Why REIT prices are not going down while bonds are being hammered?
"There are five main drivers to real estate returns: Income (cash flow from rental payments); Depreciation (as an expense that can be used to reduce taxes); Equity (the gradual paydown of the mortgage the increases underlying equity in the property); Appreciation (any increase in the overall value of the property); Leverage (the impact of debt financing on the deal, increasing the effective ""cash-on-cash"" return). (Asset Rover has a detailed walk-through of the components, and a useful comparison to stocks) So interest rates are certainly a component (as they increase the expenses), but they are just one factor. Depending on a particular market's conditions, appreciation or rent increases could offset or (exceed) any increase in the interest expense. My own experience is mostly with non-listed REITs (including Reg A+ investments like the ones from Fundrise) and commercial syndicates, and for right now in both cases there's plenty of capital chasing yield to go around (and in fact competition among new funding sources like Reg D and Reg A+ platforms seems to be driving down borrowing rates as platforms compete both for borrowers and for investors). Personally I pay more attention to where each local market (and the broader national market) is along the ~18-year real estate cycle (spoiler: the last trough was 2008...). Dividend Capital puts out a quarterly report that's super useful." I don't like REITs because they are more closely correlated to the movement of the stock market. They don't really do the job of diversifying a portfolio because of that correlation.  When the stock market dropped in 2008, REITs were hammered as well because the housing bubble burst. Bonds went up, and if you rebalanced (sold the bonds to buy more stock) then you came out much further ahead when the stock market recovered. The point of adding bonds for diversification is that they move in the opposite direction of equities; blunting the major drops (and providing buying opportunities). REITs don't fit that bill. REITs are not undergoing a correction like bonds because the price of real estate is a function of housing supply and buyer demand. Rising interest rates only make it a little harder for buyers to buy, so the effect of rising interest rates on real estate prices is muted. The other effects on real estate prices (more wealth in the economy for buyers) pushes in the opposite direction of the rising interest rates.
That looks like a portfolio designed to protect against inflation, given the big international presence, the REIT presence and TIPS bonds. Not a bad strategy, but there are a few things that I'd want to look at closely before pulling the trigger. Well put and, honestly, seemingly unavoidable. It will be crazy if it truly does come to fruition if they (Fed/Treasury/Gummit) realize that they cannot inflate their way out of this by printing more money and all of the nay-sayers of massive deflation get proven wrong.   So, the better question is this: we believe/know it's coming, so how do we prepare and strategically place ourselves to survive/profit/prosper from the coming collapse?  As I see it, RE is a crap investment for the foreseeable future as oversupply and oversize are not absorbed. People have to live, so rentals will be key; but, they have already bloomed quite a bit.   Stocks will likely trade sideways for awhile before likely tanking as the forced/willing withdrawals start happening from the Boomers. So, keeping it in stocks doesn't sound overly positive, unless a fairly aggressive put strategy is enforced.   Bonds are paying crap and, after taxes, barely pacing inflation.   For me personally and selfishly, I have 20 years minimum for retirement, so I'm fine qith the market trending sideways or down. It means that I'm getting more bang for my DCA buck and, 20+ years from now, I will be well positioned when the market eventually cycles back up.   But, for now, where do we put our investments to protect and, hopefully, grow them as the mid term passes? Historically when short term treasuries (maturity less than 5 years) have a higher yield than long term treasuries (10+ years) a recession has followed within a year or so.  Don't quote me on the bond maturities and how quickly a recession occurs but it's basically accurate.    Edit: we are not there right now but that seems to be the trending direction. The reason the market value is low is because the market does not believe that the company or country will pay. Another reason for it to go down is lack of liquidity in the market. However if you believe that the conditions would improve by the time bond matures, and you don't need money right now, then you can wait for maturity and get the maturity value. Actually, bond prices are technically high right now, so if and when rates theoretically go up in the future, bond prices will fall. The past 25 years for bonds have been great with falling interest rates, but it's not likely going to continue with rates not able to go any lower. That's not what he's saying at all.  Basically most of his argument (4 of 6 points) is the connection between bond prices and equity prices. It's not particularly interesting but it definitely doesn't always apply either. If bond yields fall, then so too should equity earnings yields if spreads remain relatively constant, i.e. higher equity prices. Additionally, if bond yields are low, then any future equity growth gets capitalized at a much higher value because discount rates are much lower. Again, not particularly insightful.  The two interesting comments were about oil and cash as a % of assets at financial institutions. Both of these are likely linked to falling or low rates above, because banks can't invest profitably at low rates and hence hold cash and equivalents instead, and oil prices are more likely to fall in a low or falling inflation environment (implied by the low rates or Fed tightening).  Really, I think hes's saying something more obvious but not necessarily trivial, which is if one asset class goes up, so too is another related one. Notes and Bonds sell at par (1.0). When rates go up, their value goes down. When rates go down, their value goes up. As an individual investor, you really don't have any business buying individual bonds unless you are holding them to maturity. Buy a short-duration bond fund or ETF. AAA bonds are safe, as far as the principal goes. If you buy long term bonds today (at very low rates) and the interest rate goes up to 10% in 5 years, the current value of the bonds will decrease. But if you hold the bonds till maturity, you will almost certainly (barring MBS scenarios) get the expected principal and interest on the bonds. If you decide to sell a long-term bond before it matures, it will probably be worth less than you paid for it if interest rates have risen since you bought it. But it also can't be 1.46%, because that would imply that a 30Y US Treasury bond only yields 2.78%, which is nonsensically low. The rates are displayed as of Today. As the footnote suggests these are to be read with Maturities. A Treasury with 1 year Maturity is at 1.162% and a Treasury with 30Y Maturity is at 2.78%. Generally Bonds with longer maturity terms give better yields than bonds of shorter duration. This indicates the belief that in long term the outlook is positive. I know that assets like bonds have prices that have an inverse relationship with interest rates, but what other assets do as well? I'm a bit new to finance and all that so I'm trying to learn. Would real estate prices be high as well? If so, why? "This is the best tl;dr I could make, [original](https://www.bloomberg.com/news/articles/2017-08-22/wall-street-banks-warn-winter-is-coming-as-business-cycle-peaks) reduced by 87%. (I'm a bot) ***** &gt; HSBC Holdings Plc, Citigroup Inc. and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle.  &gt; Analysts at the Wall Street behemoths cite signals including the breakdown of long-standing relationships between stocks, bonds and commodities as well as investors ignoring valuation fundamentals and data.  &gt; Citigroup analysts also say markets are on the cusp of entering a late-cycle peak before a recession that pushes stocks and bonds into a bear market.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6vkwv3/the_next_recession_is_nigh_how_are_you_lads/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~197088 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **market**^#1 **stock**^#2 **investors**^#3 **equity**^#4 **U.S.**^#5" Bonds can increase in price, if the demand is high and offer solid yield if the demand is low.  For instance, Russian bond prices a year ago contracted big in price (ie: fell), but were paying 18% and made a solid buy.  Now that the demand has risen, the price is up with the yield for those early investors the same, though newer investors are receiving less yield (about 9ish percent) and paying higher prices.   I've rarely seen banks pay more variable interest than short term treasuries and the same holds true for long term CDs and long term treasuries.  This isn't to say it's impossible, just rare.  Also variable is different than a set term; if you buy a 10 year treasury at 18%, that means you get 18% for 10 years, even if interest rates fall four years later.   Think about the people buying 30 year US treasuries during 1980-1985.  Yowza. So if you have a very large amount of money you will store it in bonds as its much less likely that the US treasury will go bankrupt than your bank. Less likely?  I don't know about your bank, but my bank doesn't owe $19 trillion. Asset prices are inversely related to interest rates. If you're valuing a business or a bond, if you use a lower interest rate you get a higher valuation.  Historic equity returns benefit from a falling interest rate environment which won't be repeated as interest rates can only go so low.  edit: typo IMHO bonds are not a good investment at this present time, nor generally. Appreciate for a moment that the yield of an investment is DIRECTLY related to the face/trading value. If a thing (bond/stock) trades for $100 and yields 3%, it pays $3.  In the case of a bond, the bond doesn't pay a % amount, it pays a $ amount.  Meaning it pays $3. SO, for the yield to rise, what has to happen to the trading price?  It has to decrease. As of 2013/14 bonds are trading at historically LOW yields.  The logical implication of this is if a bond pays a fixed $ amount, the trading price of the bond has to have increased.  So if you buy bonds now, you will see a decrease in its face value over the long term. You may find the first tool I built at Simple Stock Search useful as you research potential investments. It is supported by inflation and historical values. if you look at real estate as well as the stock market they have consistently increased over a long period of history even with short term drops. It is also based on inflation and the fact that the price of land and building material has increased over time.