Safe withdrawal studies using REIT allocation?

Financial Independence/Retire Early -- Learn How!
Post Reply
peteyperson
**** Heavy Hitter
Posts: 525
Joined: Tue Nov 26, 2002 6:46 am

Safe withdrawal studies using REIT allocation?

Post by peteyperson » Mon May 31, 2004 10:28 am

I was wondering if any studies have been done replacing some or all of a bond allocation with REITs?

I'm thinking about something with an allocation of 50% stocks, 25% REITs, 25% bonds.

Thanks,
Petey

User avatar
ataloss
**** Heavy Hitter
Posts: 559
Joined: Mon Nov 25, 2002 3:00 am

Post by ataloss » Mon May 31, 2004 4:13 pm

No, as far as I know. I don' think there are good long-term data for reits
Have fun.

Ataloss

peteyperson
**** Heavy Hitter
Posts: 525
Joined: Tue Nov 26, 2002 6:46 am

Post by peteyperson » Mon May 31, 2004 4:49 pm

Well, there is 30 years worth. Not long-term but it does include several real estate recessions, one major overbuilding and a good comparison to the performance during 1973-4. Also while one might need to sell down common stocks (depending on their yield thru that period), the REIT dividends may have provided a better survivability than studies that use bonds and common stocks alone demonstrate and with higher w/d rates.

Petey
ataloss wrote: No, as far as I know. I don' think there are good long-term data for reits

tjscott0
* Rookie
Posts: 10
Joined: Tue Dec 03, 2002 3:16 am

Post by tjscott0 » Mon May 31, 2004 4:56 pm

Ibbotson has studied correlation between stocks & REITs. That is not exactly what you requested but neverless is interesting. You will note that correlation is declining.

www.nareit.com/mediaresources/IbbotsonFinal.pdf

Mike
*** Veteran
Posts: 278
Joined: Sun Jul 06, 2003 4:00 am

Post by Mike » Mon May 31, 2004 6:23 pm

Well, there is 30 years worth.


That only provides one 30 year retirement to study. If there was 60 years of data, you would have 30 starting years to look at. Of course, there would be the problem of overlapping data. You might be able to use a Monte Carlo calculator to simulate possible scenarios.

User avatar
Bookm
Admin Board Member
Posts: 36
Joined: Wed Nov 27, 2002 4:00 am
Location: Norfolk, VA
Contact:

Post by Bookm » Tue Jun 01, 2004 4:37 am

tjscott0 wrote: Ibbotson has studied correlation between stocks & REITs. That is not exactly what you requested but neverless is interesting. You will note that correlation is declining.

Nice link tjscott. One thing that we can be certain of tho, is that those correlation mearures aren't static, as indicated by the chart on page 3 of that link. The ibbotson article was from 5/01, and since then, something has occured that seems to have had a negative effect on the article's claim. REITs have since found their way into the S&P 500, the first one being added 9/01. There now are 6 (IIRC) REITs in the S&P 500, as well as several others included in the Mid-cap 400 and Small-cap 600, and I remember hearing that might not bave been the best move for that market.

An article from 11/03 in the Real Estate Journal provided this data obtained from Morgan Stanley:

Before being added to the index, for instance, shares of Simon Property correlated to the S&P by a very low factor of 0.19, Morgan found. That means that for every 1% move by the broader market, Simon would probably move only 0.19% in the same direction. But after Simon's inclusion in the S&P in June 2002, the REITs' shares' moves have correlated to the index by a factor of 0.52, an increased correlation of 167%. The study found dramatically increased correlation for all the big names.
http://www.realestatejournal.com/column ... value.html

While watching the corresponding index funds I own shares in, I notice their respective NAV's don't fluctuate in lock step, but I still wonder about the increased correlation of late between REITs and LC and SC stocks.

Bookm
Wall Street investment products suck because it's all about them and their revenue today. It's not about us and our income tomorrow. - Scott Burns

peteyperson
**** Heavy Hitter
Posts: 525
Joined: Tue Nov 26, 2002 6:46 am

Post by peteyperson » Tue Jun 01, 2004 8:28 am

On a connected subject, Bengen's latest study on withdrawal rates showed an increase w/d rate of 0.3% to 4.3% when holding 63% stocks split evenly between small cap and large cap and the rest in intermediate bonds. Whilst one would have thought that a high allocation to stocks would cause more portfolio failures (and correspondingly larger dips in small cap market corrections increasing that), it seems stocks have a greater ability to recover than bonds in the long run.

Bengen's study (available from Bylo's site) also shows that an allocation for stocks below 50% affects the portfolio longevity and that above 75% is detrimental too. In stark contrast to what one might imagine, an allocation nearer 75% than 50% delivered a higher return over a longer timeframe. However due to the ongoing risk of a market correction of 35-50% with accompanying high inflation, one cannot move past the 4%-5% w/d rate.

Petey
Bookm wrote:
tjscott0 wrote: Ibbotson has studied correlation between stocks & REITs. That is not exactly what you requested but neverless is interesting. You will note that correlation is declining.

Nice link tjscott. One thing that we can be certain of tho, is that those correlation mearures aren't static, as indicated by the chart on page 3 of that link. The ibbotson article was from 5/01, and since then, something has occured that seems to have had a negative effect on the article's claim. REITs have since found their way into the S&P 500, the first one being added 9/01. There now are 6 (IIRC) REITs in the S&P 500, as well as several others included in the Mid-cap 400 and Small-cap 600, and I remember hearing that might not bave been the best move for that market.

An article from 11/03 in the Real Estate Journal provided this data obtained from Morgan Stanley:

Before being added to the index, for instance, shares of Simon Property correlated to the S&P by a very low factor of 0.19, Morgan found. That means that for every 1% move by the broader market, Simon would probably move only 0.19% in the same direction. But after Simon's inclusion in the S&P in June 2002, the REITs' shares' moves have correlated to the index by a factor of 0.52, an increased correlation of 167%. The study found dramatically increased correlation for all the big names.
http://www.realestatejournal.com/column ... value.html

While watching the corresponding index funds I own shares in, I notice their respective NAV's don't fluctuate in lock step, but I still wonder about the increased correlation of late between REITs and LC and SC stocks.

Bookm

Post Reply