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  • 1 portfolio better (or worse) than yours

    I have read "150 portfolios better than yours" many times through and realize that there is not any one perfect portfolio. With that being said, I wanted to outline my intended asset allocation below to get any constructive thoughts or tweeks I might want to consider. I am 34 years old and married with 2 kids.

    US stocks- 50% (depending on the account, using S&P 500, VTSAX, VTI)
    Int'l Stocks- 20% (all VFWAX)
    Real Estate- 20% (5% REITS, 5% crowd-funded, 10% real estate fund)
    Bonds- 10% (5% Schwab Aggregate bond fund, 5% TIPS)

    At the current time my real estate allocation is only about 5% in crowd-funded real estate as I was trying to get my toes wet with it a few years ago. I have been conflicted on what spectrum of real estate to get involved with. I have come to know that I do not want to actively manage real estate, thus I came to the conclusion that I should diversify on the passive real estate side. The following was my initial consideration:

    1. 5% REITs- VNQ
    2. 5% crowd-funded- Fundrise
    3. 10% real estate fund- looking at Peak housing reit

    Any thoughts are appreciated!




  • #2
    Your plan is perfectly fine, but bear in mind it is an asset allocation not a financial plan. Many other considerations: allocations for home ownership; college savings; asset location (401k, 457b, Roth, taxable, HSA), etc. In other words, in addition to your portfolio you need an investor policy statement. https://www.whitecoatinvestor.com/yo...icy-statement/

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    • #3
      “ I came to the conclusion that I should diversify on the passive real estate side. ”
      Why tilt to real estate? You used the word diversify, I call it tilt. Real estate is a sector of investments.? Just like materials or tech or financials. Overweight real estate is your choice.
      The active owning of property is a specific concentrated investment.
      For the sake of diversification is probably more tilt.

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      • #4
        Real estate is a sector of investments.? Just like materials or tech or financials. Overweight real estate is your choice.
        The active owning of property is a specific concentrated investment.
        For the sake of diversification is probably more tilt
        Important point you make because the RE world often implies a dichotomy between Real Estate ("real assets") versus Wall Street ("paper assets"). REITs are poo-poo'ed as just another paper asset that correlate too strongly with the rest of the market. That said, I like the tax advantages of RE.
        To OP, It's not unreasonable to tilt in the RE direction but recognize it is still susceptible to downturns. Also recognize that crowdfunding and other passive real estate investments offer a greater risk of losing all your money as compared to something like VTI in which you lose whatever the market tells you, and even then there is opportunity for market recovery.

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        • #5
          Your plan looks good, I personally believe in adding a small percentage of small caps into the mix. But as stated above , you need a plan for when one or all segments gets hammered.

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          • #6
            A REIT is a legal structure for tax purposes.
            • Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries
            • Derive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales
            • Pay a minimum of 90% of taxable income in the form of shareholder dividends each year
            • Be an entity that's taxable as a corporation
            • Be managed by a board of directors or trustees
            • Have at least 100 shareholders after its first year of existence
            • Have no more than 50% of its shares held by five or fewer individuals
            The downside is not much capital appreciation in a REIT. 90% of profit is distributed. A REIT doesn’t pay income tax. You basically have an income stream , part dividend and part return of capital.

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            • #7
              Originally posted by Tim View Post
              “ I came to the conclusion that I should diversify on the passive real estate side. ”
              Why tilt to real estate? You used the word diversify, I call it tilt. Real estate is a sector of investments.? Just like materials or tech or financials. Overweight real estate is your choice.
              The active owning of property is a specific concentrated investment.
              For the sake of diversification is probably more tilt.
              I agree with identifying this as tilt. I meant to say that I intend to diversify WITHIN my 20% real estate. I.e don’t put it all in REITs or all in a fund that captures only single family homes. I am trying to get at a few different sectors in case one gets hit hard.

              Comment


              • #8
                Originally posted by Tim View Post
                A REIT is a legal structure for tax purposes.
                • Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries
                • Derive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales
                • Pay a minimum of 90% of taxable income in the form of shareholder dividends each year
                • Be an entity that's taxable as a corporation
                • Be managed by a board of directors or trustees
                • Have at least 100 shareholders after its first year of existence
                • Have no more than 50% of its shares held by five or fewer individuals
                The downside is not much capital appreciation in a REIT. 90% of profit is distributed. A REIT doesn’t pay income tax. You basically have an income stream , part dividend and part return of capital.
                For my own clarification REIT funds are best placed in tax advantaged plans correct?

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                • #9
                  Looks fine to me.

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                  • #10
                    I’ll tell you what I tell my 29 year old, super- techie wanna complicate/ over analyze son. S&P 500. That’s it. No mas.

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                    • #11
                      Originally posted by MartinV View Post

                      I agree with identifying this as tilt. I meant to say that I intend to diversify WITHIN my 20% real estate. I.e don’t put it all in REITs or all in a fund that captures only single family homes. I am trying to get at a few different sectors in case one gets hit hard.
                      Well, a total stock fund includes real estate. You are saying you need more real estate because why? Is real estate under valued? REITS are available public and private and specialized or broad.
                      Investing by sector is one technique. I am not saying it is wrong. I really question why real estate as a sector need to be over weighted by 20%.
                      https://finviz.com/map.ashx?t=etf
                      Sector weighting is based on business cycles. Some do better than others depending upon where we are.
                      I do admit, there are plenty of people selling real estate. Mostly products to be sold, rather than suitable for weighting a portfolio. There are specific ETF's and individual etfs and MF's. Why you think private is better than public is none of my business. Private investments have less diversification and higher risk.
                      If you want alpha, that comes with work, single properties that you think will do better than the total market (which includes real estate).
                      Most think a tilt for public real estate will increase diversification. It does not, it is an edge based on a false impression. Concentration in one segment.

                      Comment


                      • #12
                        Originally posted by Auric goldfinger View Post
                        I’ll tell you what I tell my 29 year old, super- techie wanna complicate/ over analyze son. S&P 500. That’s it. No mas.
                        Why S&P and not total market?

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                        • #13
                          Irrelevant in tax deferred. More tax efficient in taxable.

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                          • #14
                            Originally posted by AR View Post

                            Why S&P and not total market?
                            S&P is the best offering in my 401k

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                            • #15
                              Originally posted by Auric goldfinger View Post
                              Irrelevant in tax deferred. More tax efficient in taxable.
                              Are you sure about this? I didn't really think there was a significant difference, but when I looked it up I found tax-cost ratio for VTI to be 0.49% and VOO to be 0.50%.

                              Maybe there is another measure that you are using to determine this?

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