Fossil fuel whack-a-mole

In the 1990s, Tom's of Maine decided to reformulate its deodorant. One ingredient, Propylene glycol, is synthesized from natural gas, and Tom's wanted a product free of all ingredients derived from fossil fuels. NPR's Morning Edition:

One of the reasons shampoo and toothpaste and deodorant have ingredients derived from fossil fuels is that those ingredients are really cheap and abundant because oil and natural gas are cheap and abundant. Tom's could've used the replacement, but that would have made the deodorant really, really expensive for customers.

[Tom's of Maine chemist Pam Scheeler said,] "The cost would be so prohibitive that the product that you would be able to offer that uses that one very expensive ingredient, would price it out of the market."

It took Tom's nearly 20 years to finally find a supplier that could make a plant-derived propylene glycol to scale and cheaply enough.

But: growing plants consumes fossil fuel, sometimes a lot. Manufacturing fertilizers, operating sowing and harvesting equipment, processing the plants to make the chemical, delivering the chemical to Tom's plant -- all these activities consume fossil fuel. In eliminating traditional propylene glycol, did Tom's actually increase the amount of fossil fuel used to make its deodorant?

Just how much REIT do you own?

Bottom line: As of March 2015, REITs 3.3% of the Vanguard's Total Stock Market Index Fund's holdings.

Hi, everyone.

I subscribe to the Vanguard theory of personal investing, which can be summarized as:

1. Invest early and often
2. Invest in low-cost mutual funds
3. Allocate your investments in funds that are sufficiently diverse, and re-allocate as necessary

On this third point, many experts agree that some amount of holdings in so-called "real estate investment trusts," or REITs. (Supposedly, REIT rhymes with street, but I'll forgive you if you say it like right, rate, or riot.)

Essentially, REITs are companies that develop, own, and operate a portfolio of real estate holdings. The mall operator Simon Property Group, for example, is a REIT.

If you or me, the average joe saving for retirement, wants to put some of our savings into real estate investments, we can go buy real estate. Or if we want to diversify our holdings (or we're just not thrilled with the hassle of owning property), we can buy shares in a REIT, like Simon. OR if we want to diversity our holdings further, we can buy a mutual fund of REIT companies, like the Vanguard REIT Index Fund.

What's the right amount of REIT to hold? Opinions vary. Jacob Irwin has put together a good review on the topic. He concludes that you should put 10-15% of your total stocks should in REITs. (After all, a REIT is just another kind of stock.) So if your overall portfolio was $100 in stocks and $50 in bonds, you'd want to keep $10 to $15 in REITs.

Here's my contribution to this discussion.

Common stock index funds already have REIT holdings. If you're not careful, you could wind up over-allocating your portfolio to REIT holdings. Let's use the same example as above. You want a portfolio with $100 in stocks. You decide that you want 15% of your stock portfolio to be in REITs, so you buy $15 of a REIT mutual fund and $85 of an index stock fund. So far so good. But, chance are that that stock index fund already has some REIT holdings. Now you've overshot your 15% goal.

To get the balance right, you need to know how much of your favorite stock index fund is already invested in REIT stocks. I called my Vanguard advisor and asked, "How much of Vanguard Total Stock Market Index Fund (aka, TSM) is comprised of REIT stocks?" Somewhere between 0% and 20%, but he wasn't sure.

I'm not the first person to try to answer the question. Here are some stabs at it, some of which site sources, some of which don't, but none of which show their work.

• 2.5% of TSM is invested in a REIT, as of some time in 2006
• 2.5%, as of late 2006
• 2.3%, as of Sep. 2008
• 1.7%, as of Sep. 2009
• 3.1%, as of late 2011

The only further info I could find on vanguard.com is on Vanguard's Compare Funds page, which suggests that, as over Sep. 2015, 3.89% of TSM's holdings are in "real estate." That's probably a slight over-estimate, because there are some holdings that are real estate-related but actually property investments.

So, I did the math myself, and found: as of Mar. 2015, 3.26% of TSM is invested in a REIT.

In a later post, I'll explain the details of the calculation. I'll also post a copy of the spreadsheet that I use.

Disclosure: I'm a Vanguard member, and I (like millions of folks) have investments in Vanguard funds, including Total Stock Market Index Fund and REIT Index Fund.