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Demand more from REITs as investors.

Tuesday, June 4, 2024

The catalyst for this blog is a comment from a viewer of my YouTube channel.

The viewer said:

"... older video says you did not lose playing reit. need your help man. it is starting to feel a bit strange already."

In reply to that, I said:

"I made a lot of money investing in REITs but that was during the 15 years when interest rates were almost zero. Things different already."

We must realize that things have changed.

I blogged about how I made more than $2 million investing for income and that was from passive income received alone.

$2 million in passive income.
Sunday, January 8, 2023

It did not include any capital gains made over the years.

I can safely say that more than half of that $2 million in passive income was from REITs.

If we take into account capital gains from voluntary and involuntary sale of REITs in those 15 years, I have made a lot more money from investing in REITs.

For an average Singaporean like me, that is a lot of money.

It has definitely helped me to achieve F.I.R.E. more comfortably.

However, like I said, things are different already.

In many blogs I published and videos I produced in the last year or so, I said as much.

Rapid and significant increases in interest rates have thrown a spanner in the works for REITs.

Indeed, they have had the same effect on all risk assets and not just REITs.

In an environment where risk free rate is 5% or more, Mr. Market is right to demand more from REITs.

This means yield has to expand, all else being equal.

I made videos on this and I am including them here for people who do not follow me on YouTube:

If a REIT was yielding 5% when risk free rate was almost zero, now, it should yield 10% or so in order to be attractive.

In Singapore, if we take the recent Singapore Savings Bond which offered 3.33% p.a. 10 year average yield, a REIT which offered 5% distribution yield in the past should offer 8.33% today to be attractive, all else being equal.

This is just something to bear in mind and might not be an ironclad rule to follow, for people who still believe in REITs as viable investments for income.

However, it is simply sensible to use this yardstick, I believe.

Anyway, I get the feeling that people are still not as demanding as they should logically be when investing in REITs today.

Many are investing with the idea that interest rates might be rapidly cut from 2H 2024.

Investors who only started investing during the years of very low interest rates might even think that interest rate cuts means a return to the post Global Financial Crisis low interest rate environment which lasted 15 years or so.

Investing in REITs today with such a belief could lead to disappointment.

Bearing this in mind, I also made a couple of videos on IREIT Global before:

Finally, AK is losing money investing in a REIT.

This might make some people cackle with glee.

To me, this is just another example that I am not always right.

It is only paper loss right now but who knows how things would pan out?

Of course, we must not forget that AK is also losing money in another REIT, CapitaLand China Trust.

Things are different now and this is why I have been saying that I am not adding to my investments in REITs in the current environment.

Why do DBS, OCBC and UOB together form more than 40% of my portfolio today?

If AK can talk to himself, so can you. 


zhenling said...

rate cuts from ECB are on the horizon apparently. hope that helps ireit global

Small steps said...

Hi AK,

LT follower of your blog. Think you are a bit too hard on yourself for having a non performing REIT in portfolio. And IREIT is low now but really, we dont know the future.

Because i benefitted greatly from your blog, so i just want to say , cheer up ! I had many such lessons and maybe there will be more in the future as well . But i try to learn something from all these bad calls. So similarly , I will love to hear your thoughts maybe to see what you thought you could have been done better ? But please dont be too hard on yourself ! You are doing good and you have helped lots of folks like me as well. So cheer up and keep on doing the good work that you have been doing ! Even the best of us like WB have such days. The impt thing is we keep getting back up.

Cheers and wishing you well

AK71 said...

Hi zhenling,

Crossing fingers but I won't hold my breath. ;p

AK71 said...

Hi Small steps,

Thank you for the kind words. :D

Don't worry about me being too hard on myself.

I am just saying what is obvious and it is obvious that IREIT Global isn't the brightest investment in my portfolio. ;p

If anything, I am very forgiving towards myself and you might remember that I have said on many occasions that if I can be right 6 times out of 10 times, I am happy enough. ;)

Cannot make all the money in the world and cannot be right all the time.

I have accepted this a long time ago or I would have gone utterly insane by now.

Thanks again. :D

Cory said...

Is a good think that you have Banks to mitigate the reit impact. However this could also implied the risk of being in market. If you have not be large in banks the fall could be damaging. Always reminded myself in 3D shooting game, we need to keep moving constantly and not be sitting duck.

AK71 said...

Hi Cory,

I like to think that I have been nimble enough to do reasonably well.

For sure, the only constant is change. :)

Kunio said...

Hi AK,
I got layoff in May..
Feel disappointed but moved on.

However, this has impact in my recent stock purchase behavior...太过小心,船头怕蛇,船尾怕鬼。。。😅

Need time to adjust...

AK71 said...

Hi Kunio,

I am so sorry to hear that. :(

Hope you recover soon. 100%! :)

Nothing wrong with being more careful but it is totally wrong to be reckless! ;)

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