Investment Trends of 2020
The landscape and the land which humans will reside in the future has forever shifted thanks to Coronavirus 2020. Seismic changes that were bubbling under the surface have jumped to the forefront at an astonishing pace. Let’s look at how your investment portfolio can deal with what is happening.
In March of 2020, the United States and much of the world shut down the economy. Whether you think the virus is the scariest thing since the 1918 Spanish Flu or completely overblown, the world and your investments changed forever the day this virus showed up in our country.
As dominos continue to fall and political parties battle over their version of the ‘facts’, our unemployment filings 5 months later still exceed 1,000,000 every week. While the pandemic has been dominating headlines, consumer spending habits have changed, and businesses have had to re-envision what their companies will look like.
Let’s look at the changes and then evaluate the potential investments moves to consider because of it.
These major trends have developed during the pandemic:
- Businesses are ditching commercial real estate at an unprecedented rate to cut costs
- Employees are given more freedom than ever to work from home and have flexibility in when they work during the day.
- With the freedom to work from home, employees are looking for greener pastures and lower cost of living outside of the downtown areas of cities.
- Companies like Amazon, Google, Target and Walmart have jumped to the front of the line given their digital presence and ease to acquire what the consumer is looking for.
- Traditional staples of the stock market have ceded to a new era.
Here’s a break out of the impact on the investor for each of these trends:
Commercial Real Estate Abandonment
Businesses are ditching commercial real estate at a shocking rate in 2020. Our Denver, Colorado office sits on the first floor of an 11-story building. The property manager was notified this week that the tenant of the entire 6th floor is ditching their space to move to a work from home environment. Another is going from 20,000 sq. ft down to just 3,000.
In North Carolina, a CBRE agent told us the market is depressed and a client whom he was working on securing space for that was 250,000 square feet just dropped that project all the way down to 40,000 as they move most of their employees to a permanent work from home structure.
In Seattle, Washington, outdoor adventure store REI just finished their corporate headquarters and have scrapped their plans to move employees into the space, instead they will sell the property and have all employees work from home permanently. The departure from commercial real estate creates several financial investment changes beginning with Real Estate Investment Trusts (REIT’s).
REIT’s Safe? Not So Much
Historically, REIT’s and commercial real estate in general have been viewed as a relatively safe long term investment. If you were building a financial house, they wouldn’t be included in the foundation, but they would fit into the walls portion of the house. They typically are lower on the risk scale and would provide some support to the roof which would house your risky investments- like stocks.
No longer can that be said in today’s environment. The digital landscape is continually eroding traditional brick and mortar establishments. In 2020, Covid-19 awakened companies to the fact that they don’t need to carry large commercial real estate if their business is not forward facing. This is generating a lot of pressure on REIT’s.
Those holding REIT’s face a long road ahead as market demand will continue to dwindle. Now is a good time to consider shifting financial investments like REIT’s to an investment strategy that aligns with the direction the world is heading. Depending on the nature of the REIT you own, you likely can re-balance the portfolio now to avoid bigger loses coming to that specific financial sector.
The virus initially caused a high degree of isolation for friends and family which was a negative. However, it brought about the freedom of the employee to show their value in being able to work from an at-home setting. Employers quickly learned which employees pulled their weight and which were flying under the radar not adding value to the company.
Employees have wiped out commute times, along with costs of gas and car maintenance in the process. Having the freedom to wear whatever you want from the comfort of your home, take a trip to the kitchen for something to eat or relax during lunch in your favorite spot in the house has benefitted the employee who works from home.
Goodbye Big City Livin’
Flyover states no more. With workers having the opportunity to permanently work from home, the concept of where to live has instantly changed. If your employer pays you $200,000 to work in New York City but now you find yourself able to work anywhere in the United States from home, you could give yourself a big pay raise.
$200,000 in Nebraska or Utah is a completely different lifestyle than living in downtown New York City, Boston, Chicago, or Los Angeles. Workers who were stacked on top of each other now can own a half or a full acre of land with a large home for much less than they paid for a high-rise apartment.
Employees will be able to live a higher lifestyle while also being able to stockpile away extra cash into their investment portfolio. The $600 per month invoice for parking your car can now instantly be invested in the stock market. Expect a continued mass exodus from high density downtowns across the United States. Extra money saved from younger investors reducing their living costs could send a flood of new money into the stock market in the coming months and years.
Buying habits around the world, especially in the United States, changed almost overnight due to the coronavirus. The slow transition away from brick and mortar stores to digital commerce that had been taking place for years was just catapulted light years ahead in a matter of months. Americans are buying essentials and they are buying digitally – big time!
Despite the recession and millions of layoffs, tech stocks have soared to new heights. The FAANG (Facebook, Amazon, Apple, Netflix and Google) stocks have basked in the resulting pandemic due to their expansive digital footprints. Zoom Video Communications has single-handedly wiped millions of dollars off of business travel budgets as companies look for ways to conduct business at a much lower cost.
The companies who overlap both the essential and digital worlds are the biggest winners of all. Walmart, Target and Amazon have left brick and mortar stores in the dust. Offerings like Ross, Banana Republic, and TJ Maxx are just a few whose digital footprint are dying, as they have been slow to adapt over the years and malls are moving towards being an icon from yester-year. Now is the time for wise investors to see the digital tsunami that’s hurtling toward their outdated investment portfolio and be ready to implement some change.
Financial Planning Overhaul
Expecting your financial portfolio to perform successfully for decades without adjusting regularly is like thinking everyone should be riding to town on a horse in 2020. Times change, investment vehicles change, and your financial plan should be adjusted as the world shifts on its axis.
2020 should serve as a wakeup call to investors. The old methods of mutual fund diversity and paying an advisor for products without a financial plan are over. If you’re in or near retirement and you saw your investments tumble in early March by 20, 30 or even 40% then you’re carrying too much risk in your portfolio.
If you have gone through 2020 and your advisor is not willing to meet with you in person, only offering a phone conversation – that’s a red flag. When you finally do have the conversation and they say things like “sit tight, we’re in for the long haul” or “ride it out, it’ll come back” it’s time for a second opinion from an independent fiduciary financial advisory firm. The successful investment strategy of just last year has changed in 2020, so make sure you’re working with a financial services firm who’s actively speaking to you about your life savings.
2020’s Lasting Impact
There may never be a bigger celebration in our lifetime than there will be this coming New Year’s Eve. Auld Lange Syne will be belted from the homes and rooftops of every city in America with the hope of a better tomorrow. But some positives will last forever with the exit of 2020:
- Employers created flexibility for their workforce, making employees happier while cutting costs
- Digital commerce cut out many non-tech companies, but will serve as a catalyst for innovation and a whole new job sector in the future
- Humans will reclaim some of the charm of life outside of massive cities. Forgotten spaces will be re-visited, and a new appreciation for the outdoors will be gained by admirers across our great land.
- Investment portfolios lying in a metaphorical dust pile for 20 years, will be picked up, dusted off and transferred away from a suitability standard and invested with a fiduciary financial advisor working in their best interest.
We just experienced the fastest market drop of 30% or more followed by the fastest recovery in history. If you haven’t taken the time to retool and evaluate your financial investments yet, use your “get-out-of-jail free card” to get your assets re-positioned in a way that makes sense for the stage of life you are in.