Investing in a Future Recession: Real Estate, Stocks, or Other Assets?
The uncertainties of a future recession have prompted many to reconsider their investment strategies. Traditional investments like real estate and stocks are often discussed, but the unique challenges of depopulation and market overbuild present new perspectives. This article explores the potential advantages and disadvantages of buying real estate, stocks, and other assets, such as precious metals, to help you make informed decisions.
The Case for Real Estate in a Recession
Real estate has long been seen as a stable investment during economic downturns. People often turn to real estate because, in theory, it tends to retain its value better than many other assets. However, with demographic shifts and overbuilt markets, the landscape is changing. The baby boomer generation is reaching retirement age en masse, signaling a significant shift in the housing market.
Over the next five years, the number of baby boomers is expected to decrease by around 20%. This demographic group has traditionally driven housing demand, and their departure could lead to a significant oversupply. Developers, noticing the increase in housing costs, have overbuilt, leading to price drops in many areas. As a result, many recent homebuyers may find themselves "underwater" on their mortgages, with the value of their homes falling short of their remaining loan balance.
The issue is compounded by the fact that baby boomer-owned homes will also hit the market in large numbers. In some areas, prices may drop by as much as half, similar to what happened in Detroit when its population halved. This massive glut of inventory will likely put downward pressure on prices. However, some areas that avoided overbuilding may see more price stability.
Staying Invested in Stocks
Despite the potential challenges facing real estate, stocks remain a solid investment option. While individual company stocks may experience declines, overall market indices are typically more stable. The concentration of wealth among a small percentage of individuals has led to a more balanced market, as these wealthy investors tend to hold onto their shares rather than liquidate during downturns.
In the event of a recession coupled with inflation, the value of your investments may actually increase. As the purchasing power of the dollar diminishes, the same asset will require more dollars to buy it. Rich investors typically do not sell their stocks; instead, they borrow against them. The interest rates they pay are generally lower than the returns they earn, making it a beneficial investment strategy.
Consider diversifying your stock portfolio by including some defense contractors' stocks. As the old global order unravels, there is likely to be an increase in geopolitical tensions and wars, creating demand for defense-related investments.
Alternative Investments: Precious Metals and Cryptocurrencies
For those seeking less traditional investment options, precious metals and cryptocurrencies present compelling alternatives. Gold and silver have historically been seen as safe havens during financial crises due to their scarcity and universal appeal. As government debts grow and inflation rises, more investors are turning to these assets to protect their wealth.
Cryptocurrencies, particularly Bitcoin, are emerging as alternative assets. There have been discussions within the US government about purchasing Bitcoin to back the dollar, similar to how gold used to back the dollar before the move to fiat currency in 1971. While still highly speculative, Bitcoin offers an opportunity for diversification and potential high returns.
Other precious metals and gems can also serve as investment options, especially those with limited supply and strong demand, such as diamonds or rare metals.
Conclusion
The upcoming recession presents both challenges and opportunities for investors. While real estate has traditionally been seen as a safe investment, the demographic shifts and market overbuild could make it less attractive. Stocks remain a viable option, but diversity in your portfolio is crucial. Alternative assets like precious metals and cryptocurrencies offer unique opportunities to protect and grow your wealth in an uncertain economic environment.