VP of Investor Relations at Boron Capital, a private investment firm serving diverse segments of the population.
In the current rocky economy, more and more investors are looking for investments that can give them at least a modicum of peace of mind. Investors want some assurance that the industry they’re investing into won’t be swept away by the next wave of Covid or another unforeseen disaster.
Unfortunately, there are no guarantees when it comes to investing. But there are traits you can look for in an investment that are signs it may have a better chance of withstanding the ups and downs of an unstable world. While some asset classes will fail at the first sign of economic trouble, there are others that have more steadfast historical data, showing that they have stayed steady even when the rest of the world is caught in a hurricane of change.
Here are six ways to ensure you have a better chance of bringing in a positive total return no matter what the economy is doing.
1. Do your due diligence. Historically good performance can hint at future security. Flash-in-the-pan investments that skyrocket are incredibly exciting, but they’re also intensely risky and very rare. If you want to be careful and strategic with your investment dollars, look for investments and asset classes that have performed well for a long time. Do your research, and get a clear picture of the long-term performance of any potential investment before you drop your hard-earned money on the table.
2. Look for assets that perform well during tough times. In a down economy, certain asset classes perform even better than usual, because people’s needs change as the economy changes.
For example, mobile home parks are one of the best-performing asset classes over the last 17 years. In a downturn, they do even better, as they are the cheapest option for affordable housing. When people are down on their luck but need somewhere to live, a mobile home park gives them a way to put a roof over their head. That means, in tough economic times, mobile home parks are likely to stay full and generate revenue, even when other types of businesses are shutting down.
3. Look for assets that perform well during good times, too. Of course, you don’t want to invest in an asset that only performs well when times are bad, because you want to be covered no matter what the economy is doing.
One example of an asset I’ve seen perform historically well despite market conditions is self storage. Right now, the economy is struggling, and we’re seeing a jump in self storage rentals because people are losing their jobs, losing their homes and downsizing. They’ve got to put all their stuff somewhere. On the other hand, when money is flowing, people buy stuff, and they need somewhere to store it.
4. Consider assets with multiple layers of value. One of the best ways to hedge your bets in the investment world is to choose investments with multiple layers of value. For example, when you buy a real estate investment, you not only get appreciation on the land and the building, but if that investment is a business, you have the potential to generate revenue from that business, too. If for some reason the business is struggling, you have the opportunity to pivot. Meanwhile, you’re still protected by the worth of the land and the building itself.
Assets with multiple layers of value allow you to make money in a variety of different ways, so you’re more protected from changes in the market.
5. Avoid any high operating costs. Most real estate assets can’t say that they are low-maintenance. Rental homes, multifamily housing and business complexes all come with high overhead, as you’re constantly responsible for maintenance, upkeep and renovations. Each dollar spent in operating costs is another dollar out of your profit.
For example, if you were interested in real estate assets, those without high operating costs would include paid parking lots or garages, self-storage buildings, campsites and mobile home communities. All of these have few, if any, moving parts, so there is less to break, less to maintain, and less to pay for. Not to mention less stress. You want to find the appropriate balance between income opportunity versus operating expenses and capital expenditures.
6. Don’t get lost looking for high yield. When you buy an investment, there’s a temptation to get caught up in searching for something with a high yield while forgetting about the total return. This is a mistake. Many times, when you move into an asset class with higher yield, you can sacrifice long-term growth and sustainability.
In the long run, your best chance of seeing a higher total profit is to look for an investment that holds value and appreciates. The longer you hold on to it, the more money you make. Of course, nothing is ever guaranteed, but in my experience, this is a better way to make more money overall, rather than focusing on getting a high yield in the short term.
Investing In A Shaky Economy Doesn’t Have To Be Stressful
It can seem nerve-wracking to invest when the economy is not quite stable, but in my experience, it’s not investing at all that leads to the poorest outcomes. When you use the tips I’ve listed above, you can find investments that take the stress out of investing, because you’ll know you’re stacking the deck in your favor toward good returns in any market.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?