Millennials and Boomers Shape the Economy

If you review the 2009 to 2014 timeframe, the financial experts suggest a simple investment strategy. Find the stocks that performed horribly, lagging far behind the market leaders.

Stock Market Performance
“You want to buy stocks of the companies where that extra income is going to be spent. That could make technology, for one, a big beneficiary, as well as healthcare and entertainment.”

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part Three in a 3-Part Series.

Part One: Tomorrow

Part Two: What Lies Ahead?

Please remember.  Check in with your financial planner as the following trends and opinions change and may have before you read this.

Rules of Thumb

Is there a rule of thumb you can count on going forward?

You know like “buy low, sell high.”

As they say in my family, it’s all relative.

 

If stocks earn 4% a year, but cash in the bank earns just 1%, stocks still win by a long shot.

  • So Baby Boomers will have to stay in the stock market for a portion of their portfolio.
  • For Millennials who invest on a regular basis in an IRA or 401(k) plan, and who won’t need to tap into their funds for two decades or longer, just buy and hold.
  • Unlike the Baby Boomers who fear a significant loss over the next five years, don’t fret about bad financial news.

In fact, root for falling stocks, because you’ll be getting more shares for your money.

If you review the 2009 to 2014 timeframe, the financial experts suggest a simple investment strategy.

Find the stocks that performed horribly, lagging far behind the market leaders.

Tracking Winners and Losers

While the market leaders run out of steam, the laggards will probably …

beat U.S. returns over the next five years by buying low to  eventually sell high. But psychologically, it’s hard to buy losers.

 

Losers like:

  • Foreign stocks and bonds.
  • Emerging-market stock funds .

They’ve lost 5.8% a year.

“We’re expecting to raise our positions there in the back half of 2016.”

Understand the risks, though.

In a world where a stronger dollar and weaker currencies depress the returns for American investors in foreign markets it may be time to nibble here and there.

Bears vs. the Bulls

“It will never be obvious when the markets, or their currencies, have hit bottom. next five years.” 

  • In a reversal, financial advisors and economists expect China’s share of global growth to fall to 21%.
  • But, they expect emerging economies’ share to climb to 34%.
  • And, previously out of favor European and Japanese stocks will continue to benefit from their central bank policies aimed at keeping interest rates at rock bottom to support growth.

But there’s no getting around the fact that …

“the world will face a financial crisis rooted in mammoth debt levels.”

  • In 2016 a pivot in pay increases will be welcome news in the U.S. households.
  • But, maybe not for stockholders as promotions and bonuses usually come at the expense of corporate profit margins.

And, the grass is greener.

Getting Ready for Musical Chairs

The percentage of talented employees voluntarily quitting their jobs for better opportunities is the highest since early in the Great Recession.

Typically though …

“It takes a long time for people to realize they’re in a better bargaining position.”

That can change quickly thanks to the Internet and social media.

Once trading places begins, Millennials and savvy Gen Xs can take advantage of a powerful means to discover which companies are good ones to work for and which to avoid.

Consumer Behavior Influencing Stock Performance

It won’t take long for workers who feel under appreciated to make the jump.

And, that’s great, right?

“In a perfect world, rising wages would spark a ‘virtuous circle’ where workers would boost spending, driving up demand for goods and services. That would lift business sales and earnings, in turn allowing companies to continue raising wages.”

 

A virtuous circle takes time to develop in a less than perfect world like the one you and I live in.

But, here’s another simple rule of thumb.

Changing Tech Leaders
  • Where the real economy may influence the stock market.
  • Where consumer spending by Millennials and Baby Boomers may figure into gains in your portfolio.

As one expert put it.

“You want to buy stocks of the companies where that extra income is going to be spent. That could make technology, for one, a big beneficiary, as well as healthcare and entertainment.”

 

Steps:

(6) Anticipate changing circumstances and economic cycles.

(7) Persist and pivot to navigate external threats and opportunities.

(17) Sketch out your trajectory in 5-year time frames.  Will we fall into another recession?  Absolutely.  Will you be ready this time with future-proofed strategies?

(19) Anticipate the growing shifts in life and business. Nobody wants to swim upstream if the current is moving everything in the opposite direction. Clue your fans in.

Building Your Rental Business

You need to consider the affordability of your rentals to cover your operating costs and to price your units according to your competition and what the local market will bear.

Rental Properties
Your ongoing goal will be to build reserves while avoiding pay outs to support the business itself.

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part Three in a 5-Part Series: Is An Investment in Real Estate Right for You?

Part One: FOMO

Part Two: Real Estate Investment Types

Is there a simple way to evaluate which properties merit your investment?

Look at absorption vs. overhang.

Absorption describes the demand for units — not enough units in a specific location to satisfy demand usually measured by vacancy rates — low is better.

Overhang refers to renter turnover.

Multi-unit Apartments

More renters leave than the number of potential tenants signing up.

Simply, supply outstrips demand.

Several factors favor higher absorption demand.

Location, location, location, right?

Yes, renters prefer closeness to both transportation and to shopping areas.

How about the amount of income you can generate?

You need to consider the affordability of your rentals to cover your operating costs and to price your units according to your competition and what the local market will bear.

A major factor is the condition of your property.

Condition of your Property
  • Everything from how old is your wiring — will it need to be upgraded to increase your units attractiveness.
  • Same for plumbing.
  • Size of units — bigger is better in certain areas — so spaciousness and cleanliness command higher rents.
Costs for Upgrades

And, finally consider the value trends in the property’s neighborhood.

From your potential list of properties fitting your investment criteria you’ll want to check off those that fit the lowest price you can negotiate.

  • To do so you need to know your cost and income per square foot for the property type and community.
  • The experts recommend opening your negotiations by asking for 10% lower than the property’s asking price.
  • They also suggest agreeing to the longest mortgage terms to lower monthly payments.
  • And finding the lowest interest rates you can.
Comparing Potential Profit and Loss

In the right market, you might even consider taking a balloon payment when you can after three to 10 years.

Remember, if the real estate market tanks, you’ll need to come up with the payment if you can’t renegotiate it.

Do the properties fit your criteria?

Shoot for a 30% positive cash flow so you can pay your monthly mortgage and bank the profit.  

Negotiate a lower gross multiplier figure.  

Typically in the middle of the last decade it ranged between 3x to 12x annual rental price. 

In other words if the property’s annual rental income totals $25,000 at 3x the purchase price equals $75,000.  

The bonus, of course, is you can borrow against 100% to close the sale. 

Likewise a gross multiplier at 12 times yields a $300,000 price.

Then, as the new owner going forward you want to reach the point where your property is self-supporting and pays for itself.

Finding Ways to Make Your Business Self-Sustaining

You’ll want to reduce costs at the front end and during operations while you begin to raise rents.

Your ongoing goal will be to build reserves while avoiding pay outs to support the business itself.

Steps:

(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.

(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?

Real Estate Investment Types

Once you’ve got residential properties under your belt, the next easiest is investing in and managing industrial and commercial properties.

Renting Your Residential Properties
If the path of development stalls or turns in another direction, your bet on higher appreciation bailing out your investment turns out to be a sucker bet.

 

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part Two in a 5-Part Series: Is An Investment in Real Estate Right for You?

Part One: FOMO

Real estate experts recommended multifamily properties as a good first step while skipping raw land that only produces expenses not income until you sell.

By comparison multifamily rental units provided steady income.

Multi-Family Rentals
  • Normally rent checks came monthly by mail while the value of the unit appreciates.
  • Of course, now in a frictionless economy, they can be directly deposit funds into your account without delay.
  • Another example of, with the right insight, a fully functioning Knowledge ATM.
  • On the downside you’ll need to deal with problem tenants from time to time.
  • Depending on the age and condition of the property you’ll begin to incur high repair costs that will eat into your profits at some point.

Once you’ve got residential properties under your belt, the next easiest is investing in and managing industrial and commercial properties.

Renting Commercial Properties
  • The experts caution about jumping into large properties, advising beginners to start small.
  • Incomes tend to rise and fall with the ups and downs of the economic cycles.
  • When conditions favor your property and your vacancies are low you can generate large incomes with a full building.

What about shopping centers and strip malls?

Strip Malls and Shopping Centers
  • Like commercial properties in good times which generate high incomes with centers and malls you can share in the gross receipts of your tenants.
  • And, with the right location your land can appreciate quickly.
  • But, there’s a downside.
  • Buying can be complex and difficult to negotiate due to the property’s high cost.
  • So, zero cash deals can be extraordinarily hard to work out.
  • And, remember sophisticated tenants want to negotiate their best deals which will eat into your profits.

What’s the attraction to raw land?

Low Barrier for Entry with Raw Land
  • In great areas it can appreciate very quickly as development approaches your location.
  • And, before the path of development becomes common knowledge you may be able to tie up property for as little as $ 1.00 down.
  • However, without the strong appreciation probability, raw land requires improvements like streets, sewers, electricity and other utilities — all costs.
  • So it rarely gives you a positive cash flow, especially after the tax burden is factored in.
  • If the path of development stalls or turns in another direction, your bet on higher appreciation bailing out your investment turns out to be a sucker bet.
Initial High Cost of Entry in Self Storage

Likewise, building self-storage warehouses incurs out of pocket expenses.

But once they are built, or if you buy existing units, you can enjoy positive cash flow with little overhead and low operating expenses if you keep your vacancy rate low.

Steps:

(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.

(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?