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  • Real Estate Asset Class?

    This seems like a basic question, so I'm dropping it here.

    When considering an overall Asset Allocation, where would you put Real Estate? Specifically, a REIT Index fund like VGSLX.

    I am young and early in my career. I want to be aggressive and would be comfortable with 100% Stocks, 0% Bonds for the next decade before bringing it down to 80/20 and step-wise from there. Do most people consider REIT funds in their "stock" portion of their AA?

    Currently, I'm looking at 80% Vanguard/Fidelity Total Market/S&P500 Funds with 20% Real Estate, but I'm not sure how to map that onto the usual conversation about stock/bond split.

  • #2
    It's its (I don't know if I've ever used 'its' twice in a row before, that felt weird) own asset class. If you want 20% REITs and 0% bonds then you have 80% left for the stock allocation you want.

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    • #3
      How should I think of it in terms of "aggressiveness"

      It seems to me that RE has more "capital appreciation" than bonds, but more regular distributions than most stocks. The overall yield seems comparable to stocks but is more volatile than bonds.

      Is that a fair assessment?

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      • #4
        REIT index funds have a 0.7 correlation with total stock market. So I think of REITs as "real estate flavored stocks." I would allocate to them within the stock part of your portfolio. International index funds are a bit higher, between 0.8 and 0.9 over the last ten years.

        Total bond market has a correlation of basically zero with stocks. Treasury bonds have a negative correlation. So they are definitely in a separate class. Precious metals are also close to zero.

        If you invest in direct real estate, I would look at that as separate, along with other alternative investments. However, I admit I don't know what the long-term correlation of that with the stock market is. It is lower, but I haven't been able to find good sources for it.

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        • #5
          Originally posted by LazerBeams View Post
          This seems like a basic question, so I'm dropping it here.

          When considering an overall Asset Allocation, where would you put Real Estate? Specifically, a REIT Index fund like VGSLX.

          I am young and early in my career. I want to be aggressive and would be comfortable with 100% Stocks, 0% Bonds for the next decade before bringing it down to 80/20 and step-wise from there. Do most people consider REIT funds in their "stock" portion of their AA?

          Currently, I'm looking at 80% Vanguard/Fidelity Total Market/S&P500 Funds with 20% Real Estate, but I'm not sure how to map that onto the usual conversation about stock/bond split.
          REITs are equities.
          they are already included in total US so you are tilting.

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          • #6
            Originally posted by Peds View Post

            REITs are equities.
            they are already included in total US so you are tilting.
            Wow. I did not realize that total stock included REITs. Somehow that surprises me. Very eye opening, thank you.

            ​​​​​​Are there any resources to directly compare the holdings of two funds to figure out the overlap?

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            • #7
              It's optional. This Morningstar article gives a pretty good perspective.

              https://www.morningstar.com/articles...ue-alternative

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