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Investing can be a rollercoaster, especially when markets get jittery. Right now, with the VIX index hitting a year high, many investors are wondering where to put their money. Should you stick with stocks or consider real estate? Let’s dive into why real estate might be the safer bet right now.
What’s the Deal with the VIX Index?
First off, the VIX index, also known as the "fear gauge," measures how much volatility investors expect in the market over the next month. It’s based on S&P 500 options prices. When the VIX is high, it means traders are nervous and expecting lots of ups and downs. This kind of environment can be rough for stock market investors because it’s hard to predict what’s coming next.
Why a High VIX Index is Bad News
A high VIX index usually signals that the market is unstable. This could be due to economic worries, political turmoil, or other factors that shake investor confidence. When everyone’s on edge, stock prices can swing wildly. This makes the stock market a risky place to be, as you could see your investments lose value quickly.
Stocks Vs. Real Estate
In the asset class risk-return spectrum, stocks are known for their potential to deliver high returns, often outperforming other investments over the long term. However, this comes with a significant caveat: high risk. Stock prices can be extremely volatile, influenced by market sentiments, economic conditions, and geopolitical events, leading to substantial fluctuations in value.
On the other hand, real estate typically offers more modest returns but shines in terms of lower risk and higher stability. The value of real estate properties tends to appreciate steadily over time, and rental income provides a reliable cash flow, making it a more predictable and secure investment. This makes real estate an attractive option for investors seeking to preserve capital and minimize risk while still achieving reasonable returns.
The Case for Real Estate
In contrast, real estate offers several benefits that make it a more attractive option during volatile times:
Real, Tangible Value
Real estate is a physical asset. Unlike stocks, which are pieces of paper representing ownership in a company, real estate provides something you can see and touch. This tangibility gives it intrinsic value. People always need places to live and work, making real estate a basic necessity.
Steady Income
One of the biggest perks of real estate is rental income. Whether it’s residential or commercial property, renting out your real estate can provide a consistent cash flow. This is a big plus when stock dividends might be cut or company earnings drop.
Appreciation Over Time
Real estate tends to increase in value over the long term. Sure, there can be dips, but historically, property values have risen. This appreciation, coupled with rental income, can offer solid returns without the wild swings you see in the stock market.
Leverage and Tax Benefits
Real estate allows you to use leverage – that is, borrow money, to buy properties. This can amplify your returns. Plus, there are tax advantages, like deductions for mortgage interest, property taxes, and depreciation, which can help boost your net income from the property and defer or eliminate some of your tax burden. The stock market doesn’t offer these unique benefits.
More Stability and Predictability
Real estate markets generally don’t experience the same level of volatility as stock markets. Property values don’t change overnight based on a news headline. This slower, more predictable pace can be reassuring, especially when other markets are in turmoil.
Diversification Helps
Adding real estate to your investment mix can help spread risk. Real estate doesn’t always move in tandem with stocks, so it can provide a buffer against market swings. This diversification can help stabilize your overall investment portfolio.
Final Thoughts
With the VIX index signaling high volatility in the stock market, real estate stands out as a safer, more stable option. Its tangible nature, steady income potential, long-term appreciation, leverage opportunities, and tax benefits make it a compelling choice. Real estate can offer the kind of stability and predictability that’s hard to find in stocks right now.
By investing in real estate, you can diversify your portfolio, reduce risk, and secure a more stable financial future. In these uncertain times, real estate offers a refuge from tumultuous markets, providing solid returns and peace of mind.
P.S. If one of your priorities, like mine, is building and preserving your wealth through multifamily real estate investments, click here to download my new eBook: The Ultimate Guide to Creating & Preserving Your Wealth.
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About Ellie Perlman
Ellie Perlman is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.
A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.
Ellie is the founding host of REady2Scale, a podcast that highlights the assets, processes, and strategies for the multiple approaches to successful real estate investing.
She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can read more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.
*The content provided on this website, including all downloadable resources, is for informational purposes only and should not be interpreted as financial advice. Furthermore, this material does not constitute an offer to sell or a solicitation of an offer to buy any securities.
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