January is supposed to be the month of positivity and renewal, but 2016 began with one of the worst months the stock market has ever experienced. While everyone is hoping the market finds a bottom and recovers soon, uncertain investors are asking, “What should I do with my money?”
Before we start exploring answers to that question, remember all markets are cyclical and asset cycles don’t tend to mirror each other. As one asset class peaks, there is usually another one crashing, one starting to perform well, and another that has been stagnant for a while. In this article, we will briefly cover some of the asset classes traditionally looked at for investment (stocks, bonds, commodities and real estate) and how they are performing today.
The Stock Market
Stocks, also known as “equities,” are in turmoil today. Most investors have lost 10-20 percent of their portfolio value in the first six weeks of 2016. Could this be the beginning of a larger crash or is it simply a market correction that was bound to happen? If you follow history, what just occurred has only happened three times in the last 100 years. Three times: 1929, 2000 and 2008, foreshadowing that the good times may be over for stocks. Nobody has a crystal ball, but the “big-money” is fleeing the market and seeking yields elsewhere.
The Bond Market
Bonds, which are sometimes referred to as “debt,” may be in favor today, only because they are viewed as a place to park money in times of uncertainty. There are many types of bonds, but in general, the return is fairly low so this is not a place where investors seek higher yields.
The Commodities Market
Oil has been crashing for more than a year, and each time it looks like a bottom has been reached, it goes down again. While not attractive today, it will likely be an incredible investment if you have the staying power to wait for the rebound, as most experts agree that the pendulum has swung too far to the downside.
Metals and mining are benefiting from the “flight to safety” that takes place during times of uncertainty, and could prove to be a great investment today, although with what is happening economically around the world, it is hard to find logical support for the demand. However, this has been one of the poorest performing commodity sectors for many years, so the upside looks greater than the downside.
As an investment class, real estate is proving to be very strong today. To continue comparing apples to apples, all of the asset classes we are discussing here are passive investments. So we are talking about a true, passive investment through a real estate syndication or a platform that operates in the private equity or debt arena. Private “equity” is the private sector’s equivalent to stocks, and private “debt” is the private equivalent to bonds. Today, if you want to invest in real estate, you don’t need to be an expert. You just need to know somebody who is, and purchase shares in his or her projects. Investors provide the capital, the syndicator provides the experience, and everybody profits.
The significant advantages of real estate are the ability to buy an asset below its current value, as well as the ability to influence the asset value. Stocks, bonds and commodities are not like that. This is a secret most investors miss: in a syndication, market appreciation is not required to be successful. You make money the day a property is purchased, and you have the ability to influence value (the real estate market could be flat, yet attractive yields are still available). This creates an environment of predictability, in a much more powerful way than any other investment class.
It is important to note that investors tend to be apologists for whatever they are invested in. Most will bury their head in the sand, hoping the market will turn in their favor, which is simply not a good strategy. Consider zooming out to see the opportunities in other asset classes. If the market does crash, where can you invest to be on the right side of the cycle?
Ultimately, the goal here is to find investment opportunities with great yields. Be assured that predictable, sound options are available if you are willing to explore.
By Jack Martin
Jack Martin is a passionate business and family man, a visionary and a people person. He has been building strategic relationships with capital partners, particularly in the real estate investment market, since he co-founded Bakerson, LLC in 2002. His ability to identify great opportunities is incomparable, as is his passion for powerful relationships, and his clients have more fun investing than they ever thought possible. Tweet with @JackMartinCo.