REITs was a great investment decision!
May 2004: after months of in-depth analyses, Group A made a strong case for a greater allocation to REITs.
In retrospect, Group A was right. There is no doubt in my mind that REITs was a great diversifier. Allocating anywhere between 10%-20% of your total portfolio to REITs was a great idea at the time (IYR at $45). Today, some will say that Group A’s recommendation of REITs resulted in negative returns and has underperformed the S&P 500. But, if you had locked-in profits, you would have had a great return and outperformed the S&P, even as the price has dropped to $38.
Let’s say you bought REITs and allocated $200,000 in May 2004. (sorry in advance for rounding, just keeping it simple).
Cost Basis in REITs ETF (IYR) May 2004: $45
May 2005: beginning value $200K, price at $55, return 20%, ending value: $240K. Gain: $40K, locking in profits of $40K.
May 2006: beginning value $200K, price at $71, return 30%, ending value: $260K. Gain: $60K, locking in profits of $60K
.
May 2007: beginning value $200K, price at $92, return 30%, ending value: $260K. Gain: $60K, locking in profits of $60K.
May 2008: beginning value $200K, price at $65, return -30%, ending value: $140K. Loss: $60K
May 2009: beginning value $140K, price at $32, return -50%, ending value: $70K. Loss: $70K
August 2009: beginning value $70K, price at $38, return 20%, ending value: $85K. Gain: 15K.
Gains: $175,000
Losses: $130,000
Net Gains: $45,000
So the REITs ETF from May 2004 thru today is down more than 15% while the S&P is only down 10%. But if you locked-in profits (as is the industry standard) you would have had a return of +23%, while the S&P had a return of only +2%!
So to reiterate my point, REITs was a great investment decision!!