S&P Off To Worst Start Since 1939
ecent big business news is that the S&P is having its worst start to a year since 1939. That's over 80 years ago.
Since the beginning of the year, the S&P is down 13%, the Dow is down 9%, and the tech heavy NASDAQ is down 21%. What does that mean?
It means we are off to a poor start in the financial markets, which isn’t particularly surprising. We've been seeing the effects of inflation (which was previously said to be “transitory”), which increases the cost of capital, and that along with wage increases and supply costs are compressing company profits. That’s going to take down Wall Street in general – Facebook, Amazon, Apple, etc. are all down.
Does this mean everything's going down, and we’re in a heavy correction? No, I can't say that for sure. But the trend is there. The major point I make to people is that we are just leaving a 40 year cycle of disinflation and decreasing interest rates. Since around 1980, when we had very high inflation and interest rates, we've been trending down for 40 years – which has been a major boost for the stock and bond markets. It's helped real estate and all asset classes as well. It’s been a blessing for those of us who have been in any of the markets and done well.
The problem is we can't stay on the same model going forward. It's going to shift and change. I know people that invest heavily in the stock market typically don't like to leave it. That's what they believe in, and I'm not saying you should leave it if it is working for you.
But I’ve been an investor in alternatives, particularly real estate, since 1980. In fact, I bought my first property in 1980 during high inflation and high interest rates. I’ve learned how to navigate these market cycles, and I've been through about five major ones so I know how it works. The last thing I want to do is lose principle in my investment.
The thing I like about real estate is that it provides a very strong cash flow dividend. Now some stocks in the stock market provide an essence of dividends, but most do not – and the ones who do pay a dividend pay it small. What most people are betting on is the value appreciation of their stocks.
In real estate, I get both the value of appreciation, just like the stock market, and the increase in the cash flow. I don't know about you but I want both. I want the twofold. I can get that in real estate – I can't get that in the stock market.
Many people have predicted, including Charlie Munger and the late Jack Bogle of the Bogleheads of Vanguard, that the 2020s will be a very lackluster decade for the stock market.
Why? Because we've got this uptrend in cost of capital. The cost of everything is going up and that usually doesn't bode well for the stock market in general. Sure, you can pick a few here and there and probably do well; if you'd like to do that, go for it.
But in my experience, with real estate it's a lot easier to find and use a model to navigate the historic cycles. I get the dividend of the cash flow whether we're an upmarket or downmarket. When we are in an up market and we have inflation, I can hedge against that. When we're in a down market, as long as I'm not over leveraged (which is where people get into trouble) and I have a cash flow margin, I can ride right through it and pick up properties that are on the downside. Either way, it works out well for me.
If you're not making a change in your model, if you're not looking hard at what you’ve been doing that’s gotten you to where you are but has you concerned about where you're going – then it's time to look at an alternative path. Don't put your head in the sand. Don't just keep your fingers crossed and hope that things will get better, or that you won't have to deal with it.
I truly believe we're in a different marketplace, a different paradigm shift. Does it mean that you need to throw all hope out the window? No, but you've got to take control. You can no longer abdicate to financial markets, to financial advisors, or to your 401(k). I believe those models for the most part will no longer work, and you need to look for a different path.
I've proved it, and I am a product of the product. If you want to find out how to do it then follow me. There’s lots of ways you can do that, but if you haven’t already, I encourage you to pick up a free copy of my latest book Inflation: The Silent Retirement Killer to prepare yourself for the effects of high inflation on your retirement.
P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :
1. Schedule a Call with My Team:
If you’d like to replace your active practice income with passive investment income within 2-3 years, and you have at least $1M in available capital (can include residential/practice equity or practice sale), then schedule a call with my team. If it looks like there is a mutual fit, you’ll have the opportunity to attend one of our upcoming member events as a guest. www.freedomfounders.com/schedule
2. Become a Full-Cycle Investor:
There are many self-proclaimed genius investors today who think everything they touch turns to gold. But they’re about to learn the hard way what others have gained through “expensive” experience. I’m offering a free report on how to become a full-cycle investor, who knows how to preserve and grow capital in Up and Down markets. Will you be prepared when the inevitable recession hits? Get your free report here.
3. Get Your Free Retirement Scorecard:
Benchmark your retirement and wealth-building against hundreds of other practice professionals, and get personalized feedback on your biggest opportunities and leverage points. Click here to take the 3 minute assessment and get your scorecard.