Hedging against market volatility should be high on the agenda for any investor. Recent months have highlighted just how important it is to protect your investments from market vulnerabilities. For those looking to increase their investment resilience, real estate crowdfunding could be the answer.
The Covid-19 outbreak has caused financial shocks around the world. Global GDP is expected to lose around USD 76.6bn as a result of the pandemic – and this is in the best case scenario. Sectors, businesses and people have all been affected by economic uncertainty. Interest rates have plummeted in a bid to protect borrowers and encourage spending. Meanwhile, unemployment rates have soared and are forecast to continue rising. Lots of people are seeking financial security.
Having witnessed vulnerabilities in global markets and their own investment strategies, many investors are looking to build better security into their portfolios. Real estate crowdfunding could help provide this stability, acting as a safe haven in times of crisis. Here’s why.
Stable real estate
Real estate is seen as one of the lower-risk investments, with markets across the world showing relative stability compared to stock markets. Since the 1950s, most real estate markets in the world have grown at a higher rate than inflation, offering strong long-term returns. Following the 2008 economic crash, house prices in the US recovered within five years and have since continued to follow a general upward trend. Swiss house prices followed the same trend, with the average family home now costing around 990,000 CHF (USD 1.09m).
Investing in real estate allows you to benefit from both capital growth and steady rental income. In times of crisis, when the underlying asset may briefly depreciate, rent can provide a steady income stream while you wait for the property’s value to recover and grow.
In addition, residential properties provide a safe haven. Commercial properties can be neglected during economic crises as businesses look to cut costs. However, residential properties are still sought after. People will always need a home, and they may be reluctant to move when there is market uncertainty, making good rental properties attractive.
The ability to diversify
Spreading your investments across different assets provides back-up in times of uncertainty. If one market shrinks, your other assets should keep performing to generate an income and maintain their underlying asset value. Crowdfunding can offer more opportunities for diversification. You only invest small amounts, but across lots of different projects. That means you can invest in lots of locations and various currencies, which can offer security against economic downturns affecting certain regions.
Safe haven currencies
Investing in currencies that are different from the one you normally use can help protect you against crises at home. There are also various safe haven currencies around the world that are generally more stable and immune from market shocks. The US Dollar is a well-known safe-haven currency because it is the reserve currency and often used for international business deals.
Lots of investors look to buy properties in the US or even Europe to make the most of the currencies’ relative security. For most people living in Latin America, investing in property in these strong markets is unfeasible without large sums of capital, but crowdfunding makes this possible. At Bricksave, we focus on projects in the US, enabling you to invest smaller amounts to make the most of the US Dollar’s security. We’re also expanding our property portfolio across Europe, so you’ll be able to invest in the comparatively strong Euro as well.
Generally speaking, shorter-term investments are more at risk of suffering from market shocks. If there’s a sudden drop in value, your investment may not have the time to recover before you need to release the capital. On the other hand, long-term investments tend to smooth out any bumps in volatility to deliver strong returns, but you won’t be able to access your capital for a long time.
Mid-term investments provide a middle ground. That is why we, at Bricksave, aim to hold our properties for four years. This timeframe gives the property value chance to recover if there’s a market decline. Should the decline occur towards the end of the four years, we also have the flexibility to hold onto investments for longer until we see recovery. At the same time, you can access your capital in just four years, rather than say 15 or 20 years.
Real estate crowdfunding is a relatively new type of investment, but it is helping people around the world diversify their portfolios and hedge against market volatility. Whether you are a savvy investor or new to investing, Bricksave can help you find profitable projects to crowdfund. Find out how it works, here.
October 12, 2020
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