Asked by Anonymous
Asked on 15 May 2019
Top Contributor (Jan)
REITs as an investment tool are great for aggressive and moderately aggressive portfolios, and you can hold probably 30% of your portfolio in them.
But when you're closer to retirement age, I wouldn't hold too many REITs. Probably only 10% of my portfolio.
I liken REITs to High Yield Bond funds. They hold similar benefits to investors and are exposed to similar risks especially interest rates.
Market conditions that REITs thrive in are low interest rate environments as they use quite a lot of gearing and are leveraged.
REITs can generally be a favorable component of total asset investment strategies, with regular welcomed payouts (if everything goes well ...), also, particularly the Singapore S-REITs (currently have relatively high and tax free) yields. But (as with single stocks) how could compared to finance professionals the retail investor realistically know what REIT will be successful in the future. I'd recommend not to buy REITs but REIT ETFs, particularly one of the 3 in Singapore ("S-REITs"), with Lion-Phillip's one being the most concentrated on Singapore allocation. The global ETF: REET maybe could be a good choice as also some U.S. focused ones like VNQ or european focused IQQP.
more on my thinking here: https://seedly.sg/questions/what-is-your-general-investing-philosophy-strategy
REITs can be your first asset class in your investing journey. As what I've shared in other posts, I first started out with REITs 7 years ago when I was 18 and since I didn't require the money, I just parked it there collecting dividends.
One don't usually dabble in REITs for capital appreciation hence I'd take it as an investment tool rather stocks (which is more suited to shorter term trading).
As what Hariz has pointed out, a low interest rate market would benefit REIT as they borrow close to 40% loans to fund their business. Therefore a higher interest rate would erode shareholder returns.
There isn't a stage that you should start looking into investing in reits.
Building your investment portfolio is like gardening. You build it one step at a time. Some stocks, some retis, some funds, some bonds. Add into your collections and build your passive income along the way.
I understand that you're new to investment, that means before you purchase something, do read up about it. I made mistakes such as investing based on hearsay previously and I paid for the mistake. Don't commit the same mistake.
There are a few factors concerning about REITS that you should understand. Occupancy, Gearing, Leasehold and interest rate. And also in this current environment, if interest rate is going to rise, REITS with high gearing would be affected and it would be good to look into it to see how the management deals with it.
This is an interesting topic and I would say it would take a deeper discussion to understand it better. Of course, if you're keen to talk more about it, message me back. Glad to help.
SG REITs outperformed the STI index consistently in the last 5 to 10 years on total return basis. Look at ur investments as a portfolio. Combining good quality REITs ( the 4 Mapletrees, parkway and Ascendas) with the local banks and STI index ETF would give you an excellent start. If banks are to expensive, Sti index ETF is good enough. Invest equally with no single counter making up more than 5% of ur total portfolio unless its an ETF. There is no right or wrong weightage, u just have to jump in and learn along the way.