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The current volatility in the market may be giving you anxiety about how your money is doing. You want to make sure your investments are in the right place. If you have all your money in one basket such as stock, real estate or property, now is the time than ever to diversify.
Don’t know where to start? Read on to learn more.
We’ve gathered several industry expert sources to share their recommendations on what investors should consider during times like this.
Here’s what they said:
1. Diversify, diversify and diversify
It’s important for investors to have a variety of investments. You know the old saying “do not put all your eggs in one basket?” It couldn’t be more true these especially in light of the volatility we are facing. Having a healthy investment portfolio of stocks, real estate and other alternative investments is one of the ways to mitigate risk.
Jim Peterson, the Chief Investment Officer of CSIA and a member of the portfolio management teams for Schwab Managed Portfolios™, says:
“Over the long run, there’s no discernible pattern to the rotation among the top performers, so it doesn’t make much sense to concentrate all your investments in a particular region or asset class, or worse yet try to “time the market.” A globally diversified portfolio—one that puts its eggs in many baskets—tends to be better positioned to weather large year-over-year market gyrations and provide a more stable set of returns over time.” 1
What does this diversified portfolio look like? Peterson illustrates:
“Today, asset allocation has evolved beyond domestic stocks, bonds and cash to include global diversification across equities, fixed income and nontraditional investments.
• Equities: Large caps, small caps, international and emerging markets
• Fixed income: Treasuries, corporate bonds, municipal bonds, international bonds, emerging market bonds and high-yield bonds
• Non-traditional investments: Commodities, real estate investment trusts (REITs) and others” 1
2. Real Estate is *REAL* and why long-term investments are key
Real estate is a tangible and fungible asset.
According to this Kiplinger article, “CRE also can help protect investor portfolios from volatility in traditional equities. The counter-cyclical nature of real estate – and multifamily in particular – allows investors to hedge against drops in the stock market. Even during a major housing crash, like that in 2008, multifamily assets in many parts of the country retained the same level or reduced vacancy, primarily because of increased demand for rental housing as people lost their homes to foreclosure or financial circumstances.
Over the long term, the value of real property in the U.S. – including commercial buildings – has always gone up. Studies have shown that while the equities market and passive real estate investments reach the same level of growth, managed real estate assets (such as REITs) tend to slightly outperform the stock market in long-term growth.
The tax advantages of CRE assets often have substantial positive effects on investor portfolios. Programs such as Opportunity Zones and regulations such as 1031 Exchanges allow for reinvestment of capital that would have otherwise been paid to the IRS. The ability to reinvest that capital helps savvy investors generate higher returns compared to investments without a tax-deferral period.” 2
Experts suggest thinking long-term when you consider investing in commercial real estate projects and select the markets where the job market remains strong so that there’s a continuous increase in demand for more work and live spaces.
TIAA recommends several points to help investors pursue their long-term investment goals. Most notably, TIAA says:
“When you keep your savings in similar investments, you could put your money at too much risk or miss out on potential returns. Consider diversifying, or spreading your savings across several asset classes… Whenever you check your asset allocation, make sure your portfolio remains
diversified enough to maintain a risk level you’re comfortable with for both short and long-term investing.” 3SOURCE: mackenzieinvestments.comModern PortfolioAlternative Sources of ReturnEquityFixed IncomeAlternativesRisk Allocation
3. Location, location and location!
“Analyzing the 2008 recession’s impact on the Bay Area’s commercial real estate market performance is very useful for understanding the likely dynamics of the next recession and its effect on real estate,” said Jef Henderson, Executive Vice President at CBRE.
“CBRE’s analysis illustrated during the 2008 recession that the Bay Area was the last market to go into recession, and more importantly, the first market to come roaring back. The effects on the real-estate market were certainly felt, but the overall market bounced back within a two-year period, which was an outlier amongst comparable markets,” noted Jef.
He adds, “For commercial real estate owners and investors, the prospect of a coming recession should offer pause, but not undue concern.” When trying to point to one statistic to illustrate this point within the Bay Area’s overall growth rate, CBRE instead found a few complimentary statistics:
• The Bay Area Jobs to Housing Ratio continues to expand since 2010, and currently is 5.2 jobs to 1 housing unit and 10.9 jobs to 1 multifamily unit completion
• Multifamily rent growth has increased by 84% following the 2008 recession
• CBRE Research’s recent Completions by Metro showed that the San Jose delivered 908 units 2019 versus 3,373 units delivered in 2018, which resulted in a -73% Y-O-Y change
Interested in hearing more?
1 Source: Charles Schwab - https://www.schwab.com/resource-center/insights/content/why-global-diversification-matters
2 Source: Kiplinger - https://www.kiplinger.com/slideshow/investing/T044-S001-commercial-real-estate-cre-investing-reits/index.html
3 Source: TIAA - https://www.tiaa.org/public/learn/personal-finance-101/five-principles-for-long-term-investments