Doubling down, selling, or pulling your money out of investments can feel like the smart thing to do in times of economic difficulty — but you’d be wrong. In fact, when it comes to investing, it’s a bad idea. If you decide to liquidate out of fear, you’ll only end up losing that money. Remember, it’s easy to get out of the market, but getting the timing right to get back into the market is anything but easy.
What can we expect in the coming months?
There’s no clear cut way of knowing how this will all play out. The longer the lock-down goes on, the harder it’ll be for some businesses to recover.
Many want to look at comparable times in history to see how things could be affected and what to expect. You can’t compare the current economic situation to the 2008 crash, as an example, as it was primarily caused by excessive leverage. The current crisis isn’t linked to anything financial; an external trigger influences it. Once this trigger, or source, is removed, pent up demand will help return the markets to positive growth relatively quickly.
The real estate market was projecting a record-breaking spring leading up to the COVID-19 pandemic. Year-over-year sales rose 27% across Canada in February alone. The commercial real estate market has shown resilience in past times of economic downturn. Also, real estate is generally a safe investment that offers appreciation over the long-term despite periodic market dips.
Banks have started cutting interest rates that were already low to promote spending and offset the adverse economic effects of COVID-19. This could prompt many to look into buying homes now to take advantage of lower rates. We could also see companies looking to upgrade materials and equipment with lower rates on loans. We expect businesses and individuals to be looking to refinance and take advantage of these lower rates as well.
What’s the best thing to do for your investments during a recession or economic downturn?
The best thing to do in any investment strategy or during any economic fluctuation is to consider how diverse your investments are. Diversification is the most essential tool if you want your investments to be successful.
We’re seeing a severe decline in specific global markets right now, thanks to COVID-19. There has been a dramatic impact on particular sectors, such as the oil and gas and tourism industries. Diversification protects you from risks associated with sectoral specific decline.
This has been a relatively quick change to the markets, as we saw an immediate reaction in the stock market due to the COVID-19 crisis. If this pandemic doesn’t last too long, the impact on the market could be relatively short, meaning there’s an opportunity available. When markets do start to improve, we could see this improvement happen relatively quickly as well.
What are the opportunities in the real estate market, specifically?
The current lower interest rates could make this the ideal time to enter the market for potential homebuyers who still have reliable employment and were waiting for the right opportunity.
If you’re looking at mortgage investment corporations and mortgage pools as investment options, there’s also an opportunity. Companies like Cooper Pacific have the advantage of not being correlated to the volatile swings of the market in the same way as other businesses and industries. MICs, like Cooper Pacific, aren’t considered a public market asset. Of course, the real estate market can impact returns for investments. Still, over time, real estate is a relatively safe and reliable sector.
The two key takeaways here are:
- Diversification is crucial when it comes to an investor’s portfolio and the ability to ride out these turbulent times. MICs and alternative assets help during public market uncertainty by further diversifying an investment portfolio.
- Don’t make decisions based on emotions and fear when you see a market dip. Liquifying your investments could cost you too much in the long run.
If you’re interested in learning more about how to further diversify your investment portfolio by using MICs, get in touch with Jordan on our team today.