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REITs are attractive as diversifiers: they tend to have stock-like returns
and risk, but are relatively uncorrelated with other asset classes. For
more information about REITs, see here.
There are several very similar investment options available. Which is
best?
The funds are listed in rough order of our overall preference.
Preferences are listed separately for use in
retirement accounts and for taxable accounts.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
 | Vanguard Real Estate Index Fund Admiral Shares (VGSLX).
E/R: 0.12%. This fund tracks the MSCI US Investable Market
Real Estate 25/50 Index.
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| Fidelity Real Estate Index Fund (FSRNX).
E/R: 0.07%. This fund tracks the MSCI US IMI Real Estate 25/25
Index of equity REITs and other real estate securities.
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| Schwab U.S. REIT ETF (SCHH). E/R: 0.07%. This ETF tracks the
Dow Jones U.S. Select REIT Index of Equity REITs.
Our preference for SCHH over VNQ is very small.
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| iShares Core U.S. REIT ETF (USRT). E/R: 0.08%. This ETF
tracks the FTSE Nareit Equity REITS Index.
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| Fidelity MSCI Real Estate Index ETF (FREL). E/R: 0.084%.
This fund tracks the
MSCI USA IMI Real Estate Index
of equity REITs and other real estate securities.
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| Vanguard Real Estate Index Fund ETF Shares (VNQ).
E/R: 0.12%. This is the ETF share class of the Vanguard Real
Estate Index Fund (VGSLX) above.
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| DFA Real Estate Securities Portfolio (DFREX). E/R: 0.18%.
This fund passively invests in equity and hybrid REITs. We'd prefer that
the hybrid REITs be left out. But even if they were, this fund's expense
ratio is a little high, in our opinion.
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| DFA US Real Estate ETF (DFAR). E/R: 0.19%.
This ETF passively invests in equity and hybrid REITs. We'd prefer
that the hybrid REITs be left out.
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| SPDR Dow Jones REIT ETF (RWR).
E/R: 0.25%. This ETF tracks the Dow Jones REIT index of equity
REITs. Its low expense ratio suggests it might be a superior
choice to DFREX and TCREX below.
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| iShares Cohen & Steers Realty Majors Index Fund (ICF). E/R:
0.32%. This ETF tracks the Cohen & Steers Realty Majors Index of
relatively "large and liquid REITs that may benefit from future consolidation
and securitization of the U.S. real estate industry." This fund is
quite a bit less diversified than other options in this asset class.
With its relatively high expense ratio and unnecessarily
concentrated portfolio, we see little reason to use it instead of
the above alternatives.
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| iShares Dow Jones U.S. Real Estate Index Fund (IYR).
E/R: 0.40%. This ETF tracks the Dow Jones U.S. Real Estate
Index of companies in the hotel and resort business and REITs that
invest in apartments, offices, and retail buildings.
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| TIAA-CREF Real Estate Securities Fund Advisor Class (TIRHX). E/R: 0.64%.
This fund passively invests in real estate-related stocks, but principally
in REITs. With its relatively high expense ratio, we see little reason
to use it instead of the above alternatives.
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Note that REITs should generally not be in taxable accounts, as they are
relatively tax-inefficient.
| Vanguard Variable Annuity Real Estate Index Subaccount. E/R: 0.26%.
This variable annuity subaccount tracks the MSCI US Investable Market Real
Estate 25/50 Index—an index of equity REITs and other real-estate related
investments. REITs are, by their very nature, quite tax-inefficient.
You should generally avoid having them in taxable accounts in the first place.
But if you must, it MAY be a good idea to do it inside a non-qualified
Variable Annuity (which means it wouldn't really be in a taxable account after all).
For the most part, this recommendation only applies if you already own a
variable annuity — in general, we don't suggest
going out and buying a variable annuity just to invest in this subaccount.
A variable annuity is a VERY long-term investment with
relatively little flexibility. For more info on variable annuities, see the papers and articles
here. Most
Variable Annuities are VERY bad deals.
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| Vanguard Real Estate Index Fund Admiral Shares (VGSLX).
E/R: 0.12%. This fund tracks the MSCI US Investable Market Real Estate
25/50 Index.
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| Schwab U.S. REIT ETF (SCHH). E/R:
0.07%. This ETF tracks the Dow Jones U.S. Select REIT Index of Equity
REITs.
Our preference for SCHH over VNQ is very small.
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| iShares Core U.S. REIT ETF (USRT).
E/R: 0.08%. This ETF tracks the FTSE Nareit Equity REITS Index.
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| Fidelity MSCI Real Estate Index ETF (FREL). E/R: 0.084%.
This fund tracks the MSCI USA IMI Real Estate Index of equity REITs and
other real estate securities.
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| Vanguard Real Estate Index Fund ETF Shares (VNQ).
E/R: 0.12%. This is the ETF share class of the Vanguard Real Estate
Index Fund (VGSLX) above. However, unlike other non-Vanguard ETFs,
this fund will be only as tax efficient as its underlying fund — no more and
no less.
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| DFA US Real Estate ETF (DFAR). E/R: 0.19%.
This ETF passively invests in equity and hybrid REITs. We'd prefer that the
hybrid REITs be left out.
|
| SPDR Dow Jones REIT ETF (RWR). E/R:
0.25%. This ETF tracks the Dow Jones REIT index of equity REITs.
Its low expense ratio suggests it might be a superior choice to the other
options below.
|
| iShares Cohen & Steers Realty Majors Index Fund (ICF). E/R:
0.32%. This ETF tracks the Cohen & Steers Realty Majors Index of
relatively "large and liquid REITs that may benefit from future consolidation
and securitization of the U.S. real estate industry." This fund is
quite a bit less diversified than other options in this asset class.
With its relatively high expense ratio and unnecessarily concentrated
portfolio, we see little reason to use it instead of the above alternatives.
|
| iShares Dow Jones U.S. Real Estate Index Fund (IYR).
E/R: 0.40%. This ETF tracks the Dow Jones U.S. Real Estate Index of
companies in the hotel and resort business and REITs that invest in
apartments, offices, and retail buildings. With its relatively high
expense ratio, we see little reason to use it instead of the above
alternatives. |
This web page contains the current opinions of Eric E. Haas at the time it is
written—and such opinions are subject to change
without notice. This web page is intended to serve two purposes:
| To educate the public; and |
| To provide disclosure of Mr. Haas' opinions to prospective clients.
We believe that prospective clients are well-served by being made aware of
what they are buying—and what they are buying is advice
that is based on these opinions. |
We believe the information provided here to be useful and accurate at the time
it is written.
Information contained herein has been obtained from sources believed to be
reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here.
Before investing, it is important to consult each prospective investment's
prospectus and consider both its risk/return characteristics and its effect on
your overall portfolio.
This information is not intended to be a
substitute for specific individualized tax, legal, or investment planning
advice. Where specific advice is necessary or appropriate, Altruist
recommends consultation with a qualified tax adviser, CPA, financial planner, or
investment adviser. If you would like to discuss the rationale or support
for any particular idea expressed on this web page, feel free to
contact us. |
