One Way to Immunize Your Portfolio Against Coronavirus
“Dad, am I going to get sick like those people in China? Do you think I should wear a mask?”
Caleb is my six-year-old who has apparently been looking over my shoulder while I’ve been watching the news lately.
He’s home from school today with a minor cold. But with six siblings who love to hug and kiss on their baby brother, a mask might not be such a bad idea!
I’m not too worried about Caleb’s situation. We don’t know anyone who has been to China recently, and his symptoms are pretty mild.
Still, the whole situation with the coronavirus has me thinking about how to manage risk and keep everyone as healthy as possible.
And today, I want to take a similar approach with your wealth!
After all, the most recent coronavirus news has been sending markets higher and lower like a yo-yo. And I want to make sure that you’re in a healthy spot to protect your wealth from this volatility.
So let’s take a look at what’s going on with this global health risk.
Coronavirus: What’s REALLY At Stake For Your Investments?
If you’ve been watching the way the market has been reacting to the coronavirus news, you might think investors are acting a bit childish.
After all, the Dow has dropped hundreds of points some days… rebounded hundreds of points on following days… all while the coronavirus news has remained largely the same.
At this point, the coronavirus continues to be a health threat that can be spread between humans, but governments and health organizations are working hard to contain the spread and eventually develop a vaccine to keep new people from getting sick.
When it comes to the economy, the virus shouldn’t cause a major problem for U.S. companies. But it may have an effect on factory output — especially in China — where workers in some provinces are being encouraged to stay home until we know more about the health risks.
So where does that leave us as investors? What is the best way to protect your wealth despite the market volatility?
Today, I want us to look at one area that is proving to be immune to the coronavirus fears — and may in fact actually benefit from some of the ripple effects of this sickness.
Three Conversations All Pointing to Strength
“I’ve got six closings scheduled for this week alone!”
That was the story I heard from my brother when we got together to watch the Super Bowl this Sunday. Derek is a local real estate agent and has been successfully building his practice for years.
This year, he’s seeing the spring activity start several months early, thanks to strong demand for homes from the millennial generation.
His story checks out with the conversation I had just one day earlier with my friend Doug.
Doug is a professional photographer who makes a living shooting pictures for home sellers. The pictures are placed on real estate listings to help sellers get top dollar for homes being listed.
“You wouldn’t believe what people are doing to boost the prices of their homes.” Doug told me.
“Builders are adding hot tubs, multi-tiered back yard landscaping, and the best appliances. All of these additions let homebuilders jack up the prices and lock in even bigger profits!”
And then there was my conversation with Jacob who is a local wealth manager.
“Zach, with all of the coronavirus fears, our firm now expects the Fed to cut rates. That expectation is already driving mortgage rates even lower which just makes it easier for buyers to purchase homes. I’m even talking to some of my clients about buying second and third homes to take advantage of the opportunity!”
None of this activity is being hampered by the coronavirus fears.
After all, the U.S. housing market continues to have an acute imbalance — where there are many more buyers than homes available for sale. And as Jacob said, with the Fed likely to lower interest rates to help offset coronavirus weakness, demand for homes will only increase!
Three Ways to Play the American Real Estate Land Grab
With things heating up for the American real estate market, it’s a great time to be invested in the U.S. housing market.
One of the easiest ways to profit from strength in the U.S. housing market is to buy homebuilder stocks. These companies are in the business of buying land, developing communities, and then selling the individual homes one-by-one.
Thanks to low interest rates and high home prices, these builders are able to cheaply finance the costs of building these communities. And then when they turn around and sell the individual houses, profits are rising quickly.
And with demand from the millennial generation continuing to grow, I don’t expect this trend to slow down any time soon — regardless of what happens with the coronavirus.
A second way to play this trend is to invest in companies that provide the furniture, appliances, and other items that new home buyers must purchase. Retailers who offer these products will continue to see strong sales as new homeowners get settled in.
Plus, there’s the potential for add-on sales if the coronavirus winds up causing more Americans to stay home. After all, if you’re going to spend more time in your house, you might as well buy home goods that make for a more enjoyable “stay-cation.”
Finally, if you’ve got the available cash flow, now is still a great time to purchase homes as investments.
There are plenty of strategies to use with this type of investment.
You could buy a home that needs repairs. By putting a little extra work into the home, you should be able to fix it up and sell for a great profit.
Other investors may want to rent out a home for the next few years. I expect home prices to continue to rise, and this is a great way to generate cash flow while your property slowly increases in value.
And investing in vacation property can be a great alternative too! Not only do you have a place you can take your family to visit, but you can also profit from renting it out to others!
Regardless of which approach you take, using some of your wealth to invest in the American real estate market can be a great way to inoculate your wealth against the volatility that the coronavirus has caused in the markets.
Here’s to growing and protecting your wealth!