Alternative Investments in Asset Allocation Strategies
09.13.2019
Traditional Asset Allocation strategies subscribe to the Stocks, bonds, and Cash model. In the era of negative interest rates, falling stock market prices, other Alternative asset classes such as Real Estate and Gold are starting to show favor.
Since interest rates have turned negative in Europe and Japan, inverted yield curves in US and England, Gold and Real estate are making a comeback. With such hard assets, investors can back their portfolio volatility with some real asset backed holdings, providing some safety and long-term income.
Even though Gold is a nice long-term hard asset, it is a dead asset. It does not provide income except for some Gold ETF’s, ETN (Notes) and Mutual Funds paying dividends. Mostly Gold may provide appreciation in times of economic uncertainty and stock market volatility. In times of war and extreme disruptions in times of disasters, currency devaluations, smaller denominations of gold in gold coins, of say 1g each may serve as a valuable means of purchasing necessities. These dire scenarios are unlikely but nevertheless possible.
However, Real Estate income and investment properties are a great long-term holding in any portfolio. They are not necessarily the most liquid or short-term plays but investments in publicly traded REITS can provide the online trading liquidity and income in terms of dividends. Diversification in Real Estate properties can be achieved in terms of asset type and geographic location. The major types of Real Estate Investments in most countries are Multifamily (Apartments/condos/townhomes), Office, Retail Shopping Centers (Malls), Storage, Student Housing, Senior Housing, Nursing Homes, Alzheimer’s-Memory/Acute/Hospice Care, Mixed Use (shops on ground floor, apartments/condos on top floors), Industrial, Oil and Gas, Parking Lots, Golf Courses, STNL (Single Tenant Net Lease Retail or QSR-Quick Service Restaurants, Pharmacies), Medical Office Buildings, Hospitals, Dialysis Centers, etc.
I have been practicing Commercial Real Estate investments in the securitized and syndicated Institutional Class A/B property space, in the USA since the year 2000. Therefore, I will limit myself to comments to the known (USA) versus the entire world. In the era of plummeting interest rates, as the cost of financing goes down, and real estate asset prices and income being dependent on debt service due to usually 45 to 55% leverage, real estate continues to become an attractive long-term investment. Yes, the cap rates keep shrinking due to increasing demand by investors due to lower debt service costs of holding these properties, so investors compete for a shrinking pool of available properties, bidding up their prices. Still due to lower interest rates, investors can eke out a higher percentage income by at least 0.5 to 1%. The holding period of the real estate assets also shrinks because of the readily available pool of investors willing to pay more. So, the total time shrinks.
The best recession proof and maximum occupancy real estate investments tend to be multifamily apartments, student housing, senior housing, long-term/acute/memory/nursing care, hospitals, and to some extent storage (store it and forget it). In the USA, the current 1031 exchange tax provision allows real estate investors to defer all their capital gains and recapture of depreciation.
What is 1031 Exchange?
Section 1031 of the tax code provides one of the best strategies for the deferral of capital gains taxes which would ordinarily arise from the sale of real estate. Exchanging defers the recognition of the capital gains tax, leaving the property owner with substantially more proceeds to purchase a replacement property. The tax code states, "No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment purposes if such property is exchanged solely for property of like-kind, which is to be held for other productive use in trade or business or for investment purposes." Real Estate Investors can accomplish virtually any investment objective with 1031 exchanges, including greater leverage, diversification, improved cash flow, geographic relocation, and/or property consolidation. The 1031 exchange of properties must be accomplished within properties located in the 50 States of the USA.
These Fully managed, turnkey, passive, securitized investments in Real Estate are available to “Accredited Investors” only. Visit https://www.mymoneymall.com/faqs. Investors generally receive about 4-6% annual cash low, paid monthly and may realize a net return of 8-12% annualized when the property is generally sold in 8-10 years. As is the case with any other “investment”, no guarantees or assurances can be given regarding any returns. Tax laws vary from country to country and investors should consult with their Tax and Legal Advisors, including reading the PPM (prospectus) fully before making any such investment or sending any money.
A useful model portfolio would be 10% cash or cash instruments, 15% Bonds, 30-35% Real Estate and Art/Automobiles/Collectibles, and rest in Equities. Of course, risk tolerance, goals, investing style, age, needs will vary from investor to investor and financial advice the investor is getting, so every investor portfolio will be unique.
Mr. Jain can be reached at 408-836-3858, sidjain@mymoneymall.com, www.mymoneymall.com
Mr. Sudhanshu Jain (a.k.a. Sid Jain), MA Economics, is an Independent Broker and a Real Estate Investment, Financial Planning and Employee Benefits Professional. California Life/Disability/Health/Variable Contracts License# 0828966. CA BRE License# 01493874. Securities Registered Representative-Series 6, 63, 22. MoneyMallUSA Corporation and Emerson Equity LLC. are separate and unaffiliated entities.
Securities offered through Emerson Equity LLC. Member: FINRA/SIPC, 155 Bovet Rd # 725, San Mateo, CA 94402, 650-312-0200