What advice would you give investors who experienced significant drops in their stock portfolios as a result of the coronavirus?
This is the second time in 12 years that the stock market and US economy have gone through major downturns, which emphasizes the fragility of the financial markets and the critical role diversification plays in protecting and growing wealth. By diversification, I mean expanding beyond the traditional asset classes of equities, bonds, and fixed income securities and into hard tangible assets like real estate that throw off income and are backed with solidity. Remember, there can always be another pandemic too.
The purpose of diversification is to reduce the risk of loss. When risk is reduced, volatility is reduced. With lower volatility, an investment portfolio is more stable and predictable. So, rather than riding the waves of the financial markets, investors may enjoy the peace of mind that comes with the more tranquil waters.
Can you give an example of a portfolio that is well-diversified?
The old diversification model of 70% stocks, 20% bonds, and 10% cash equivalent is far too risky and low performing for today’s uncertain times. A safer, better yielding approach is 50% to 60% in real estate backed assets, 30% stocks, 10% bonds. Since real estate is a tangible asset, it does not lose value or fluctuate on a whim with market gyrations. It also isn’t influenced by the global markets like stocks. Also note, when the values of stocks decline, real estate tends to do the opposite and rise. That fact combined with a history of long-term appreciation, and the potential for regular income, makes real estate a powerful diversifier for your portfolio.
Which of the alternative investments are strongest now?
When you evaluate the risk vs. reward trade-off, real estate is by far the best performing and most reliable asset class hands down. It performs particularly well in bear markets and is an excellent counter position to stocks. As reported by Fox Business on June 23, 2020, real estate holdings remained at the top of investors’ lists – with allocation levels at 28 percent in the first quarter of 2020 according to data released by Tiger 21. Wider accessibility to private market real estate investments also means the individual investor has new options that were previously only available to institutional investors. And well-chosen real estate holdings not only keep pace with inflation and maintain value, but they also offer investors tremendous benefits, from cash production to high returns and tax advantages.
Can you get your real estate investment back when you want?
One thing you must keep in mind when investing in private real estate is that it’s illiquid, which means your capital is locked up for several months or years. In exchange for this inconvenience, the investor is paid a superior return. The correct allocation of real estate truly depends on each investor’s situation, which is a combination of their net worth and time horizon. At NRIA, our typical investment horizon is five years, but we allow investors an out at 30 months. The early-out penalty is a decrease in return, so instead of earning 18 – 21% annualized, the investor receives a guaranteed return of 12% annualized, still better performing than the stock market.
How can you fix damage to your retirement account?
From the start of the Covid-19 pandemic, we said, don’t liquidate your stock position – wait for them to return. That will require patience and a long horizon because it’s going to be a slow claw back to previous levels. But that doesn’t mean you should passively sit and wait either. We recommend that you find new vehicles to help recoup the losses. One way is to leverage Provision 2202 of The Cares Act, which allows virus-impacted individuals to borrow up to $100,000 from their 401K or IRA without an early withdrawal penalty, which may be used for bills or to deploy in new, low risk, high yield investments like real estate. Taxes can be avoided if the borrowed money is put back in the 401K account within three years. NRIA is currently offering a unique program around The Cares Act that pays investors 10% monthly and adjusted returns of 18-21% over the term.
When evaluating a private real estate offering, the sponsor’s experience, know-how, relationships, and track record are top considerations. NRIA is one of the few sponsors that manages all aspects of the continuum, which translates into more value and higher returns for investors. NRIA’s real estate equity side continues to grow as investors flee the stock market in the wake of coronavirus. In early 2020 we’ve added over $30 million of new investment to our evergreen Class A Real Estate Fund, bringing the fund’s total development value to about $850,000,000. Investor historical returns have consistently achieved a 16-21% annualized return with a 3.4X equity and a 116% total ROI. Additionally, we have proudly helped many EB-5 investors pursue their dreams of permanent US residency.
What’s ahead – post-coronavirus?
No matter how serious and sad Covid-19 is, we will work through this because we are not quitters. Post-crisis our country will be wiser and better prepared for whatever the future brings, you can depend on that. One thing is for sure, savvy investors will have more tools in their investment toolbox and won’t trust the stock market alone to build wealth and retirement funds post Covid-19.
Only real estate will offer the safe haven, hard asset alternative to protect our financial futures. There’s simply nothing else as stable and valuable.
1325 Paterson Plank Rd. Secaucus, NJ 07094
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