Tumultuous Times: What is Your Hedge Amidst Volatility?

Volatility – it is nothing new to the market, yet, as we look back, this is undoubtedly an accurate word to describe the markets in 2018. Consider the following events from 2018:

  • The Dow Jones Industrial Average (DJIA) saw its 4 largest single day losses;
  • The DJIA saw 5 of its 10 largest single day gains;
  • The stock market had its worst December since the Great Depression;
  • Both the DJIA and S&P 500 hit all-time highs;
  • The S&P 500 ended the year down 6%+

The up-and-down nature of 2018 was more representative of a gut-wrenching roller coaster ride than that of a sturdy and steady asset class. All-the-while, drama ensued over the Federal Reserve’s interest rate policy, a trade war with China began, and at the time of this article, the government shut down for a record breaking 34+ days. To state the obvious, the US economy does not exist within a vacuum, and with every news-break, the markets have responded with an ever-increasing level of volatility, resulting in one of the highest concentrations of dynamic market swings the United States has ever seen.

Now, as stated, volatility is nothing new to those familiar with equities and fixed income products. Furthermore, a market’s sensitivity to those events surrounding it (as depicted in the DJIA and S&P 500) is also common knowledge. The real questions is, however, is, what do we do with this kind of volatility?

One of our beliefs at Watermark Equity Group, is that private real estate as an asset class is an excellent way for investors to diversify their portfolio with a product that historically speaking:

  1. Provides excellent risk adjusted returns;
  2. Is a hedge against inflation;
  3. Is tied to a tangible asset;
  4. Is less volatile than the stock and bond markets;

So, when markets go up and down daily, and are prone to sway with current events, private real estate can offer the upside of excellent returns, all the while not being subject to the moment-by-moment ups and downs. In contrast to stocks and bonds, private real estate by and large responds primarily to macro trends, not micro trends. Rental prices or property valuations don’t contain huge swings in the course of 1-2 days as stocks can. They are for the most part, steady, responding to macro trends over a longer period of time. This allows investors to make informed decisions on a steady asset. This steadiness, coupled with competitive returns can make Private Real Estate an excellent way for any investor to diversify their portfolio.

To learn more, reach out to Watermark Equity Group today!