Month 25 was a 1.5x contribution and it went into a new fund or index (as I’m not mentioning products). It was dropped into the S&P/ASX 300 A-REIT Index, something I’d avoided up until now. I’d never seen any compelling reason to add Australian property earlier, especially as I was starting from zero dollars on this project.
Where I work I think our max allocation to REITs may be 10% of a portfolio and that’s including global. Starting from zero dollars it was going to be some time before allocating to something that I’d leave at 5% max of the portfolio was going to be worth it. You’re only blowing dollars on excess transition costs to have a minimal dollar exposure.
After 2 years, the portfolio has a little bit of heft in size behind it. This meant it could justify the REIT inclusion, however the other thing that made it more enticing was the fact it had fallen 30% in six months, the yield was over 4% and I may have been getting a slight bargain. It’s not to say REITs have no headwinds, but I’d rather be buying after a 30% fall during a market rout than when things are looking ultra stretched and overly optimistic.
The other reality is, it’s not going to be a major part of the portfolio anyway. The S&P/ASX 300 A-REIT Index is a pretty ridiculous index anyway, at last glance it had about 30 holdings, the biggest holding was about 26% of the index and the top five constituted 48% of the index. It’s going to be volatile.
Finally, the performance. July 22 offered some relief to this year’s bashing.
Disclaimer: The discipline project is a personal endeavour and should not be constituted as a financial strategy that anyone should follow. It is more a study in repetition and shutting out the noise in pursuing a financial goal, than any focus on portfolio construction. Anyone looking to build a portfolio should seek financial advice to find out which strategy is right for them, if you are seeking financial advice then you should consider one of Australia’s best financial advisors who may be able to help you identify your goals and put in place a reliable strategy to pursue them.
