Updated: Sep 11, 2019
REITs was first started in Singapore in 2002. Today, it has become a very popular instrument for passive income investors. But yet some of the aggressive investors would think that REITs are boring due to its steady growth and returns. In this article, we will show you how you can generate significant return through investing in REITs by using an automated portfolio re-balancing strategy.
Key highlights of the strategy:
Leverage of capital
Volatility of the stock
Imagine you would have invested $10,000 in Capitaland Mall Trust right after its initial public offerings in 2002, your portfolio would have grown to $59,484 in 2019 (assuming all dividends would have been reinvested).
That was about 500%!
Or 11% compiled annual growth rate!
This would easily outperform the inflation rate, CPF returns as well as the Straits Times Index returns.
So, is it possible to improve the portfolio returns through automatic portfolio re-balancing?
Our automatic portfolio re-balancing strategy uses the price volatility as one of the key parameters. For example, adding or reducing positions when the price moves out of the 10% price range.
The $10,000 investment in CapitaLand Mall Trust in the same investment period above would have grown to $82,111!
The return was more than 700%!
Which is translated to 13.2% complied annual growth rate!
The figure below shows the monthly re-balancing - buy/sell volume. The strategy also assumes that all dividends are reinvested.
Excluding those months when the dividends were reinvested, most of the buying and selling were done when the market was volatile. For example, the portfolio size was reduced before the 2018 Global Financial Crisis (RED Box). That was the period when the market was at its high. The portfolio re-balancing strategy suggested to reduce position, which also helped us to lock in some profits.
Right after the financial crisis (GREEN Box), when the price was near the bottom, the strategy suggested to increase positions.
In other words, the strategy allows us to buy low and sell high. And eventually improve the portfolio return in the long run.
Leverage strategy for aggressive investor
If you are willing to take more risk, you can combine our leverage strategy with the portfolio re-balancing strategy. $10k investment will turn into more than $200k.
It yielded a total returns of 1,900%! Or 19% compiled annual growth rate!
You don't need a crystal ball to be a highly profitable investor, and you certainly don't need to risk a lot to make a lot either! You just need a great portfolio management system! And I'm not talking about the industry norm of risking 2% per trade. That will get you nowhere fast! Even if you had started with a small portfolio, the strategy will still allow you to scale your portfolio aggressively if you are willing to take some risk!
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