infinity
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| mREIT Safety |
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I have considered some mREIT stocks to be relatively high risk because of their high yield in the neighborhood of 20%. I recently encountered the opinion, based on the Fed, that they were quite safe for two years. My problem with that is I usually invest, especially with income investments, for a longer term than that, not always of course. Also, with a horizon of two years, the time error could be large and the mREIT would have to be watche closely in my opinion and this raises the risk. Now I have invested in some of these high yield mREITs but I have also balanced them in my portfolio with other much safer and lower yield investments that happen to include other REITs as well as other categories. Anyone have comments or opinions, agree or disagree?
infinity
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Sun Sep 04, 2011 8:35 pm |
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oldguy
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quote:
Anyone have comments or opinions, agree or disagree?
I avoid risk in my income products. When I want to add risk to my portfolio, I do it by adjusting my equity/income ratio. Equity indexes historically return about 12%, income products get about 5%. So a 50/50 mix gets about an 8 1/2% return. So if I want to increase my risk level to about 10%, I do it by adjusting my 50/50 up to about 75/25 - as opposed to using a high risk income product such as junk bonds and REITs. IMO, that provides better control of your overall risk.
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Mon Sep 05, 2011 2:06 am |
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coaster
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And I'd add that if you want to balance high risk in one sector you should really do the balancing with a completely different and unrelated sector. REITs move as a group and while you might be balancing the income risk, you're exposing yourself to sector risk; i.e. the risk that the asset values of the whole group move in the same direction at the same time. When you're using a variable asset value instrument to produce yield, you should be taking the principal volatility of the asset itself into account. If you end up having to sell at a loss, you've just eaten up all your dividends (or more).
There are any number of high-quality blue-chip companies right now selling at steep discounts to their average historical values and thus offering yields that are well above their historical average yields. And if you plan to hold them long term and they continue raising the dividends .... heck .... I don't care so much what happens to the share price; they turn into income-producing gold mines.
But, hey, my #1 rule is: keep doing what works. If you've been living off your investments for 20 years, you're doing something right. 
~Tim~
Eye Candy : Why Whimsy
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Mon Sep 05, 2011 2:21 am |
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infinity
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Both the replies above make very valid points. To clarify a little, my original post was mainly concerning the income part of my portfolia. There is considerable overlap however but that is usually on the "safer" side and is with long held stocks(about 20 years or more) that also pay a decent yield, currently over 5%, and one of those is in the REIT category. To boost my income, especially after the recent recession, I have added what I consider to be higher risk stocks such as the mREITs yielding about 20% but these are smaller investment amounts compared to other parts of my "income" portfolio. Before the recession this part was mainly in oil tankers which worked well for several years and some still pay a decent yield but the main one Frontline(FRO) only has what looks like a good yield right now because of a considerable drop in price. What has seved me both well and in some cases poorly is holding on to investments for a long term.
infinity
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http://infinity-4-money.blogspot.com/
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Mon Sep 05, 2011 3:44 pm |
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coaster
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What jumped out at me was "and in some cases poorly". I think maybe you could tweak your selling strategy. I'm not a buy-and-hold-forever guy, despite that's the way I might come across in my posting history here. I just tend to weigh in heavily on the hold side because I think most people do tend to sell way too early. But a different selling strategy might be a way you could fine-tune the risk part of your overall portfolio strategy.
Of course what works for me won't necessarily work for anyone else, but without getting into it too finely my selling discipline is mainly these points: 1) asset continues to under-perform peer group; 2) reason I bought the asset no longer holds; 3) asset has over-performed and position exceeds x percent of portfolio (sell part); 4) asset has been aquired; 5) change in sector allocation.
~Tim~
Eye Candy : Why Whimsy
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Tue Sep 06, 2011 3:57 am |
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infinity
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| When to sell |
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Yes Tim, when to sell is always a problem in timing. I have been burned both ways, selling too soon and too late. On the whole I have done pretty well. My networth is higher now than it was before the recession; it just didn't grow as much as it had been doing over the preceeding decade or so. Still over the about 13 years preceeding the recession I did manage to quadruple my networth and buy a house which I don't count in my networth calculation. Although the house, in spite of what has happened to the housing market, is still worth about a third more than what I paid for it in 1995.
infinity
Blog:
http://infinity-4-money.blogspot.com/
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Sun Sep 11, 2011 8:19 pm |
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