If you’re serious about financial freedom, you’ll want to look at big picture investment trends. A lot has changed since 2010. In the decade ahead, I see several investment trends that you shouldn’t ignore.
How My Past Predictions Held Up
For those that are new here, I predicted the 2008 meltdown over a year in advance. During that time, I encouraged my readers to short mortgage lender stocks, reduce exposure to real estate, prepare to buy real estate on sale, and buy physical gold and silver. Those all turned out well.
In 2013 I encouraged readers to buy Bitcoin at $70 for its potential exponential growth. Today, bitcoin is valued at just over $10,000.
My Predictions for the 2020’s
Prediction #1: Buying Alternative Assets Will Become Just As Easy and Common As Buying Stocks
I love investing in real estate. It’s been the dominant asset in my portfolio since age 21. Of course, I’m talking about direct investment into property—not REITs or publicly traded securities.
However, for most investors there have been three big advantages to buying stocks over alternative investments: Liquidity, Access, and Ease of Reporting.
For example, if you own shares of a private company that can’t be easily sold, those shares are illiquid. For that reason the company might be valued at 3-4X earnings. A company with earnings of $10,000,000 might be worth $30,000,000.
$10,000,000 Earnings x 3 = $30,0000 Company Value
(Earnings Multiple of 3)
If you own 2% of that company’s stock, your shares are worth $600,000.
$30,000,000 Company Value x 0.02 Ownership = $600,000
Take the company public and that same stock could become worth $2 million – $4 million even before revenue growth occurs.
$10,000,000 Earnings x 15 = $150,000,000 Company Value
(Earnings Multiple of 15 = Liquidity Premium)
Same company. Add liquidity and the value can increase 500% or more. People will pay more for investments they can easily get out of at any time.
Stocks are liquid and that makes them more desirable. This is changing in the 2020s.
You can buy most stocks for less than $1,000 per share. If you have $3,000 to invest you can buy at least 5 stocks, possibly more with fractional shares. Stocks are easily accessible to you and your portfolio.
$3,000 gets you next to nothing when it comes to buying real estate. If you want to buy five B-class investment properties at $300,000 each, you’re looking at a price tag of $1,500,000. Twenty percent down would be $300,000. Add $50,000 for reserves to cover repairs, vacancy and maintenance. Therefore you’ll need $350,000 to buy five investment properties.
5 x $300,000 = $1,500,000 Purchase price for 5 properties
$1,500,000 x 0.20 Down = $300,000 Down Payment
$300,000 Down Payment + $50,000 Reserves = $350,000 Cash Investment
$1,500,000 – $300,000 Down Payment = $1,200,000 Mortgage Debt
Sub-prediction: Most people who overuse debt leverage (e.g. put less than 20% down) will, once again, be wiped out in a future downturn. I’m assuming you want your wealth to last, so that’s why I mention 20% down on properties. It’s a plan that consistently works.
In this example, if you want 5 assets you can do that with $3,000 in the stock market. With real estate you need $350,000 or more to get five assets.
Stocks are more accessible. This is changing in the 2020s.
Today, with your online brokerage account or app, you easily see how your investments are doing. You get dashboards, pie charts, line charts and more. The data is automated and computers do all the work at no marginal cost.
In comparison, property owners must devise their own system to keep track of investment performance. This might include complicated Excel spreadsheets that require manual updating, time, and energy. Because there’s so much data entry involved, I estimate most real estate investors don’t have full clarity on their investment property performance.
A real estate investor has to do work to make their own reports to see how their investments are doing. Stock investors are a click or tap away from seeing how their investments are doing.
Stocks are much easier to track. This is changing in the 2020s.
The Rise of Alt Platforms
Don’t underestimate this. If this is new to you, it’s time to get up to speed.
Alternative investment platforms are on the rise, due to a change in investment laws that took place in 2016, as I covered at the time. That change was title IV of the JOBS act that created Regulation A+, which makes it easier for everyone to invest in alternatives.
Let’s define “alternatives.” These are any investments you can’t buy in your brokerage account. This includes real estate, private equity, private lending, cryptocurrencies, startups, hedge funds, and much more. To many, including myself, it’s the exciting stuff.
Alternative investment platforms are helping to put an end to the stock market’s advantage in attracting investors: the liquidity, access and reporting covered above.
In the 2020s, investors will be able to use $3,000 to buy liquid alternative investments that can be resold easily. And they will be able to see how their investments are doing in just a click of a button. Stay tuned for continuing coverage.
The ease and robustness of the alternative investment experience will become indistinguishable from stocks. Therefore, alternative investments will lure trillions in capital away from traditional markets.
Want to get my other predictions for the 2020s as well as a deeper dive into each prediction? Join me at the Self Directed Investors Summit on March 27-28 in Scottsdale, AZ. Click here for more info and to get tickets.