Seeing your life savings decline rapidly is no doubt a cause for concern. The most important thing to have at a time like this is a financial plan. A plan will show you where you are, where you want to be and how to get there. If you don’t have one, get one. (We prepare financial plans for entrepreneurs that earn over $1 million or have a net worth of $20 million. If you’re not there yet, but want a referral, I’m happy to match you with a resource.)
My personal assessment is that we have entered a recession, and by next quarter we may enter a depression. However, I am hopeful that by the beginning of 2021 we will have GDP growth here and abroad. I expect the markets to continue to have volatility with downward pricing for the coming two to four weeks. The specific event I am looking for is when the growth rate of new infections begins to slow in the US and globally. That means the total number of cases will still be rising, but, for example, instead of 1,000 new cases in a day, there are now 900 new cases followed by 800 new cases.
Market timing has proven to be incredibly difficult for investors to profit from. This time is no different. The rhetoric from all the institutions that preach buy and hold is based on facts. Some will succeed in selling high and buying low, but most will not. Two factors dramatically impact success – the taxes paid on capital gains and the emotional fortitude to invest cash when the market is at its bottom. Now might be a good time to rebalance your asset allocation, since in all probability if you want to be 70% equities and 30% fixed income, you might now be 55% equities and 45% fixed income.
Capitalism still works. I don’t expect this virus to impact future corporate earnings in 2022 or 2023. They will clearly impact 2020, and the effect on 2021 could be positive or negative, it’s too soon to tell. Good things will come from this chaos that will drive new efficiencies, value and growth. One reason people have gone to passive index based investing is the low cost and the other is that it’s often difficult to sort through which companies will benefit. Now may be a time to take a second look at your holdings – do you own index funds, ETFs or individual stocks? Are you well positioned for the future?
My asset allocation is heavily weighted towards multifamily housing. We went under contract prior to the stock market decline on 375 units in College Park, Georgia outside the Atlanta airport for $87,000 a door. Yesterday, we decided to back out of the deal. Even today, it is still a very attractive deal. I don’t think now is a good time to raise capital because I’m busy tending to other urgent matters in my business portfolio and a lot of those that invest with our family are also busy doing the same thing. That said, given the reduction in interest rates, I don’t envision multifamily asset prices declining. Yes, we will have lower rent collections in April, May and June due to the wave of unemployment that is just beginning. It’s likely that will effect distributions of cash flow for my portfolio, but we will also be able to refinance our mortgages and reduce our interest cost, which can offset this short term decline in rent.