4 Financial Strategies For Success In The COVID Era

What’s Working Now?

This is a question that has been coming up a lot lately. Stocks are scary for many at current levels and the uncertainty of recovering, in the near future, from the economic fallout from the pandemic, west coast fires and gulf coast hurricanes.

We have seen millions of jobs lost, some of the highest unemployment levels in history and social unrest growing across the country. Given this background, many people are concerned about the potential for a significant drop in the stock market.

Traditionally, when this happens people have turned to bonds for safe haven over the past 40+ years. Unfortunately, given the interest rates on government bonds, that “safe haven” isn’t looking as promising as over the past decades. I have written about risks in the bond market and hope people understand the lack of safety, especially in bond mutual funds that include municipal and corporate bonds. And if interest rates rise, your bond funds will lose money, so much for “safe haven”.


Strategies for Today’s Challenging Environment

So, if those traditional “safe havens” are not as solid as they used to be, where does one invest with confidence these days? I have spent the past few months looking for options to the rising volatility and risk in stocks, bonds and other markets. Let’s look at some solid options that will work now, and when things get better.

Number 1: 4 Types of Real Estate

Not all real estate is created equal. While things like office buildings (due to the increase in work at home during the pandemic), hospitality (hotels and resorts), restaurants,  and regional shopping centers have had obvious issues during this time. Even multi family (apartment complexes) have seen yields going down while risk of non payment has gone up (eviction moratoriums). Despite these challenged areas, there are other niche areas that have been strong.

  • Manufactured housing has been an area of strength. These have been stellar performers this year and in years past. Stable tenants, low risk exposure, great cash flow, and tenants who don’t depend on stock market returns for their wealth (think pensions and social security). There is demand that far outstrips the supply for this type of housing. The best part is that you don’t own the housing, just the land the homes sit on. So, risk from tornados, hurricanes and other natural disasters is minimal.
  • Necessity based retail. Think grocery stores, pharmacies like CVS and Walgreens, auto parts stores and other related retail that didn’t close during the pandemic. In fact, many of these sectors are seeing record sales and the properties have been appreciating in many areas.
  • Self Storage. There is always demand in this area. When times get tough, these places see even more demand as people downsize or double up. There are some over developed areas, but these can be consistent performers regardless of the overall economy.
  • Medical Office Buildings. People get sick regardless of the economy. The cash flows are built on insurance claims and government payments from Medicaid (MediCal here in California) and Medicare. There are some segments that aren’t as reliable, but with careful selection, this can provide steady cash flows.

Number 2: Dynamically Managed, Multi-Asset Investment Portfolios

We have looked for managed strategies that use algorithm based strategies that are not afraid to go to cash when volatility increases. These strategies look for diversification based on formulas that avoid options that are showing weakness under current market conditions and emphasize those areas that are showing current strength. These strategies require set parameters that allow for non-emotion based allocation decisions.

Number 3: Fixed Indexed Annuities

These products include a guarantee of your principal and the opportunity to earn interest based on the movement of a market index. The best ones have a choice of indexes to choose from. Many of the index options include strategies like I mentioned above. They cover multiple asset classes, have an algorithm that allocates between those different asset classes and monitors volatility so that if the market starts to drop dramatically, the index moves toward cash. Some of these rebalance monthly and many today rebalance daily and some, throughout the day. They often can offer more asset classes than stocks and bonds, including things like commodities, real estate and gold. All while guaranteeing your principal.

We have been using these instead of bonds to offset risk in portfolios. The best ones are designed to return 4-6% over time based on current interest rates. I have seen some of them return more, but that would be more the exception than the rule. These are great for funding IRA and other retirement accounts. When compared to other options that guarantee your principal, the earning potential is much higher. Also, if the markets continue to advance, you will be able to benefit from that appreciation, but avoid the downside if there is a major correction.

Number 4: Fixed Life Insurance

These can have guarantees of your principal and, when properly structured, provide 3-5% tax free growth, without risk to principal. These have been around for over a century and a half and have proven to work during the worst economic times.

While this was not intended to be a complete list, these are many of the more popular options that will protect you in tough times and provide even better returns when things calm down.

If you would like to see if any of these are beneficial for your situation, contact us and we can look for appropriate options that are right for you.