The latest 5-year retail treasury bonds (RTBs) from the Philippine Bureau of Treasury have a coupon rate of 5.5%. The Pag-IBIG MP2 Savings program has a yield of around 5-6% as well. Should I dump REITs and just invest in these safe government bonds instead?

It’s probably not a fair comparison. Like comparing apples to oranges, bonds are not REITs and REITs are not bonds. But given the title of this post, let’s do the exercise anyway.

When should we invest in government bonds? These instruments are best for money that will be used in the medium term, around 5 years. In this timeframe, you really cannot afford to lose the principal. The preservation of capital will supersede whatever income you may get so you shouldn’t risk it in the stock market and by extension, in REITs. RTBs are issued by the government and are considered very safe. Likewise, the PagIBIG MP2 Savings are also guaranteed by the government.

In terms of yield, the market will price REITs in a way that it will have higher yields compared to government bonds – to reflect the fact that it carries more risk. At the moment, REITs have a yield of 6-8%. Should government bond yields continue to move up, then RIET yields will also move up. This is achieved by REITs’ stock price falling – a REIT’s dividend yield moves opposite to its price.

Seeing red on your brokerage account is not a pleasant experience. That is why as an investor, one must have clear objectives on why you invested in REITs. It is money that you would not need in the short or medium term. If you did, better keep it in cash or as mentioned above, in government bonds. We cannot predict the interest rate cycle, so we cannot predict the price movement of REITs either. However, money that is invested for the long term can afford to ride the ups and downs of the market. Better yet, and this is my personal objective for investing money in REITs, it is capital that I will not touch for the very long term (20+ years). I consider my REIT investments as the goose that lays the proverbial golden eggs. So why will I sell (kill) the goose in the first place given that the whole reason I’m into REITs is for passive income. Given this rationale, the price movement of REITs should not matter. What is important is accumulating more stocks of REITs that are able to consistently grow their dividends year after year. As an example, Ayala’s AREIT managed to increase their 2021 dividends per share (DPS) by 34% compared to the previous year and its 2022 DPS is estimated to be 15% higher than 2021. Another example: MREIT’s 2022 DPS is estimated to be 11% higher than 2021.

Going back to the comparison, once you purchase government bonds, the yield you receive is the same until maturity. With PagIBIG MP2, the yield will vary every year. It may move up or down but do not expect a considerable increase because PagIBIG will never charge high interest rates to its borrowers. Afterall, its mandate is to make home ownership achievable for Filipinos.