What assets are safe during the COVID-19 pandemic? Your real estate? Gold & bitcoin? Certainly not your stock portfolio – at least not in the short term.
No one knows where or when the markets will bottom out this time. What we do know is that this stock market crash has again wiped out the digital profits of Main Street investors. The dramatic drops in stock prices, along with the volume of trades being made, means a lot of money has come out of the stock markets. Much of the losses were digital losses but it also means a lot of cash traded hands. That cash will soon find new places to invest. The flight to bond markets has driven already low interest rates down to as near zero as they can get without going negative. One place that has historically been a safe harbor for investment money is in real estate.
Unfortunately, the baby boomers, as well as the Millennial Generation, did not fully grasp the investment risk they were taking with their retirement accounts. There’s nothing like a historical stock market crash to grab the attention of every investor – whether you are in stocks, bonds, real estate, or something completely different.
Understand and Control What You Invest In
We never try to predict what the stock market might do next but we are shouting a warning that investors shouldn’t be taking risks that they don’t fully comprehend or control. If you did learn your lesson from previous market crashes, you knew the market was close to unsustainable highs and got out in time. But only a few insiders knew that COVID-19 was about to destroy more than a decade of growth and they jumped ship early (watch the news for insider criminal charges that will likely be coming). I
f you were not an insider when the virus hit, you got toasted – Sorry. Nabers Group CEO and Founder, Jeff Nabers, predicted the bubble pop earlier than most, and tried to warn as many as possible.
When you have a Solo 401k, you have a limitless number of potential investment options. You personally select what to invest in and control what you understand. Favorites among well-established Solo 401k investors are:
COVID-19 and Real Estate
Real estate is a Solo 401k cornerstone. Almost every adult has at least a basic understanding of how real estate investing works. After all, owning a home is still the American Dream and the largest asset that most people own. Understanding how real estate investing works is key to controlling your own retirement account.
The speed that the change is happening is unprecedented. In this dramatically changing world, having a steady income from real estate is a solid and reliable way to continue growing your retirement account without worrying about how low Wall Street can go or if you will ever recover the stock investment that vanished overnight that you had no control over.
How Long Will COVID-19 Disaster Last?
Not a single person can tell you how devastating the coronavirus spread will eventually be, how long it will last, or the total extent of the economic consequences. But preliminary NASDAQ reports are that Every American has lost, on average, about $22,000 apiece, so far. What do you do now? If you’re serious about having a reliable retirement income, use this opportunity to reduce your investment risk.
Maybe you did just fine with stocks. After all, the crash marked the end of an 11-year bull market run. The question right now is what to do with your money? You have options. You could be plowing money back into stocks hoping the market will turn around in a month or two. That certainly falls into the category of high risk investing. Even if stocks do start climbing out of the cellar, how long will it take for them to again be above water?
Maybe you shifted your money to bonds or are in a holding pattern with a savings account or money market account. The ultra-low interest rates that make real estate so attractive are doing just the opposite if your holding everything in savings. Interest rates are nowhere near keeping up with inflation.
Is Real Estate Still Safe in a COVID-19 World?
Indeed, real estate has survived and thrived much longer than stock markets themselves. So what keeps investors in real estate?
Cash Flow. This is the monthly income that goes into your Solo 401k after operating expenses. But this is only one way that real estate increases the value of your account.
Real estate builds equity. Possibly, some people from the millennial generation think real estate will go the way it did during the Great Recession of 2008. And that might be true. When so many people lose their jobs, the ability to pay rent goes down, too. Always do your due diligence to make sure the cashflow/ROI on your deal can weather an economic storm, including higher vacancies than normal.
Real estate deals are easy, even in a COVID-19 world. You have almost certainly done a few real estate deals. Yes, there is a fair amount of paperwork involved but you’re working with standard rental and purchase phrases, terms, and agreements. You’re using the same mortgage and purchase arrangements that are used every day by millions of normal people. There isn’t any convoluted financing involved or hidden legal small print. These are everyday transactions using standard forms – most forms are fill-in-the-blank.
Real Estate is NOT Digital.
You can’t feel and touch Wall Street investments. Your profits and losses are nothing more than electronic digits being recorded in spreadsheets by someone else. If you speculate on growth-stocks, there isn’t even a miserly dividend check every three months. When the big board starts flashing red, it means any digital wealth you thought you had, has already disappeared. Importantly, the first word in real estate is “real.” This is a tangible and touchable asset. The next time the big board flashes red, you can still drive by your real estate investment and it will still be sitting exactly where you saw it the last time. Buying real estate in a COVID-19 world may give you a tangible asset in your portfolio.
Zillow has already conducted a study (March 13, 2020) about housing during previous pandemics. What they found was that home sales volume dropped during the pandemic (people staying at home) but the pandemic only put the housing market on a short pause. If that happens with this downturn remains to be seen. But, having diversification outside of Wall Street just makes sense to lessen your exposure to one asset class.
COVID-19 and Baby Boomers
Many baby boomers (and now Millennials) are worried that they won’t have enough money to last until the end of their life. You’ve been beaten up enough times by the stock markets. If you’ve never looked into a Solo 401k or Self Directed IRA, this can be the stimulus you need to get started.
Now more than ever, you need to be in control of your retirement funds. If you know someone who can benefit from a Solo 401k, refer them here and we will reach out to see how we can help.
Have questions about growing your retirement account? The 401k experts at Nabers Group will help you get your retirement funds into your control, where they belong.
