Maximising our own returns on investments

When i first encountered Real Estate Investment Trusts (REITS), it was interesting to see the business model involved in such structures. What a REITS does is that it takes the real estate assets of a specific category, for example, retail malls or industrial properties, injects these into a special purpose vehicle and then manage these assets to maximise yields or returns on the capital employed in these assets. REITS helps to increase yields mainly because by combining similar types of assets such as retails malls together, the manager is able to exploit economies of scale and efficiencies as one group managing many similar assets can do it better and cheaper than many different groups managing their own individual retail malls.

Why REITS
Of course, REITS also frees up capital for the owner who does not have to hold the entire retail mall in his balance sheet and who can use these capital for alternative investments. In addition, the REITS structure allows the owner to tap the capital markets for investment funds. Also, because the assets are all of similar nature, it is easier to benchmark and track the performance of yields and returns for this specific asset class and allows the REITS manager to see where the inefficiencies and lower returns are. Usually, REITS managers fees are tied to the performance to the REITS and they would tend to want to maximise the REITS yields to shareholders as that also boosts their own performance measures and rewards.

Applying REITS principles to our own finances
The reason why I bring up REITS is to illustrate how you (and I) can learn from such principles. Examine your personal investments and see if you are tracking your own individual performance in terms of your stocks and shares, treasury bills, time deposits or whatever investments you have. I have a simple spreadsheet that tracks the cost and market value of my portfolio and also record my capital gains or dividends from shares for each month and year. This helps me tally my investment returns and see if I made better returns in 2004 vs. 2005 etc.

You can maximise your returns relative to your own pre-defined benchmarks only if you track them. Other than a fuzzy "I want to get good returns" feeling, you need to be able to define what is good e.g. beating average fixed deposits for the year x 2 or beating S&P500 or even STI. :-) The second part is tracking your portfolio in terms of knowing the gains at least on an annual basis or even monthly if you are able to track to that detail.

Based on my own tracking, I have come to realise that on an annual basis, I have been able to beat fixed deposits returns x 2 which is a reasonable benchmark for me and it also shows me that I need to keep my day job as managing my own investments does not generate sufficient returns to replace my salary! But I've come to appreciate that by tracking your own returns, i.e. realised gains and losses as well as portfolio positions periodically, I am in a better position to know how I am doing in my investments and my exposures to the market.

Start maximising your own returns by tracking it
You may want to consider tracking your own investment track record as if you were a individual REITS. You determine how much risk you want to take and how much returns you want to squeeze out of your individual portfolio, ultimately, you are your own investment manager because you and not anyone else makes the decision to buy, sell or hold!

Be well and prosper.