May 2, 2019
You can’t seem to escape it—everyone keeps talking about the next Great Recession or how the stock market is up one day and down the next. This can leave investors on edge and looking for ways to protect themselves, and their portfolios!
We will start by saying that no investment can be 100% “recession-proof.” However, certain assets are definitely positioned better than others to weather a downturn.
When searching for investments that can keep your portfolio afloat during a decline, investors must remember two things. You need a service that will remain unaffected by a poor economy or an investment where demand increases during recessions.
Defensive investments can help mitigate loss when the broader market sees swings. Essentially, these are safer, always-needed investments that won’t tank even in a recession. This is due to the fact that people always need these goods or services or they are simply uncorrelated to the stock market.
Stocks that pay dividends have been consistent in recording less volatility than non-dividend payers, and when you focus on defensive sectors, your portfolio will see an added layer of protection.
There are unique features of multifamily investments that put them in the recession-resistant bucket. After all, housing is a basic human need.
A bad overall market can increase the demand for multifamily housing. This is because this type of housing is attractive for those downsizing and/or looking to lower their monthly bills.
Furthermore, the decrease in new construction in an economic downturn will increase the demand for already-built multifamily buildings.
Luckily for multifamily commercial real estate, when single-family residential prices are low, multifamily remains steady. Low correlation to the stock market AND to the regular cycles of residential property markets is an attractive feature when investing.
Recessions and bear markets are inevitable. Remember, don’t shift your portfolio around or panic sell in anticipation of future events.
The bottom line when preparing your portfolio is to always remember: time in the market, not market timing. This is what will ultimately help one reach their goals and attain financial freedom.
Remember, cash and bonds are always useful and help balance out volatility. However, stocks have proven themselves with their high returns. In addition, adding an extra layer of alternatives to diversify your portfolio, such as multifamily real estate, can play a vital role because of their non-correlation to the stock market
Knowing your risk tolerance, your investment time horizon, diversifying, and having a trustworthy professional on your side are some of the first steps one can take.