How to Protect Your Investments From the Unexpected
- By Acquisition Consultants
- April 22, 2020
When an unforeseen disaster strikes, it is every investor’s priority to continue protecting their investments. With the recent COVID-19 pandemic in full swing, many investors fear the commercial real estate (CRE) sector will face hard times for years to come. The following strategies will best assist you in protecting your investments from the unexpected.
Predicting the Unpredictable
According to some economists, the coronavirus pandemic is referred to as a Black Swan event; this is defined as a catastrophic effect on markets that is almost impossible to predict. While experts cannot completely foreshadow how COVID-19 will influence the CRE sector, staying wary but also informed is imperative for investors when facing such an unpredictable situation.
Instead of making hasty decisions in fear of losing your investments or their value, you can prepare yourself for potential outcomes by:
In doing so, you may keep your commercial real estate investments in the most optimal positions regardless of where the market settles.
Fear Versus Greed
We believe two opposing motives drive investors. One is fear, which can quickly turn the marketplace into panic mode and sell offs start to occur. Unfortunately, fear has a ripple effect and like a contagious disease, can quickly impact all market participants. During these times, there are tremendous buying opportunities and great investment opportunities for banks as well. However, when fear takes over, most miss the opportunity.
Greed is the opposing motivation. With greed, the many participants stop realistically evaluating the current state of the affairs. Anything they work on thrives and seems to work out. But hidden beneath the euphoria are concerning fundamentals. Unlike fear, when greed rules the market too many transactions happen, the economics stop making sense, and almost every participant is frantically working. When greed has taken over, one should slow down and be much more critical of every transaction instead of less critical.
Diversifying Your Portfolio
Having a diversified portfolio is always a strong investment move — especially in the wake of uncertainty. Consider those investors who mostly own properties with restaurants today. Or if you choose to only focus on raising the value of one property, you may face illiquidity and inflexibility. The key to staying diversified is building a total wealth portfolio that includes a variety of asset groups. For instance, you could invest in self-storage mixed in with retail properties, and (currently essential) healthcare facilities. Such a robustly integrated portfolio complements your current investments with more liquid assets that can help protect you against unexpected events such as a pandemic-related shutdown. Having liquidity and diversification is critical to weathering the economic storms.
Playing Defense and Offense
Protecting your investments is often similar to making critical sports plays. Playing defense allows you to protect yourself financially, while playing offense allows you to continue seizing opportunities. To defend your investments from the possible fallout of the coronavirus pandemic, keep cash reserves in the bank and make flexible decisions that allow you to quickly access funds, if necessary.
There will always be opportunities to invest in CRE — even when the economy is not functioning at its full efficiency. Offensive CRE investing ensures that you are prepared to capitalize on a profitable investment at any time during the COVID-19 crisis and beyond. Keep some liquidity to invest, stay on the search, and ensure that your banking partners are aware of your intention to do so.
Consulting the CRE Experts
There is no way to precisely judge where the CRE market is heading, but there is also no reason to run in fear from it. If you want to continue making the most optimal investment decisions, consult the experts at Acquisition Consultants. We will apply our over 25-year history with a needs analysis of your portfolio to implement effective solutions for you as an investor. To learn more about our CRE services, contact us today.