Times of war, political upheaval, economic turmoil… are also the times that can destroy fortunes.
We’re living in these times right now. I don’t need to tell you.
The largest war in Europe since World War II… Talk of World War III if China tries to grab Taiwan (and the U.S. gets drawn in)…
Bank failures in America. Three of the largest ever U.S. bank failures have happened in the last two months.
The S&P 500 was down almost 20% last year… Inflation is still more than double the Fed’s target rate…
There’s a looming recession… and a President and Congress that can’t agree even to slow down Uncle Sam’s runaway spending—never mind how to do it.
Make no mistake: fortunes will be destroyed in the economic storms that are ahead.
And if fortunes can be destroyed… certainly, so can whatever the rest of us have managed to squirrel away for a rainy day or for the future.
Now is the time to take some critical steps to protect your wealth and protect your retirement income…
Why You Should Look Beyond Stocks
I’ve never been much into stocks.
It’s not that I have any ideological objection to them, or anything like that.
I always just thought they took too much time and management. The market goes up and down all the time—I would have to be looking at my portfolio every day and judging when to buy and sell…
That’s too much work—and too much stress—for me.
So, if you know me, you know that I’ve built my “nest egg” with real estate.
I bought my first investment property in the States, with the help of a small gift from my first wife’s parents.
It was 1995, and I bought a three-flat building in Chicago. After owning the building for two-and-a-half years, I sold it for almost double what I’d paid.
Over the subsequent years, I’ve invested in more than two dozen countries, and at its peak, my portfolio held properties in 15 or more countries at the same time.
I’ve tried to consolidate over the last decade or so.
I’m focused now on leaving a legacy for my kids… and setting myself up well for my later years.
If you know my real estate story, you’ll know, too, that for me, cash flow has always been king. With my property investments, I’m primarily interested in the rental cash flow I can achieve, rather than on the value of the property going up.
The reason for this is simple: rental cash flow is true passive income. And it’s an income you can rely on even as the value of your property goes up or down, or as economic conditions ebb and flow.
I don’t need to be a fortune teller and predict the rise and fall of markets—when to buy and when to sell—I can enjoy true, year-round passive income…
It’s true that the value of stocks, as an asset class, has historically risen over time… As has the value of real estate (in the U.S. and globally).
One research group found that from 1870 to 2015, global housing returns were 6.9% after inflation, with 6.7% for the stock market. In the States, stocks saw an 8.5% return and real estate 6.1%. But real estate is also less volatile than stocks.
While the value of the stock market tends to rise over time, if all or most of your wealth is in the stock market, you can be very unlucky with your timing. Ask anyone facing retirement around the time of the 2008 crisis.
Or, just consider the fact that the S&P 500 was down almost 20% for the year by the end of 2022.
Imagine retiring today, and your nest egg has lost nearly a fifth of its value—compared to what you expected.
That’s a big hit that could have a big impact on your lifestyle…
You could argue—and I’m sure many would—that the same is true if you’re relying on real estate.
But that’s only if you’re primarily relying on capital appreciation… on real estate prices to go up so you can sell…
If your main concern is rental cash flow—the situation is entirely different. You don’t face the same challenges to your income…
You may face other challenges, of course, in a recession (reduced rent payments, etc.).
But the point of all that I’m saying is not to scare you off investing in stocks… or stop you from hoping that any properties you own will appreciate…
My point is: just as you shouldn’t rely solely on Social Security, if you can help it… (Because who knows how long the current benefit system will last. The 2022 Social Security Trustees report found that—starting in the next decade—Americans will receive reduced Social Security benefits, unless our politicians fix the system.)
… Just as you should diversify in all other areas of your lifestyle—with different bank accounts, preferably in different countries, in case of bank failures; a backup residency, in case things go bad at home…
… Your wealth portfolio, too, should be fully diversified.
It just makes sense, given all the risk in the world, to give yourself as many options as possible.
Why I’m Looking Beyond Real Estate
I’ve started to take my own advice about diversification—when it comes to diversifying beyond my real estate portfolio.
I used to think I was “diversified enough” because I owned property in however many different countries.
But, a stockbroker colleague approached me at a conference a few years ago, and he said to me: “But Lief, you’re not diversified, because 95% of your wealth is in real estate.”
I’ve taken that comment to heart.
More than that: as I get older, and as I see the state of national politics, and global politics—I want more options. And I want some assets that are easier to liquidate, should I need to.
I’ve started to grow my stock portfolio. My stockbroker friend would be proud.
But I still have my same basic personal problem with stocks, and even mutual funds: you have to pay a lot of attention to them. The market is more volatile.
I now recognize that a fully diversified portfolio would not only include real estate and stocks but also a variety of alternative assets…
It might even include crypto, if you want to go that route.
But personally—just like with real estate—I prefer assets that I can touch and feel.
It makes them real—and have real value—to me.
You can watch my video presentation, right here, where I talk about the three alternative investments I’m looking at right now… and other strategies I believe are important to protect your retirement.
The thing about all these investments… unlike stocks, at least for me… is that, in addition to being potentially profitable, they’re also fun.
And we all need a little fun in our lives, in these times.
Stay diversified,
Lief Simon
Editor, Offshore Living Letter
