Passive income thread

[BBCWatcher]

give u a hypothetical example

That’s wonderful, except your hypothetical example has no basis in reality. The actual numbers aren’t what you suggest. And no, even with your hypothetical numbers you can still fully explain the difference simply by removing “toxic” bonds. Yes, it’s possible for a bond portfolio to have a strongly negative performance — or any portfolio of assets, really — so merely taking out 10 percentage points of negative performing bonds and replacing them with something with mediocre performance could generate the swing from +4% to +6% in your hypothetical example.

 

[tangent314]

ur math is bad. give u a hypothetical example:
u have a portfolio with $100 STI ($40 REIT + $60 others) and $100 bond, and the return is 4%
and u have another portfolio with $100 STI ($40 REIT + $60 others), $100 bond and $50 REIT with return of 6%.
isnt it obvious it implies the return of REIT is higher in order to pull up the portfolio's return?
y do u need to do all the fanciful stuff like stripping out REIT?

It's a simultaneous equation with 2 equations and 3 variables, you can't solve for all of them. In this case you can solve for REIT but not for Others and Bonds and they both have a range of values, including some where Others outperform REIT although that would require Bonds to perform pretty badly.

 

[BBCWatcher]

It's a simultaneous equation with 2 equations and 3 variables, you can't solve for all of them.

That’s right, and it just so happens that bonds haven’t performed particularly well over the historically low interest rate decade we’ve just experienced.

The correct way to compare the historical performance of real estate equities (REITs) versus equities in other sectors is to do that, and only that. And that wasn’t done here.

 

[TabascoSauce]

It's a simultaneous equation with 2 equations and 3 variables, you can't solve for all of them. In this case you can solve for REIT but not for Others and Bonds and they both have a range of values, including some where Others outperform REIT although that would require Bonds to perform pretty badly.

let STI, bond and REIT denote the returns of the respective class in percentage.

0.5 STI + 0.5 bond < 0.4STI + 0.4 bond + 0.2 REIT
0.1 STI + 0.1 bond < 0.2 REIT
0.5 STI + 0.5 bond < 1 REIT

assuming return of bond ̶<̶=̶ ̶r̶e̶t̶u̶r̶n̶ ̶o̶f̶ ̶S̶T̶I̶ is positve (which is the case for ABF at least), then
1 STI < 1 REIT

let k denotes the share of REITs in STI, and let STI' denotes STI without any REITs, then

(1-k)STI' + k REIT < (1-k) REIT + k REIT
STI' < REIT


unless the bond return is negative (which was not the case for Singapore bonds during that period), otherwise, the inequality holds.

 

[TabascoSauce]

That’s wonderful, except your hypothetical example has no basis in reality. The actual numbers aren’t what you suggest. And no, even with your hypothetical numbers you can still fully explain the difference simply by removing “toxic” bonds. Yes, it’s possible for a bond portfolio to have a strongly negative performance — or any portfolio of assets, really — so merely taking out 10 percentage points of negative performing bonds and replacing them with something with mediocre performance could generate the swing from +4% to +6% in your hypothetical example.

i give u the hypothetical numbers so that it is easier for you to understand. but since u can nitpick anything under the sun, you may refer to my above post for the generic solution without any hypothetical numbers.

 

[BBCWatcher]

....assuming return of bond <= return of STI (which i think is realistic), then
1 STI < 1 REIT

The bond return can simply be negative enough, so you cannot determine that STI < REIT.

This is not a valid proof, sorry.

 

[TabascoSauce]

The bond return can simply be negative enough, so you cannot determine that STI < REIT.

This is not a valid proof, sorry.

u r right, in my original post, i made the wrong assumption. had amended it.

and u talked about being realistic. was the return of singapore's bonds negative during the 2010-2017 period?

 

[BBCWatcher]

and u talked about being realistic. was the return of singapore's bonds negative during the 2010-2017 period?

I think it was, actually, or at least it could have been. Bond valuations, particularly high quality government bond valuations (e.g. SGSes’), soared during the depths of the Global Financial Crisis as the world tried to flee to safe assets. Those lofty heights then unwound as the crisis ebbed, and then interest rates started to rise. Rising market interest rates push down the prices of outstanding bonds with fixed coupons. And we’ve also seen a default or two, such as Hyflux.

It depends on the historical interval and some other factors, but I certainly cannot rule out negative signs in the bond leg.

There’s no particular problem here if somebody wants to try to make an argument that REITs outperformed non-REIT equities over some historical period. Just run that comparison straight up, without any other assets (such as bonds) in the picture.

 

[chopra]

bbc:

wouldnt corporate coys need to pay corporate tax? it's the same ma.

 

[limster]

NO question about it: real estate investment trusts (Reits) are performing astonishingly well on the Singapore Exchange (SGX).

Investors who bought them five years ago would have enjoyed a median and average compounded annual return of about 10 per cent a year as at April 21, assuming dividends were reinvested.

By contrast, the Straits Times Index (STI) was around 3,000 points five years ago. It is barely above that today. An exchange-traded fund (ETF) tracking the STI would have returned just 3.9 per cent a year if dividends were reinvested.

Reits seem impregnable. They survived the 2013 taper tantrum. They sailed past the China crash of 2015. They have rebounded quickly from inflation worries after the US presidential election at end-2016.

https://www.businesstimes.com.sg/companies-markets/will-reits-continue-to-return-10-a-year

Maybe my England not powderful enough so can someone tell me what this businesstimes article is saying?

To me it seems to be saying that when the article was written in 2017, REITs hugely outperformed STI ETF on a 5-year basis. However, sometimes it is a matter a selecting the most flattering time period. So waiting for someone to show me the time period that shows that REIT returns were inferior... REITS not so easy to calculate because of rights issues etc

 

[BBCWatcher]

To me it seems to be saying that when the article was written in 2017, REITs hugely outperformed STI ETF on a 5-year basis.

Yes, and the portfolio illustration they used muddied the waters with a bond allocation that shifted (decreased). That part makes no sense when you’re trying to compare REITs versus non-REIT equities, and that portfolio illustration is what we’re talking about here. It’s just plain bad. It’s like illustrating your article on French impressionism with a Banksy. Both are works of art, so they’re in the same broad category in that sense, but they aren’t at all the same thing.

However, sometimes it is a matter a selecting the most flattering time period.

Of course. Or an unflattering and narrow stock index (the STI) over the same flattering time period. Or a particular basket of REITs that have performed better than other REITs. Or some of all of the above. And past performance is not indicative of future results. Indeed, it’s quite possible, even common, that something that’s had a good run in the past won’t continue to fly so high going forward. Mean reversion isn’t unknown.

We’ve given way, way too much attention to an old clickbait article, haven’t we?

 

[limster]

the article gave you the 5 year annualised returns for REITs 2012-2017. annualised returns for SG REITs are not so easy to calculate so its useful to have the info.

You can use this figure and compare with whatever index or IWDA or whatever for the same time period, as those figures are more readily available. I'm sure that REITs outperformed during that time period, since its a question of picking the most flattering time period.

So I'm equally sure there's a time period that shows STI outperforming REITs, its just that i haven't seen it yet, so lets all keep looking!

 

[Toni90]

Yes, and the portfolio illustration they used muddied the waters with a bond allocation that shifted (decreased). That part makes no sense when you’re trying to compare REITs versus non-REIT equities, and that portfolio illustration is what we’re talking about here. It’s just plain bad. It’s like illustrating your article on French impressionism with a Banksy. Both are works of art, so they’re in the same broad category in that sense, but they aren’t at all the same thing.


Of course. Or an unflattering and narrow stock index (the STI) over the same flattering time period. Or a particular basket of REITs that have performed better than other REITs. Or some of all of the above. And past performance is not indicative of future results. Indeed, it’s quite possible, even common, that something that’s had a good run in the past won’t continue to fly so high going forward. Mean reversion isn’t unknown.

We’ve given way, way too much attention to an old clickbait article, haven’t we?

Why u are so defensive when talking about REIT and property as an investment?

 

[Kitaro9202]

How to start a passive income i quite interested

 

[Thoreldan]

How to start a passive income i quite interested

People has been talking about the various method throughout this thread...shouldn't you at least read through them?

 

[spearhawk]

Forex (annual) - $26k
Rental (annual) - $19k
Interest (annual) - $9k

Hope to start venture into REITs soon

 

[Toni90]

Forex (annual) - $26k
Rental (annual) - $19k
Interest (annual) - $9k

Hope to start venture into REITs soon

Forex not passive income.

 

[spearhawk]

Forex not passive income.

Curious to know why not?

 

[TabascoSauce]

Curious to know why not?

Passive income and alternative source of income are 2 different things.

Unless ur forex trades are automated or somebody else is trading for u, and u r jus sitting back and wait for the profit

 

[BBCWatcher]

Forex not passive income.

It’s not digging a ditch for wages! Classic foreign currency trading (speculation, really) generates capital gains or losses, i.e. passive income (or losses) at least in the common meaning of the term. I agree with Spearhawk.

The generation of passive income sometimes involves active work, even if noncompensated. For example, a landlord might receive rental income from a real property, but the landlord could also be exerting some labor effort to manage the property. That labor effort should properly be costed and accounted for in total returns, because there is some alternative labor market value to that management.