I was invested in a partnership for over 20 years that recently liquidated so I've been re-allocating this cash into various investments. I already own a fair amount of physical real estate (rental apartments and houses) and I was trying to decide if I should buy more physical real estate, REITs or the wider US stock market (S&P 500). As part of this exercise I decided to look at the performance of Vanguard's REIT index fund (VGSLX) versus the SPX. I started on 11/12/01 because that was the first trading day for VGSLX.
Interestingly - and somewhat counterintuitively - VGSLX outperformed SPX over the period by 111 percentage points cumulatively, including reinvested dividends (530% for VGSLX vs 419% for SPX). VGSLX's annualized standard deviation averaged ~15% over the period vs SPX's standard deviation of ~21%. So, over this particular 21.5 year period, REITs delivered higher returns and lower volatility than the S&P. These are pre-tax numbers, of course. The beginning yield on VGSLX was 5.6% vs the SPX's yield of 1.7%. That 3.9% beginning dividend yield differential engendered all of the outperformance. As a result of the higher tax rate on dividends, taxable accounts would've have seen a much narrower spread in performance between VGSLX and SPX. In non-taxable accounts all of the performance spread would have been captured.
There's no recommendation here and, of course, "past performance is not a guarantee of future results." But it is a bit unusual to see a single asset class outperform the wider market (1) over a long period of time, AND (2) with meaningfully lower volatility.
When one can combine a dozen REITs today - and, importantly, avoiding some really risky exposures like office and class B malls, etc - and get to a yield of 7%+ and then pick up a couple of extra points of return through writing covered calls, I do wonder why I should even bother with physical RE (headaches) or the wider stock market (pricey and volatile). Anyhow, I'm just thinking out loud.
Submitted May 03, 2023 at 12:44AM by slazengerx https://ift.tt/bdXPJV8
