer funds and choices.
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nedsaid
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Re: REITs - Where is the benefit again?

Post by nedsaid »

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
Yes, my prediction of the Zero fund portfolio is coming to pass. Don't need TIPS, don't need REITs, don't need International.

Bonds and stocks are both down this year. What do I need bonds for? What do I need stocks for? If I was 100% in cash since year end 2021, I would be even rather than being down. I am so disappointed, I think I will heed my own advice and stuff all my money in mattresses. :wink:

At least I can earn pennies on my money rather than watching my stocks and bonds all go down. :wink: What could be simpler than cash stuffed in a mattress?
A fool and his money are good for business.
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Nate79
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Re: REITs - Where is the benefit again?

Post by Nate79 »

abuss368 wrote: Fri Jan 28, 2022 7:40 pm
Nate79 wrote: Fri Jan 28, 2022 7:34 pm
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
Come on Tony. My Fundrise portfolio YTD return is 0% with the individual funds in the portfolio between -0.3% and +0.3% YTD. :sharebeer
Awesome Nate. Did they pay any dividends yet?

Do you also invest in Vanguard REIT?

Tony
Fundrise pays dividends quarterly.
No, I do not invest in Vanguard REIT. I'm more interested in residential real estate.
feh
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Re: REITs - Where is the benefit again?

Post by feh »

AllMostThere 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.
+1

10 years ago when I took control of our investments, I followed the Ferri Core 4 approach, which includes REITs. After a few months of educating myself, I deemed them unnecessary.
Ivygirl
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Re: REITs - Where is the benefit again?

Post by Ivygirl »

My investing philosophy is, I want to make money, enough money for my goals, with acceptable risk, within the investing time frame I have. Can REITs help me do this? Yes.

The Bogleheads philosophy is a means, not a goal in itself. I believe in it, I practice it, because for my situation I believe it will make money, enough money for my goals, with acceptable risk, within the investing time frame I have. I'm not concerned about the purity of the ideas. If being a Boglehead ceased to make me money I would (regretfully) ditch it.

I don't care if REITs diversify something else. I care about one thing: will they make me richer over time?

Real estate is like bones to the body economic. Always being created and destroyed, always swapping out calcium, always generating new blood cells for the body. An economy without real estate would be just a puddle on the floor without structure or means of movement. Real estate is always dying, but never dying, it is unkillable as long as we are mortal bodies that occupy space and use physical things.

Volatile, yes. Alive, definitely.

If I had a lot to invest I would probably seek out individual real estate projects or buy buildings, but since I invest from a paycheck I buy VGSLX the Vanguard REIT index.

I want to make money, enough money for my goals, with acceptable risk, within the investing time frame I have, that is all.
Robot Monster
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Re: REITs - Where is the benefit again?

Post by Robot Monster »

Ivygirl wrote: Sat Jan 29, 2022 8:39 am Real estate is like bones to the body economic. Always being created and destroyed, always swapping out calcium, always generating new blood cells for the body. An economy without real estate would be just a puddle on the floor without structure or means of movement. Real estate is always dying, but never dying, it is unkillable as long as we are mortal bodies that occupy space and use physical things.
This REIT poetry soothes my investing soul. But seriously, this is so well written. Wow.
Elysium
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Re: REITs - Where is the benefit again?

Post by Elysium »

Question to ask is if someone showed you an apartment complex or a shopping mall and promised to give you 2% income for your share of being a passive investor, but are also subject to the vagaries of stock market gyrations that all securities are subject to, then will you find that attractive? Now, increase the rental income promise to 5%, 6%, 7%, what will you say?

REITs have same equity characteristics of Mid-cap Value stocks, anyone who owns MCV/SCV do not need REITs and they don't provide anything extra from equity diversification perspective that these don't. That said they have unique properties coming from their rent based income distribution, however, they have not given the kind of income that makes them attractive beyond just their equity characteristics since early 2000s. At some point if they yield about 5%-6% in rental income then they may become beneficial to consider as separate allocation.

In other words, if I am going to own a securitized rental unit share then I would like the income distribution from that to be very attractive, not the paltry 2.43% they payout today. Why would I want to own a securitized rental property for their equity characteristics, just buy MCV stocks for that, which again is not needed if you're a TSM investor. So, really for a TSM investor REITs have to payout more rental income to make it attractive for diversifying, and for Value tilted folks they don't need it anyway since they have more efficient way to get that exposure.
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Re: REITs - Where is the benefit again?

Post by nedsaid »

I teased Tony a bit here on the thread, the Zero Fund portfolio and all of that, but my current opinion on REITs is neutral. I choose to continue to own them, I once was quite enthusiastic about them both my opinion on them have cooled.

Reasons for my lessened enthusiasm for REITs are: 1) higher valuations from all of the yield chasing in this low interest rate environment, 2) much lower yields, 3) increasing correlation with stocks, and 4) being able to replicate REIT returns with a bit less risk with a combination of Small Value and Corporate Bonds. There has also been a shift in what the REIT indexes own, more cell towers and data centers and less shopping malls.

I chose to keep them because I believe they still offer a diversification benefit to a portfolio, though much less than before, and I see them as another tool in the toolbox to battle inflation. There is also something in me that doesn't like to change my portfolio whenever the academics change their opinion on certain investments.
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Re: REITs - Where is the benefit again?

Post by Bud »

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.
This.

I have owned REIT Index since 2002. When they were off in 2008-2009, I bought more.

REIT Index is for the long haul and they do provide diversity. Please check the Callan Periodic Table of Investing for reference.

All the best.
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Re: REITs - Where is the benefit again?

Post by Ivygirl »

Robot Monster wrote: Sat Jan 29, 2022 9:31 am
Ivygirl wrote: Sat Jan 29, 2022 8:39 am Real estate is like bones to the body economic. Always being created and destroyed, always swapping out calcium, always generating new blood cells for the body. An economy without real estate would be just a puddle on the floor without structure or means of movement. Real estate is always dying, but never dying, it is unkillable as long as we are mortal bodies that occupy space and use physical things.
This REIT poetry soothes my investing soul. But seriously, this is so well written. Wow.
It was the puddle on the floor that got you, wasn't it? :wink: Thanks.
Robot Monster
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Re: REITs - Where is the benefit again?

Post by Robot Monster »

Ivygirl wrote: Sat Jan 29, 2022 12:37 pm
Robot Monster wrote: Sat Jan 29, 2022 9:31 am
Ivygirl wrote: Sat Jan 29, 2022 8:39 am Real estate is like bones to the body economic. Always being created and destroyed, always swapping out calcium, always generating new blood cells for the body. An economy without real estate would be just a puddle on the floor without structure or means of movement. Real estate is always dying, but never dying, it is unkillable as long as we are mortal bodies that occupy space and use physical things.
This REIT poetry soothes my investing soul. But seriously, this is so well written. Wow.
It was the puddle on the floor that got you, wasn't it? :wink: Thanks.
Gets me every time!
Ivygirl
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Re: REITs - Where is the benefit again?

Post by Ivygirl »

VGSLX:

Number of years up: 15
Number of years down: 4
Best 3-year total return: 35.16%
Worst 3-year total return: -11.90%
5-year average return: 9.24%
10-year average return: 9.33%
Best 1-year total return: 35.16%
Worst 1-year total return: -36.98%
Last bull market: 31.27%
Last bear market: -16.27%
Yield: 3.19%

This is a good investment.

Also the tea leaves are propitious for another good year. Number of years up: 16.

Edited to put in a missed minus sign. I only wish last bear market was positive 16.27.
NiceUnparticularMan
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Re: REITs - Where is the benefit again?

Post by NiceUnparticularMan »

As an aside, I really wish REIT shares were not included in (some) corporate common stock index funds. Due to the different legal structure, to me they are different things from corporate common stocks, and therefore to me it is misleading investors to lump them together.
Northern Flicker
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Re: REITs - Where is the benefit again?

Post by Northern Flicker »

REITs are filtered out from Vanguard and Avantis factor funds like VFVA, VFMF, VFMFX, and AVUV.
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Re: REITs - Where is the benefit again?

Post by Northern Flicker »

In the 25 years since 1/1/1997, there have been 8 years in which the Vanguard REIT index fund and total stock market index fund have had returns with opposite signs (one negative, one positive), as shown on the annual return bar graph for the following backtest:

https://www.portfoliovisualizer.com/bac ... ion3_3=100
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Re: REITs - Where is the benefit again?

Post by abuss368 »

Ivygirl wrote: Sat Jan 29, 2022 8:39 am My investing philosophy is, I want to make money, enough money for my goals, with acceptable risk, within the investing time frame I have. Can REITs help me do this? Yes.

The Bogleheads philosophy is a means, not a goal in itself. I believe in it, I practice it, because for my situation I believe it will make money, enough money for my goals, with acceptable risk, within the investing time frame I have. I'm not concerned about the purity of the ideas. If being a Boglehead ceased to make me money I would (regretfully) ditch it.

I don't care if REITs diversify something else. I care about one thing: will they make me richer over time?

Real estate is like bones to the body economic. Always being created and destroyed, always swapping out calcium, always generating new blood cells for the body. An economy without real estate would be just a puddle on the floor without structure or means of movement. Real estate is always dying, but never dying, it is unkillable as long as we are mortal bodies that occupy space and use physical things.

Volatile, yes. Alive, definitely.

If I had a lot to invest I would probably seek out individual real estate projects or buy buildings, but since I invest from a paycheck I buy VGSLX the Vanguard REIT index.

I want to make money, enough money for my goals, with acceptable risk, within the investing time frame I have, that is all.
I like this post. It makes a lot of sense. Do you also invest with Fundrise and their e-REITs? Nate (up thread) invests with their single family homes.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: REITs - Where is the benefit again?

Post by abuss368 »

nedsaid wrote: Sat Jan 29, 2022 12:01 pm I teased Tony a bit here on the thread, the Zero Fund portfolio and all of that, but my current opinion on REITs is neutral. I choose to continue to own them, I once was quite enthusiastic about them both my opinion on them have cooled.

Reasons for my lessened enthusiasm for REITs are: 1) higher valuations from all of the yield chasing in this low interest rate environment, 2) much lower yields, 3) increasing correlation with stocks, and 4) being able to replicate REIT returns with a bit less risk with a combination of Small Value and Corporate Bonds. There has also been a shift in what the REIT indexes own, more cell towers and data centers and less shopping malls.

I chose to keep them because I believe they still offer a diversification benefit to a portfolio, though much less than before, and I see them as another tool in the toolbox to battle inflation. There is also something in me that doesn't like to change my portfolio whenever the academics change their opinion on certain investments.
Your awesome nedsaid! Yes, the Zero Fund Portfolio may happen at some point in the future.

You provided a good overview. REITs have evolved a lot over twenty years. Perhaps this is good as all industries have to evolve and change with the times or they could become obsolete.

Do you (or have you) looked at Fundrise and their Single Family, Apartments, and Warehouse REITs? Compelling and over $1 BILLION in assets. I have read a lot but pulled any triggers to date.

Try www.fundrise.com

Thanks.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: REITs - Where is the benefit again?

Post by nedsaid »

abuss368 wrote: Sat Jan 29, 2022 2:45 pm
nedsaid wrote: Sat Jan 29, 2022 12:01 pm I teased Tony a bit here on the thread, the Zero Fund portfolio and all of that, but my current opinion on REITs is neutral. I choose to continue to own them, I once was quite enthusiastic about them both my opinion on them have cooled.

Reasons for my lessened enthusiasm for REITs are: 1) higher valuations from all of the yield chasing in this low interest rate environment, 2) much lower yields, 3) increasing correlation with stocks, and 4) being able to replicate REIT returns with a bit less risk with a combination of Small Value and Corporate Bonds. There has also been a shift in what the REIT indexes own, more cell towers and data centers and less shopping malls.

I chose to keep them because I believe they still offer a diversification benefit to a portfolio, though much less than before, and I see them as another tool in the toolbox to battle inflation. There is also something in me that doesn't like to change my portfolio whenever the academics change their opinion on certain investments.
Your awesome nedsaid! Yes, the Zero Fund Portfolio may happen at some point in the future.

You provided a good overview. REITs have evolved a lot over twenty years. Perhaps this is good as all industries have to evolve and change with the times or they could become obsolete.

Do you (or have you) looked at Fundrise and their Single Family, Apartments, and Warehouse REITs? Compelling and over $1 BILLION in assets. I have read a lot but pulled any triggers to date.

Try www.fundrise.com

Thanks.
Tony
Fundrise is an interesting concept. Sort of no-load private REITs, taking out the middleman (Advisor), and investing direct. Liquidity is the goal but can't be promised. Sounds great, don't know anything about them except what I just read. It all depends upon the honesty and integrity of the people involved. One percent a year to manage the properties doesn't seem unreasonable. Certainly cheaper than paying all of the sales costs through an Advisor. Hopefully, the Advisor would do the due diligence for you. Here, you are more or less on your own to evaluate. Like I said, very interesting. Good to see this type of innovation.
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Re: REITs - Where is the benefit again?

Post by Dave55 »

abuss368 wrote: Sat Jan 29, 2022 2:45 pm
nedsaid wrote: Sat Jan 29, 2022 12:01 pm I teased Tony a bit here on the thread, the Zero Fund portfolio and all of that, but my current opinion on REITs is neutral. I choose to continue to own them, I once was quite enthusiastic about them both my opinion on them have cooled.

Reasons for my lessened enthusiasm for REITs are: 1) higher valuations from all of the yield chasing in this low interest rate environment, 2) much lower yields, 3) increasing correlation with stocks, and 4) being able to replicate REIT returns with a bit less risk with a combination of Small Value and Corporate Bonds. There has also been a shift in what the REIT indexes own, more cell towers and data centers and less shopping malls.

I chose to keep them because I believe they still offer a diversification benefit to a portfolio, though much less than before, and I see them as another tool in the toolbox to battle inflation. There is also something in me that doesn't like to change my portfolio whenever the academics change their opinion on certain investments.
Your awesome nedsaid! Yes, the Zero Fund Portfolio may happen at some point in the future.

You provided a good overview. REITs have evolved a lot over twenty years. Perhaps this is good as all industries have to evolve and change with the times or they could become obsolete.

Do you (or have you) looked at Fundrise and their Single Family, Apartments, and Warehouse REITs? Compelling and over $1 BILLION in assets. I have read a lot but pulled any triggers to date.

Try www.fundrise.com

Thanks.
Tony
Tony, Fundrise and some syndicated RE deals are in your not too distant investing future. :sharebeer

Dave
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Re: REITs - Where is the benefit again?

Post by whodidntante »

nedsaid wrote: Fri Jan 28, 2022 8:25 pm
Yes, my prediction of the Zero fund portfolio is coming to pass. Don't need TIPS, don't need REITs, don't need International.

Bonds and stocks are both down this year. What do I need bonds for? What do I need stocks for? If I was 100% in cash since year end 2021, I would be even rather than being down. I am so disappointed, I think I will heed my own advice and stuff all my money in mattresses. :wink:

At least I can earn pennies on my money rather than watching my stocks and bonds all go down. :wink: What could be simpler than cash stuffed in a mattress?
Wouldn't your bed be lumpy with the nedsaid fortune stuffed in it?
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Re: REITs - Where is the benefit again?

Post by Ed 2 »

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
I guess I was lucky enough that I bought the biggest chunk of my REIT index during 2008-2009 fiasco . So, I can’t complain regarding underperforming . My REIT portion didn’t give me any concern, even now.like many underperforming investments I was trying to buy in bulk during collapse. For now I am turbocharging buy of International Index and yes Bond funds
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Re: REITs - Where is the benefit again?

Post by loukycpa »

Elysium wrote: Sat Jan 29, 2022 9:55 am Question to ask is if someone showed you an apartment complex or a shopping mall and promised to give you 2% income for your share of being a passive investor, but are also subject to the vagaries of stock market gyrations that all securities are subject to, then will you find that attractive? Now, increase the rental income promise to 5%, 6%, 7%, what will you say?

REITs have same equity characteristics of Mid-cap Value stocks, anyone who owns MCV/SCV do not need REITs and they don't provide anything extra from equity diversification perspective that these don't. That said they have unique properties coming from their rent based income distribution, however, they have not given the kind of income that makes them attractive beyond just their equity characteristics since early 2000s. At some point if they yield about 5%-6% in rental income then they may become beneficial to consider as separate allocation.

In other words, if I am going to own a securitized rental unit share then I would like the income distribution from that to be very attractive, not the paltry 2.43% they payout today. Why would I want to own a securitized rental property for their equity characteristics, just buy MCV stocks for that, which again is not needed if you're a TSM investor. So, really for a TSM investor REITs have to payout more rental income to make it attractive for diversifying, and for Value tilted folks they don't need it anyway since they have more efficient way to get that exposure.
+1

The equities that I own (in my case primarily through total market index funds), I don't claim to know how much these companies (or sectors) will be able to grow their earnings in the future. Know one knows nothing, right? If I did, I wouldn't bother with index funds in the first place.

When we say nobody knows nothing, it doesn't extend to last year's earnings or what the management team at each company project they will earn this coming year. That much we do know. So what does that look like today?

A dollar invested in the REIT index offers us no more than (actually quite a bit less than) the earnings yield of the global stock market. If this is the reality, overweighting REITS only makes sense to me if I believe that REITS are going to be able to grow their earnings faster than the rest of the market over the long term (or perhaps those earnings are more certain or "safer"). Personally, I don't see the case for this. Until I do, I'm not tempted to overweight REITs.

Note the above would have been flipped upside down in 1999/2000. Valuation matters.
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Re: REITs - Where is the benefit again?

Post by nedsaid »

whodidntante wrote: Sun Jan 30, 2022 2:38 am
nedsaid wrote: Fri Jan 28, 2022 8:25 pm
Yes, my prediction of the Zero fund portfolio is coming to pass. Don't need TIPS, don't need REITs, don't need International.

Bonds and stocks are both down this year. What do I need bonds for? What do I need stocks for? If I was 100% in cash since year end 2021, I would be even rather than being down. I am so disappointed, I think I will heed my own advice and stuff all my money in mattresses. :wink:

At least I can earn pennies on my money rather than watching my stocks and bonds all go down. :wink: What could be simpler than cash stuffed in a mattress?
Wouldn't your bed be lumpy with the nedsaid fortune stuffed in it?
There is always sleeping on the couch! :wink:
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Re: REITs - Where is the benefit again?

Post by nedsaid »

Despite my joking about the Zero Fund Portfolio, I have not done anything during the recent stock market correction. I have been sitting tight.
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Re: REITs - Where is the benefit again?

Post by Leif »

whodidntante wrote: Sun Jan 30, 2022 2:38 am Wouldn't your bed be lumpy with the nedsaid fortune stuffed in it?
I think if you diversify (spread out) the cash inside the mattress it could provide extra comfort.
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Re: REITs - Where is the benefit again?

Post by bling »

have people looked at the holdings of REITs recently? you might be surprised of what's inside (source: https://www.morningstar.com/etfs/arcx/vnq/portfolio).

here are the top 5 holdings for VNQ:
  • 6.87% american tower corp (cell towers)
  • 6.43% prologis (industry/logistics facilities)
  • 4.6% crown castle (cell towers)
  • 3.9% equinix (data centers)
  • 3.05% public storage (self-storage)
that's 25% of the fund. you have to go to #6, which is simon property group, to find something that actually sounds like a REIT.
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Re: REITs - Where is the benefit again?

Post by NoRoboGuy »

The benefit is a slight difference in correlation to total stock market. The part to pay attention to is there are certain periods where the correlation can change significantly. We do not need to know when for purposes of the long term.

For some, it is not enough to make it worth adding. I agree there is a benefit from reduction in volatility, but that SCV and corporate bonds make for a suitable substitute.

I do not hold REITs any longer, but I certainly respect the argument for doing so.
Last edited by NoRoboGuy on Sun Jan 30, 2022 4:58 pm, edited 2 times in total.
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Re: REITs - Where is the benefit again?

Post by Robot Monster »

bling wrote: Sun Jan 30, 2022 10:29 am have people looked at the holdings of REITs recently? you might be surprised of what's inside (source: https://www.morningstar.com/etfs/arcx/vnq/portfolio).

here are the top 5 holdings for VNQ:
  • 6.87% american tower corp (cell towers)
  • 6.43% prologis (industry/logistics facilities)
  • 4.6% crown castle (cell towers)
  • 3.9% equinix (data centers)
  • 3.05% public storage (self-storage)
that's 25% of the fund. you have to go to #6, which is simon property group, to find something that actually sounds like a REIT.
Okay, but they are in fact REITs, though, so...
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Re: REITs - Where is the benefit again?

Post by NiceUnparticularMan »

Robot Monster wrote: Sun Jan 30, 2022 11:01 am
bling wrote: Sun Jan 30, 2022 10:29 am have people looked at the holdings of REITs recently? you might be surprised of what's inside (source: https://www.morningstar.com/etfs/arcx/vnq/portfolio).

here are the top 5 holdings for VNQ:
  • 6.87% american tower corp (cell towers)
  • 6.43% prologis (industry/logistics facilities)
  • 4.6% crown castle (cell towers)
  • 3.9% equinix (data centers)
  • 3.05% public storage (self-storage)
that's 25% of the fund. you have to go to #6, which is simon property group, to find something that actually sounds like a REIT.
Okay, but they are in fact REITs, though, so...
I'm personally quite agnostic about what the real estate in question is being used for, as long as it is productive.

For example, I get people are a little nervous about the size of tower REITs in particular. But there is something "real" behind that, namely that we seem increasingly headed for a wireless data world, with 5G in particular potentially being very disruptive in the sense it could take over a lot of non-mobile uses.

Of course things could go wrong and so there is risk to those investments. But generally speaking I try to be pretty strict with myself about normally assuming those risks have been more or less priced as well as possible, given the limits of our ability to predict the future.

That doesn't mean I would be comfortable being 100% invested in tower REITs. But whatever percentage they are of the relatively modest percentage overall I have in REITs is just one of those things I am supposed to be accepting with humility.

Edit: Oh, incidentally, my understanding is at least some tower REITs, like American Tower, actually own a lot of property outside the U.S. It is somewhat problematic doing real estate investing globally, because the REIT structure does not exist in many companies. So for the most part I have not attempted to allocate to ex-US real estate (except there is a very small Global Real Estate component I get from a modest allocation to a Real Return fund in a 401k).

So to the extent some of these big REITs are actually global in nature, that is another reason to be at least a little less concerned about their share of my REIT allocation, because de facto some of that might actually be more properly thought of as part of my missing ex-US REIT allocation.
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Re: REITs - Where is the benefit again?

Post by Kenkat »

nedsaid wrote: Sun Jan 30, 2022 9:17 am
whodidntante wrote: Sun Jan 30, 2022 2:38 am
nedsaid wrote: Fri Jan 28, 2022 8:25 pm
Yes, my prediction of the Zero fund portfolio is coming to pass. Don't need TIPS, don't need REITs, don't need International.

Bonds and stocks are both down this year. What do I need bonds for? What do I need stocks for? If I was 100% in cash since year end 2021, I would be even rather than being down. I am so disappointed, I think I will heed my own advice and stuff all my money in mattresses. :wink:

At least I can earn pennies on my money rather than watching my stocks and bonds all go down. :wink: What could be simpler than cash stuffed in a mattress?
Wouldn't your bed be lumpy with the nedsaid fortune stuffed in it?
There is always sleeping on the couch! :wink:
I like to recommend 50% under the mattress and 50% under the sofa cushions to diversify holdings.
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Re: REITs - Where is the benefit again?

Post by bling »

Robot Monster wrote: Sun Jan 30, 2022 11:01 am
bling wrote: Sun Jan 30, 2022 10:29 am have people looked at the holdings of REITs recently? you might be surprised of what's inside (source: https://www.morningstar.com/etfs/arcx/vnq/portfolio).

here are the top 5 holdings for VNQ:
  • 6.87% american tower corp (cell towers)
  • 6.43% prologis (industry/logistics facilities)
  • 4.6% crown castle (cell towers)
  • 3.9% equinix (data centers)
  • 3.05% public storage (self-storage)
that's 25% of the fund. you have to go to #6, which is simon property group, to find something that actually sounds like a REIT.
Okay, but they are in fact REITs, though, so...
mcdonalds also owns a lot of real estate. why doesn't that get classified as such?
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Re: REITs - Where is the benefit again?

Post by nedsaid »

Kenkat wrote: Sun Jan 30, 2022 11:42 am
nedsaid wrote: Sun Jan 30, 2022 9:17 am
whodidntante wrote: Sun Jan 30, 2022 2:38 am
nedsaid wrote: Fri Jan 28, 2022 8:25 pm
Yes, my prediction of the Zero fund portfolio is coming to pass. Don't need TIPS, don't need REITs, don't need International.

Bonds and stocks are both down this year. What do I need bonds for? What do I need stocks for? If I was 100% in cash since year end 2021, I would be even rather than being down. I am so disappointed, I think I will heed my own advice and stuff all my money in mattresses. :wink:

At least I can earn pennies on my money rather than watching my stocks and bonds all go down. :wink: What could be simpler than cash stuffed in a mattress?
Wouldn't your bed be lumpy with the nedsaid fortune stuffed in it?
There is always sleeping on the couch! :wink:
I like to recommend 50% under the mattress and 50% under the sofa cushions to diversify holdings.
I have recommended the Three Mattress Portfolio, low cost mattresses of course.
A fool and his money are good for business.
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Re: REITs - Where is the benefit again?

Post by Robot Monster »

bling wrote: Sun Jan 30, 2022 11:49 am
Robot Monster wrote: Sun Jan 30, 2022 11:01 am
bling wrote: Sun Jan 30, 2022 10:29 am have people looked at the holdings of REITs recently? you might be surprised of what's inside (source: https://www.morningstar.com/etfs/arcx/vnq/portfolio).

here are the top 5 holdings for VNQ:
  • 6.87% american tower corp (cell towers)
  • 6.43% prologis (industry/logistics facilities)
  • 4.6% crown castle (cell towers)
  • 3.9% equinix (data centers)
  • 3.05% public storage (self-storage)
that's 25% of the fund. you have to go to #6, which is simon property group, to find something that actually sounds like a REIT.
Okay, but they are in fact REITs, though, so...
mcdonalds also owns a lot of real estate. why doesn't that get classified as such?
Not my job to argue what should, and shouldn't qualify.
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Re: REITs - Where is the benefit again?

Post by Kenkat »

bling wrote: Sun Jan 30, 2022 11:49 am
Robot Monster wrote: Sun Jan 30, 2022 11:01 am
bling wrote: Sun Jan 30, 2022 10:29 am have people looked at the holdings of REITs recently? you might be surprised of what's inside (source: https://www.morningstar.com/etfs/arcx/vnq/portfolio).

here are the top 5 holdings for VNQ:
  • 6.87% american tower corp (cell towers)
  • 6.43% prologis (industry/logistics facilities)
  • 4.6% crown castle (cell towers)
  • 3.9% equinix (data centers)
  • 3.05% public storage (self-storage)
that's 25% of the fund. you have to go to #6, which is simon property group, to find something that actually sounds like a REIT.
Okay, but they are in fact REITs, though, so...
mcdonalds also owns a lot of real estate. why doesn't that get classified as such?
REIT properties rent out the facilities to other entities. McDonald’s owns the land and the stores directly. If McDonald’s rented out to Burger King or Wendy’s, then it would be a REIT.
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Re: REITs - Where is the benefit again?

Post by SpideyIndexer »

Some observations using the Portfolio Visualizer link

REITs sometimes zig when S&P500 zags. The returns criss-cross multiple times so starting date matter. Overall returns are almost equal from 1996 to today.

REITs have significantly worse return volatility (std dev, Sharpe and Sortino.)

A 50/50 split seemed to offer only a small improvement in std deviation and Sharpe and Sortino ratios over 100% S&P500. However, this is not the entire story, as the growth of the 50/50 portfolio has been smoother. Whether this is will remain true in the future is anybody's guess.
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Re: REITs - Where is the benefit again?

Post by realfan »

I've been converted over the years by the Boglehead approach and follow the three-fund portfolio + 1 and the +1 is REITs. I have no idea what the future will bring but I know it is unlikely to look like the past. I like the idea of having an overallocation to what I consider to be real assets. I understand the short-term volatility will perhaps mask the utility of REITs but I am confident that over a 20 year horizon (my minimum holding period), I will be just fine. Having more REITs in my portfolio helps me sleep better at night.
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Re: REITs - Where is the benefit again?

Post by NiceUnparticularMan »

bling wrote: Sun Jan 30, 2022 11:49 am mcdonalds also owns a lot of real estate. why doesn't that get classified as such?
U.S. equity REITs have to specialize in investing in real estate, and there are a variety of rules designed to make sure at least 75% of their income comes directly from real estate investments, and only 5% or less of their income comes from non-real-estate businesses (there are complex rules about what the middle 20% can involve).

They also have to pay out at least 90% of their taxable income in the form of dividends. There are also anti-concentration-of-ownership rules.

These rules are what make U.S. equity REITs into a reasonable proxy for directly owning a portfolio of real estate (with leverage).

McDonalds and various other companies do own some real estate, but they do not specialize in real estate, large portions of their income would be non-qualifying under the REIT rules, and they are not required to pay out their taxable income as dividends. That is what makes them not a reasonable proxy for directly owning a portfolio of real estate.
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Re: REITs - Where is the benefit again?

Post by tadamsmar »

tldr for this thread:

Curly: REITs just track stocks, they are not diversifier, sell them.

Moe: No they don't, they moved differently in 2008.

Larry: Yeah, they dropped more, sell them.

Moe: But they had double the return of stocks over the past 22 years since 2000.

Shemp: They are no longer a value play, sell them.

Moe: Well, diversity implies that some of your asset classes sometimes underperform and sometimes overperform. You can't have it both ways. All your asset classes can't all be top-performers all the time if you are diversified.
Last edited by tadamsmar on Mon Jan 31, 2022 6:31 pm, edited 2 times in total.
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Re: REITs - Where is the benefit again?

Post by Leif »

I heard the mic drop.
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Re: REITs - Where is the benefit again?

Post by JackoC »

Kenkat wrote: Sun Jan 30, 2022 12:12 pm
bling wrote: Sun Jan 30, 2022 11:49 am mcdonalds also owns a lot of real estate. why doesn't that get classified as such?
REIT properties rent out the facilities to other entities. McDonald’s owns the land and the stores directly. If McDonald’s rented out to Burger King or Wendy’s, then it would be a REIT.
If that's *mainly* what McD did it could be a REIT, as later post also said. McD's primary business is supplying franchisees (with all manner of things including renting the store to them in some cases) and managing the McD fast food restaurant brand generally (advertising, developing new products, etc). To be a REIT, real estate has to be the overwhelmingly predominant business. It's been suggested seriously that McD spin off its real estate business into another entity which could become a REIT but McD itself is not anywhere near mainly in the RE business.

As mentioned, in many cases McD actually does rent property to others, its franchisees. 80-90% of McD outlets are franchises but sometimes McD owns the property itself on stores it does not run itself. Although McD also often leases property, sometimes to turn around and sublease it to franchisees (store space in malls is a frequent example). But either way it's not their main business. The whole plant property and equipment line on McD's balance sheet (including distribution centers and Hq buildings and such) at book is ~20% of McD's market cap.
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Re: REITs - Where is the benefit again?

Post by Ivygirl »

YTD returns for VGSLX Vanguard Real Estate Index -31.68%, price $109.73. In my opinion, it's time to buy, and I am.
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Re: REITs - Where is the benefit again?

Post by z3r0c00l »

Ivygirl wrote: Mon Oct 10, 2022 5:48 am YTD returns for VGSLX Vanguard Real Estate Index -31.68%, price $109.73. In my opinion, it's time to buy, and I am.
High and increasing interest rates, won't those be a headwind for REITs? Also, is $110 a bargain considering March 2020 it fell to $85?
70% Global Stocks / 30% Bonds
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Re: REITs - Where is the benefit again?

Post by Ivygirl »

z3r0c00l wrote: Mon Oct 10, 2022 5:59 am
Ivygirl wrote: Mon Oct 10, 2022 5:48 am YTD returns for VGSLX Vanguard Real Estate Index -31.68%, price $109.73. In my opinion, it's time to buy, and I am.
High and increasing interest rates, won't those be a headwind for REITs? Also, is $110 a bargain considering March 2020 it fell to $85?
In my opinion, the increasing interest rate damage has been mostly done. I expect deflation, or at least disinflation, going forward. But I would buy now even if I didn't expect that. REITs are able to surmount interest rate increases by raising their rents, with a time lag.

VGSLX doesn't have to be a rock-bottom bargain to be a buy, just a very very good price. And REITs are volatile. Dawdle around, and the price will go up again like a rocket. I believe REITs can be somewhat market-timed but that the absolute bottom cannot be determined.
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Re: REITs - Where is the benefit again?

Post by JohnFromPNW »

Ivygirl wrote: Mon Oct 10, 2022 5:48 am YTD returns for VGSLX Vanguard Real Estate Index -31.68%, price $109.73. In my opinion, it's time to buy, and I am.
Implied cap rates on the multifamily REITs are well north of actual asset sales in the markets those REITs participate in, even when accounting for the potential 125 bps additional fed funds increase by year end and it’s affect on caps. As such, just as those REITs are now buying back stock instead of property, I agree.
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Re: REITs - Where is the benefit again?

Post by JohnFromPNW »

Ivygirl wrote: Mon Oct 10, 2022 6:07 am I believe REITs can be somewhat market-timed but that the absolute bottom cannot be determined.
I tend to agree. If a REIT is not participating in buying property, but rather buying stock, then the REIT believes their stock to be undervalued relative to their holdings. They could be wrong, but their are a few strong long-standing REITs that I would trust know what they are doing.
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Re: REITs - Where is the benefit again?

Post by Ivygirl »

JohnFromPNW wrote: Mon Oct 10, 2022 6:27 am
Ivygirl wrote: Mon Oct 10, 2022 6:07 am I believe REITs can be somewhat market-timed but that the absolute bottom cannot be determined.
I tend to agree. If a REIT is not participating in buying property, but rather buying stock, then the REIT believes their stock to be undervalued relative to their holdings. They could be wrong, but their are a few strong long-standing REITs that I would trust know what they are doing.
I appreciate this insight, I didn't know this but it's sensible and adds more surety to my conviction.
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Re: REITs - Where is the benefit again?

Post by Gaston »

Kenkat wrote: Thu Jan 27, 2022 7:39 pm Since 2000:

$10,000 in Vanguard REIT index became $109,784
$10,000 in Vanguard Index 500 became $48,191
I ran a comparison from Jan 2000 thru Sep 2022 using Portfolio Visualizer and got a very different result. I used VFINX for the S&P 500 and VGSIX for real estate. What symbols did you use please?
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Re: REITs - Where is the benefit again?

Post by nisiprius »

Source of data used for chartImage

1) They're just stocks. They're just a stock sector. Claims that they are a unique and distinct asset class do not convince me. Direct investment in real estate, maybe. REITs, no.

2) The dividend payout requirement is an objective reason for saying/hoping they behave somewhat differently from other kinds of stocks, more different from the market than other sectors. That doesn't seem to be borne out by the correlation data above, though.

3) The claim has been made, e.g. by Burton Malkiel in A Random Walk Down Wall Street, 11th edition,
...I strongly suggest you invest some of your assets in REITs. There are many reasons why they should play a role in your investment program. First, ownership of real estate has produced comparable rates of return to common stocks and good dividend yields. Equally important, real estate is an excellent vehicle to provide the benefits of diversification... Real estate returns have often exhibited only a moderate correlation with other assets, thereby reducing the overall risk of an investment program.
I believed him and was traumatized by the behavior of my small holding of the Vanguard REIT Index Fund in 2008-2009.

Getting cut down to a third of its previous value (REIT index fund) is noticeably different from getting cut down to a half of its previous value (Total Stock). At that time I was intending to build up VGSIX to a target percentage through automatic purchases, and it was losing money faster than I was putting money in.

Source
Image

4) The "low correlation" claim seems weak.
Source
Name, Ticker, Correlation with VTI
Vanguard Total Stock Market ETF VTI 1.00
Vanguard Industrials ETF VIS 0.94
Vanguard Consumer Discretionary ETF VCR 0.93
Vanguard Information Technology ETF VGT 0.91
Vanguard Materials ETF VAW 0.90
Vanguard Financials ETF VFH 0.88
Vanguard Communication Services ETFVOX 0.82
Vanguard Health Care ETF VHT 0.81
Vanguard Consumer Staples ETF VDC 0.77
Vanguard Real Estate ETF VNQ 0.75
Vanguard Energy ETF VDE 0.68
Vanguard Utilities ETF VPU 0.53
0.75 would never be considered a "low" correlation in any statistics class. Within the list of sectors, it's low but nothing special--two sectors have had lower correlation, VPU much lower.

5) It's just another popular idea. Like so many of them, people say it "tends to" do thus-and-such--but it has often failed to do what it supposedly "tends to" do.
Last edited by nisiprius on Mon Oct 10, 2022 4:48 pm, edited 5 times in total.
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Re: REITs - Where is the benefit again?

Post by AnnetteLouisan »

Ivygirl wrote: Mon Oct 10, 2022 5:48 am YTD returns for VGSLX Vanguard Real Estate Index -31.68%, price $109.73. In my opinion, it's time to buy, and I am.
Hi Ivygirl- Your posts are always readable and interesting, often very thought provoking, like your recent one about money, values and love.

Were you able to max out your Roth IRA after all? Are you putting your REIT in your Roth or taxable? You’d mentioned having a goal of maxing your tax advantaged space but that may have changed since then.
Last edited by AnnetteLouisan on Mon Oct 10, 2022 9:11 am, edited 1 time in total.
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Re: REITs - Where is the benefit again?

Post by smooth_rough »

A generalized real estate index dilutes its performance with the different property categories behaving differently and going in diffferent directions. Office has been hit hard from Work From Home. Retail continues to lose foot traffic to online shopping. While old ugly industrial continues to do well because it is generally considered to be "hands on" and can't be replaced by internet. Multi-family apartments tend to do well during period of rising interest rates, because financially weak home buyers will go back to renting. Hotels are different animal all together. If you invest in general real estate index, you are buying into all these different property categories at the same time, for good or bad.
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