Protect Investments from the Adverse effects of Global Economic Slowdown
When it comes to retirement planning, too many investors have their portfolios on autopilot.
While the volatile global economy and six-year bull market has prompted more attention to asset allocation, few have acted on the imperative need to diversify investments and mitigate today’s inherent risk. In fact, only 10 percent of people with a Fidelity 401k plan made any changes to their portfolio in the 12-month period ending in September 2014.
During that time, the U.S. stock market continued its erratic behavior as investors cashed in on record high M&A deals and IPOs, yet saw significant losses due to economic slowdown in hard hit areas including Europe, China and Russia, where local currency has now reached record lows against the U.S. dollar. As history has shown us from Russia’s 1998 Ruble crisis, the downfall in its economy will likely shake U.S. stock market activity. Simply put, investors must shelter investment portfolios with a safe alternative that produces a consistent rate of return.
Hard assets, specifically real estate, have come into the spotlight recently for its limited correlation to equities and negative correlation to bonds. While many hard assets come with increased risk and volatility, real estate protects against market fluctuations and allows investors to hedge inflation. For example, when the stock market declines, real estate performance remains relatively unchanged, and it can continue to be a strong option throughout the uncertain times ahead.
The Federal Housing Finance Agency estimates the value of homes to increase five percent over the course of 2015, while economists continue to predict price appreciation will continue.In addition to positive market dynamics, when purchased through a self-directed IRA (SDIRA), the returns from income-generating real estate are tax-deferred.
Income streams generated from real estate that accumulate inside the SDIRA — including rent payments — go straight into retirement savings, not increasing the investor’s income from a tax bracket standpoint, but helping to generate additional portfolio returns through tax-deferred growth. Additionally, specialized real estate investment groups can offer comprehensive services to make both the initial and long-term investment in real estate simple and user-friendly for self-directed investors.
These firms work to find investors a safe and sustainable investment, complete with property management teams in place to ensure the property’s value and condition stays up to standards. Often, they buy or build properties in bulk at a discount achieved through research, relationships and years of expertise in the field.
Investing in real estate through an SDIRA is also attractive because of the required use of non-recourse loans for all property investments. Non-recourse loans are based on the value of the property, not the credit worthiness of the investor. Experts have found that this type of investing is becoming popular among individuals with IRA accounts, as it offers a chance to diversify retirement portfolios through hard assets, helps mitigate risk, and offers an opportunity of a higher rate of return.
At a time when experts predict that higher interest rates and sluggish global growth will hold the stock market back, your retirement portfolio must be diversified and sound. Reassess allocations to help protect your savings during unavoidable economic downfalls.
Preston Despenas, Senior Partner and Co-Founder of Growth Equity Group, has more than 15 years of experience in real estate. Growth Equity Group is a premier, nationwide, real estate investment firm that provides investors added diversification with real estate through a passive investment solution. This includes providing rental properties that come equipped with non-recourse financing, existing tenants and property management in place. In addition, Growth Equity Group’s non-recourse financing allows investors to leverage their SDIRAs to afford superior assets, multiple properties and attractive markets.