Now that Halloween is behind us, let's talk about something really SCARY!
For investors around the world, the relative calm of the seven-year bull market is over. In the past several months, the markets have transitioned into a what can realistically be called “a new and extended period of volatility.” We’re not talking about an adjustment period of quarter or two, either. Going forward, volatile is the ‘new normal.’
But it’s more than the typical business cycle that’s behind these new fits and starts. Five decades of outsourcing and capital market integration have resulted in interconnected global markets and supply chains that are highly sensitive to disruptions.
Furthermore, instantaneous information and market reaction as well as rapid and automated computer trading intensify market sensitivity to uncertainty.
There are also several event-driven causes of this new, structural market volatility that are connected either in their causes or by their impacts:
- The absolute and relative decline of American economic and financial influence in the world is leading to less stability in global markets and the international financial system
- The Brexit and the falling value of the pound create uncertainty and volatility in the currency markets around the world
- China has no easy or quick solution for its slowing GDP growth rate, which is down to 1990 levels, trillions in bad debt in its ‘shadow economy’ and a debt-to-GDP ratio of 3:1.
- The Wealth Gap in the US is now at 1929 levels, signaling record high income inequality and fewer buyers in the market. Thin market volume means higher volatility
- Persistent wage stagnation means anemic consumption and weak economic growth outlook….not good for corporate profits going forward
- The Fed has run out of stimulus options, hinting of a rate hike in December of 2016, even though workforce participation rates remain at mid-1970s recession levels
All of these macro factors tell us we’re entering an extended period of uncertainty and market volatility.
For traders, of course, volatility is good news. For investors, however, market gyrations can reduce the healthiest of portfolios to a fraction of their value virtually overnight.
We’ve seen it twice already in the past 15 years alone.
What should investors do to smooth out portfolio performance (and their anxiety curve)?
Take control of their portfolios by diversifying into tangible, non-correlated assets, of course.
Real estate is a terrific option to accomplish this, as strategic real estate assets in the right locations hold their value better, deliver stable and competitive returns, and let you leverage the strong dollar against local prices.
Real estate is known as the “original resource” and will continue to be relevant any time people need a roof over their heads, a place to go to work, or a venue in which to be entertained.
Be sure to make real estate diversification part of your financial plan, and put yourself in the driver’s seat by being exposed to as many deals as possible.