AMA Investment Moats
Asked by Anonymous
Asked on 18 Aug 2018
Hi, is investing in reits and unit trust suitable for DCA and rebalance? For portfolio of etf of 50%stocks 50 bond, how often can one buy and and wat method and how often to rebalance? Should we rebalance factoring market changes or just rebalance regularly in 20 -30years?
The idea of rebalancing is to bring your allocation to the desired strategic allocation. Often it is to ensure that the portfolio have a balance of reward and volatility.
For example, I am a stock investor but on a high level, I am near the end where I won't have much capital injection. So naturally, I wish to reduce the volatility of my net worth. So suppose the market have been favorable such that the stocks portion of my net worth goes up to 65% cash 35%. I am more comfortable that the right fit at this point is 50% 50%. So I will find those stocks that are weakest in terms of future growth versus valuation and sell it. This will bring the allocation back to 50%/50%
Now back to your question about REITs and unit trust. Unit trust is a fund or a group of stocks. They are suitable to dollar cost average and routinely rebalance. But u got to choose well because not alot of unit trust do consistently well over time. It's more dealing with the instrument.
You wanna dollar cost average into something that makes sense. Usually people dollar cost average into a index fund because it's mechanical, weak stocks gets replaced by strong stocks that grew bigger. You can dollar cost average into it. However, for a unit trust which is active, the manager might be loosing his mojo. If you dca into someone losing a mojo it's not a good thing.
Dca allows you to take advantage of volatility to get average prices but it's more of psychological to ensure you don't get psychological traumatized by a plunge. In theory, lump sum has a better performance because markets tend to be positive bias.
Going to REITs, REITs is a single stock. Again you can dollar cost average if it's a strong individual stock. A lot of individual stocks do very well or die. So usually I don't advocate mindless dca. A more appropriate method is to analyze it we'll buy when the price is relatively undervalued.
The only time you dca individual is when u have prospect and this stock have a good owner operator or a good capital allocator. An example of these are Berkshire Hathaway, Cheung Kong Hutchinson, Cheung Kong assets, markel
For REITs if you really want to dollar cost average, perhaps should find some of those REITs that looks to be robust and around for a long time. Those with strong sponsors might help.
If you wish a more plausible dca candidate, perhaps it is one out of the three reit ETF. Since this is a basket of REITs, you won't run into the problem of the reit you pick losing it's mojo and you going down with the ship together.
One question to ask yourself is if this stock is down, can you find yourself dca into it? If you feel conflicted, it is either not the right asset to dca or you do not understand the motive of dca.
In terms of rebalancing frequency, the research is pretty inconclusive. I favor the check once a year to see if the allocation is veering off the objective allocation. If it is then rebalance. This can be strategically adding your capital injection to the more undervalued asset