Nowhere to Hide

As the stock market has made its wild gyrations in the past week or two and the Dow Jones Industrials have given us a nearly 1,000 point range in just a half dozen sessions, people are starting to sit up and take notice of the volatility that can enter the equity markets almost overnight. Ask anybody with any real knowledge of the markets and they will tell you that the vast majority of activity is generated almost entirely by machines. Algorithms and high-frequency trading account for about 70% of the activity in the markets today. What does that mean? Well, it means that all of this volatility preys on it self. Volatility begets volatility. Why does this matter? If you own any stocks, bonds or mutual funds, they are all subject to being influenced by all of this phantom activity. Your investment portfolio can whip around several percentage points while you aren’t even looking, and it can happen fast. I’m not going to lie to you, as a former trader for over 30 years I would lay in wait for activity like this. The emotional swings equaled opportunity for us short-term players that were just waiting for somebody to make a reactionary move. It was money in the bank. However, volatility is not a true long-term investors friend. When we enter into an investment, we want to have a reasonable expectation that it will make us a decent return over time but more importantly not evaporate before our eyes. Recent data suggest that we baby boomers are overweight equity investments in our portfolios. Check out this article from last week.

Blog Volatilty chart copyI left a lifetime of living and breathing the stock market to capitalize on all the opportunities that are being presented to us by real estate; I can’t count the number of people that I have spoken to in the last year or two that are nervous about real estate investment. They fear another bubble. I don’t see it anytime in the near future. Bubbles are characterized by an overwhelming belief in a “sure thing”. An environment where everybody and I mean everybody is chasing the same thing. Think new tech stocks in 1987 or dot-com stocks in 1999 & 2000 or brand new houses with no money down or no earnings documentation in 2004 & 2005. That is not what I see in the real estate market today. There is doubt. There is hesitation. That is a good thing. It means that the folks that have the intestinal fortitude to take a chance will be rewarded. The “bubble” was created be unbridled greed amongst the large banks and fueled by horrible, enabling government policy. Those influences don’t exist today. Those policies are in check now. Couple that with the fact that the largest generation in the history of mankind is entering the home buying stage of their lives. The millennials in the United States number about 90 million compared to about 70 million baby boomers (the previous largest generation). That is an enormous group of people and I don’t think they will be living in their parent’s basement forever. The opportunity to invest in real estate has never been better. Think about the impact that we baby boomers had when we all came into the home buying stage. That was the early 70’s and ran until the late 90’s, I would say that was a very opportune time to invest. The average home cost about $25,000 in 1972, by 1998 it was up to about $160,000. I would say that is quite a move. Back to the title of this post, is there really nowhere to hide? If you have read this far then you know the answer. A portion of your investable assets should be in real estate. The returns are excellent and a good property can generate superior cash flow for years to come. Let us help you find a property that will fit your budget and serve to add some diversification to your investment portfolio. Did you know that you can use 401K or IRA money to invest in real estate? Call us today to find out how. We can help you add some peace of mind to your portfolio.

Willie Walters, ReInvestment 303-908-2330