Many of you are aware that my long term target yield for my portfolio is 5%. I believe it is a sustainable yield and it has been a target that I have been working on for sometime for my passive income post retirement.
Just to put some numbers in … assuming my family need $80k a year for expenses, to enable this via passive income will require a cash portfolio of $1.6 Mln. I am still far away from having this amount but I will work towards it to my best abilities – i.e. I cannot retire just yet.
If I am unable to achieve this amount by my “retirement” age, then my annual family expense will have to be adjusted to match the corresponding “5%” amount. Some lifestyle changes would be needed – For the moment, I am aiming high and I hope to succeed.
I recognize that this 5% target is a higher rate than the famous “Four Percent Rule“.
When I read some articles on the internet, some people are already feeling that this “Four Percent Rule” is more difficult to be met today. This is because the bond yield nowadays is much lower than the 4%.
For retirees (who will use this Four Percent Rule), it is generally expected that they would not want to take excessive risks with equities especially when that is their only income source. Hence, their investment portfolio would mainly be bonds. And bonds is not paying that level of coupon rate anymore.
My 5% target is even more aggressive than the “Four Percent Rule”.
So I have been thinking whether it is still credible and do I need to make changes to my portfolio?
At this point, my opinion is that it is still credible. This is only because I feel a sense of security with my investment in Reits. If not for that, I think getting a 5% yield year-in-year-out without taking up high risk will be a challenge. It is expected that I can’t afford to take high risk once I lose my active income.
Investing in Reits is also not risk-free.
We have seen big swings in the share price of Reits in the last few years. So, we need to be able to stomach that kind of volatility. Since I focus primarily on dividends and not on capital gain for passive income, I think I should be able to ride those swings out over time.
To do so, I feel the need to select large, stable and strong Reits.
I feel quite comfortable investing in the Reits of the likes of Mapletree, Capitaland, Ascendas, Frasers and Keppel. I believe their Reits can deliver the 5% yield that I am looking for in the long term. Furthermore, many of them have demonstrated a track record of increasing their dividends per unit over the years. Their sponsors are strong and have a pipeline of assets that they have the first right of refusal to. Hence, they have the potential to grow.
At the current price level, I am focusing my attention on the following 6 Reits that provide about 5% yield.
I am adding to them whenever I see an opportunity.
|Frasers Log. Comm Trust||5.19%|
|Frasers Centrepoint Trust||5.04%|
|MapleTree Industrial Trust||5.02%|
|Capitaland Int. Comm Trust||4.94%|
To further support my belief, I have been actively divesting my holding in smaller Reits and rechanneled my capital towards these few “strongholds”.
Today, I sold off the last of my ESR Reit. In the last few months, I have progressively sold off my holdings of AA Reit, SPH Reit, Sabana and a few others. Actually I felt good that I was able to reduce the number of different Reits in my portfolio as I can now focus instead of spreading my attention too thinly.
If you are also looking for a 5% annual yield return, you may want to consider them too.
(Just a disclaimer, I hold shares of all these 6 Reits).
Have a great day and stay safe folks.