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I am wondering if someone can point out the advantages/disadvantages of adding an REIT to a basic ETF portfolio that will be cashed out in 3-5 years(or the next good bull mrkt) as down payment for a home. (I have a separate savings acct for emergencies and a separate retirement portfolio).

Some key points that concern me are retailers shifting to online sales as opposed to traditional brick and mortar as well as corporate real estate's move to flexible workplaces offering agile/wfh/remote office employees. A positive for me is that this portfolio resides in a Canadian Tax Free Savings account where all capital gains/dividends are tax exempt. I'm just not sure if it's really that important to have exposure to this sector at this time for my down payment goal.

To me the REIT seems more like a long term steady growth and monthly distribution as opposed to my hopes for good 3-5yr equity growth potential.

Does it make sense to reduce US/CAN exposure by 2.5% each and add 5 % XRE - REIT?

  • 35% XIU - CAN
  • 35% XSP - US
  • 15% XAW - Global
  • 05% XBB - Bond
  • 10% -------- Cash
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    This is a personal decision - no one here knows how REITs are going to perform going forward. The main benefit is diversification; if something happens that benefits REITs but harms equities you would be better off, but that's pure speculation. – D Stanley Apr 19 '17 at 18:36
  • @DStanley Like all investment vehicles we know they go up and down, I guess what I'm asking is if with a 3-5 yr time frame and Medium risk would an REIT diversification be something to add? – AM_Hawk Apr 19 '17 at 18:39
  • All I can say is I have some of my K in a REIT fund. – quid Apr 19 '17 at 19:59
  • Just an observation - the broad US stock market has been bouncing sideways for a couple of months now while REIT's been doing great. – xiaomy Apr 20 '17 at 14:44
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The reason why people sometimes recommend adding REIT to your portfolio is that REIT tends to be less correlated with company stocks. This gives you greater diversification and possibly even a greater overall long term return if you rebalance on a periodic basis. For a 3-5 year time frame it doesn't matter because you don't have near enough time for investment classes to change in value and revert back to the mean...

For your situation, your portfolio is far too risky for a 3-5 year time frame. If the market crashes, you may not have enough for a down payment or may need to buy a much smaller house. If your main purpose for this money is to buy a house in 3-5 years, you should do safe investments like CDs, bonds, and the like. Only put in stocks what you can afford to lose for such a short time frame.

  • Thanks for the explanation and the advice, much appreciated! – AM_Hawk Apr 20 '17 at 12:48
  • When Toronto house prices rise over 17% year over year you're kind of forced to take on that risk to try and keep up, safe investments won't keep you in the game. – AM_Hawk Apr 20 '17 at 13:00
  • Bubbles crash. Safe investments don't. – Philip Apr 21 '17 at 10:57

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