Here's something that will blow your mind. If you had invested money into the S&P 500 in March of 2000, it would have taken 13 years for your money to have experienced any consistent growth. Can you imagine investing your money for 13 years only to break even??? People often times forget that this was our reality not too long ago.
Real estate is not much different, and in fact can be even more scary when you think of the leverage that generally goes into real estate investing. If you bought in 2006 or 2007, it would have taken you close to about 12 years to break even. I love when people try giving me advice and saying stuff like "buy real estate, it always goes up....eventually." Well, the key word there is eventually and it's important to take note of that opportunity cost.
I say all these things to remind the reader here, that although we've experienced the greatest bull market in the history of the stock market, and that the recent real estate boom has created more millionaires among my friends than I would have ever imagined, history has a tendency to repeat itself.
The Fed has come out and stated that inflation is nothing to worry about, they then had to backtrack their statements as it was too obvious in the market that inflation had reared its ugly head. They now claim that the inflation we're experiencing is transitory. Well, let's see what would happen if the Fed just happens to be wrong, again.
If inflation continues, and we're on the verge of hyperinflation, we know that the Fed will have no choice but to raise interest rates. If that does happen, that could be the spark that sets flame to many investors returns because the housing market could very well crash along with the stock market. Frankly, there are too many headwinds to disregard. We're experiencing a massive labor shortage, with over 10m unfilled jobs. The most historic supply chain crisis in recent memory is affecting how we get our goods and services. Covid has not gone away, and the vaccines which were once sought to be the cure for the disease, do little to prevent spread and infection. The federal government has used all of its ammunition available with the stimulus money and their monetary policy of buying bonds and artificially keeping rates low, so we can't rely on them to do much in the way of preventing a recession. Couple that with the fact that the Biden Administration is about to put forth a new tax proposal that would raise long term capital gains along with corporate rates, and would also raise taxes on high net worth individuals, the headwinds are just too damn strong to ignore!
So where does that leave you and how should you prepare for the potential market correction looming overhead. Let me first be clear, that each person should have a custom plan that they implement with themselves or an advisor to ensure they can stomach a correction or a recession. It's important to have cash reserves and to invest with the proper risk weighted portfolio. It's also important to be positioned to take action if the market does correct, as there could be tremendous opportunities on the horizon. Lastly, tax planning is a strategy that almost no accountants or financial advisors utilize (we always tax plan here at Strandlife Financial Group), but could be the most powerful tool to use to combat the crisis. I will leave you with the most famous quote by worlds most famous investor, Warren Buffet, which I think ties perfectly into this article, and is one that I hold dearly to my heart. It states to be "fearful when others are greedy, and greedy when others are fearful."
We'll see if this quote can be put into action in the coming future by being positioned properly to capitalize on opportunity's that lie on the horizon.