ASX investors brace for lost decade

@Nodrog regarding REITs, I was at a financial presentation at which Peter Thornhill was the guest speaker. Most entertaining.

One of the bon mots was the audience had to guess how far the indexes fell during the GFC. At the time on the cusp of the GFC the REIT index, I seem to recall, was 1200. No one in the audience, consisting of people with varying degrees of experience in financial matters, got it right. It fell to 200. Ouch!

 

I remember it all too well as we owned SLF (Reit Index) when the GFC struck. If you wanted to know your risk tolerance this was as good a test you will ever get. Based on price only it’s still a long way from its GFC high. Nowadays overall index weighting of REITs (approx 8% of ASX) is more than enough for us:

 

Wowzers! Visually it's bloody awful.

I suspect there were probably a few who placed money only into REITs because of the attractive yield.

Now if one was also geared into them....... you'd be pretty much history I feel - much like Managed Investment Schemes (scams.) Very sad all round.

 

Already owning SLF when the GFC struck I thought at 40% down it was time to be greedy and start averaging in. By the tIme I’d averaged in to around 70% down my enthusiasm had turned to despondency. I tried not to look at it from then on.

These were a retiree favourite prior to the GFC so many retirement dreams were ruined. The “yield trap” was a disaster for these poor buggers. Retirement savings destroyed and at a stage of their life when the most valuable asset for many had been depleted, TIME! Very sad. Have the lessons been learnt? NO unfortunately and never will be by most as such is human nature when it comes to money.

 

We were heavily invested in the share market before the GFC - still are. There were days when the market drops were so large they are burnt into my brain for ever! Luckily we held no REITS but nothing was spared. It was a humbling experience for us and over time we have done well. However it was a world of pain for many others.

 

I like to periodically repost this wonderful GFC story from @truong as newcomers may not have seen it. It really sums up the mindset of the “shares for INCOME” investor that might help some get through the next crash:

All hail The Turtle:

 

Kinda makes you question what a safe leverage is for a margin loan even when indexing.

 

Especially when leveraging into assets that themselves were highly leveraged! Plus massive concentration in the Areit index was / is an issue. Then again concentration is also an issue in the ASX broad cap weighted index.

I’ve never used a margin loan, only IP LOCs.

As a retiree now as tempting as it is we’ve decided not to use leverage any more. Debt free and want to stay that way. It will be hard for me to resist though come the next crash.

I would be hopeless as a “Total Return” investor as the focus on “capital” would be too unnerving for me. Focusing on the income is what gets us through the scary times.

 

Respectfully, Im not sure the lessons you learnt here were optimal.

History is an indicator, and probably the best one. Not sure how an asset class which, over the long run is beaten by nothing can be referred to as risky...and you cant really suck at an asset class. Psychologically beaten sure, but it is hard to suck at something you simply purchase.

For our market, only one chart is relevant. Attached is the accumulation index in chart form.

Like the nasdaq tech crash, the gfc was as much as the unsustainable run up to the peak, than the crash itself. The XJO accumulation chart had a near 100% increase in the 2 years, then crashed the 50% back to where it was.

You mentioned that you invested in a product as "This fund had just just doubled in two years so I was confident it would do well. "

This is where reversion to mean has to be understood. That is just unsustainable and history will tell you that no asset class can increase this way forever. A correction was inevitable.

Value shares based on historical norms, purchase (or dont purchase, or perhaps sell) based on the cyclic environment you are in and dont listen to too much noise.

 

Would you consider global A-REITs and global REITs significantly different other than diversification?

 

Well said. Reversion to the mean is a powerful concept.

Looking at it from our perspective being income, was the GFC really a crash or just a return to normality:

 

Global REITs are dramatically more diversified than AReits. I would hold a Global REITs Index ETF before ever investing in the Areit index again.

Of note is that REITs aren’t really a separate asset class but just a sector of the broad cap weighted index. So one is simply overweighting REITs rather than investing in a different asset class when allocating a greater percentage to REITs in the portfolio. The same could be said for Infrastructure being the latest flavour of the month.

I gather many invest in REITs with correlation in mind rather than straight out diversification. That is, the hope of a smoother capital ride from one zigging when the other zags.

Trouble is as mentioned by Ben Carlson is a recent article:

Is Real Estate a Non-Correlated Asset Class?

 

yeah, you make a valid point,
based on graphs like that then I should have made a decent return,

I thought I was doing the right thing by not going into risky industries, nor small companies that are illiquid, and purchased a share fund that was diversified, and got burnt.

it didnt help that a friend of mine trippled their money in 2 years with the same product

 

I would not worry about it ,because you are not alone -there are enough economic experts analyst's out there that only look at the error margin after their failures in the forecasts..
Would be interested to know the "Share-Fund" that went belly-up ,we only seem to hear about the up-side...

 

Just had a quick look at SLF over the last 20 years

 

Property =