If you have a stock portfolio you’ll want to read all the way through to the end of this email to find out what the problem is, why you should be petrified by it, and how to fix it.
And I’m going to do it by building a case, layer by layer, logic by logic, so you can follow my train of thought.
I think by the end you’ll be shocked by what we discover together.
First, let’s talk about portfolios and how they’re built:
If you have a portfolio made up of a mix of stocks and funds then this is for you.
How did you select your portfolio? Maybe you invested in a group of investments based on your own careful research and the recommendations of trusted friends and advisors.
(The truth is, if that’s how you chose your portfolio, you’re in the minority. In my experience, most people choose based on rumor, speculation, or “that stock they read about in a magazine last month.”)
Whether you invest based on sound due diligence, or basically with the skill of a drunken monkey throwing darts at a dartboard in a pitch-black room, what you’re about to read will be true…
Second, let’s talk about how people want portfolios to behave:
You probably invested in these investments with the desire (and even expectation) that they’ll rise in value. You bought low (or low-ish) and hope that the stock price will go up.
And it may…
Certainly, many people have made money in the stock market.
But it may not…
According to new research, people who choose their own portfolio average a 3% return on their stocks. Why is that? It’s because stocks don’t just go up, they also go down. So even if you have a couple of amazing breakout unicorns that spike upward, you may have also selected a few stocks that fell like an anchor.
The reality is that all stocks have the possibility to go to zero. You might laugh at me, I get it. “Surely not the stocks I invested in!” you might say.
Well, people said that about Enron…
And General Motors.
If you think your stock in Apple (APPL) is golden because the company can do no wrong, my answer is: just wait. You might be thrilled at the shiny new iPhone 7 – but stocks go down.
Third, here’s the reason why stocks can go to zero:
Stock prices are not actually based on the company itself but on how people value the shares of the company. If the company does well, great – stock prices tend to go up. If the company makes a stupid decision, that’s bad – and stock prices tend to go down.
As we’ve seen in the past, the underlying company doesn’t even need to take specific action for a stock price to go down: In late July/early August, a rumor that Steve Ballmer was going to buy Twitter sent its stock price climbing by 9%. And the reverse happens, too. In the blink of eye.
Stock price is based on perception of investors (and potential investors), and that perception comes from facts, rumors, and even macro-economic factors.
Yes, macro-economic factors can influence stocks. One of the most quoted examples is that lipstick sales go up in a recession (because people like the affordable indulgence). That’s one of MANY examples.
Another example might be: if an American company gets a lot of business from a different country, and that country experiences extreme political turmoil or its currency becomes inflated.
Fourth, we’re entering a time of vast macro-economic changes:
We’ve been in one for a while and we’re going to see it increase shortly. I’m talking about a few different things happening world-wide that might have a detrimental impact on your portfolio.
- Or the International Monetary Fund (IMF) and their meeting in October. (This is potentially huge.)
- Or the American election – you might be very happy if your preferred candidate gets in but I can tell you that both candidates have a lot of countries around the world very worried… and no matter which candidate gets elected, we might see a very interesting economic result.
- Again, depending on which candidate is elected, we may see more or less conflict in various parts of the world as a result of their influence.
- Even the complicated situation between Russia and Ukraine, which might not seem to have immediate consequences for the US, can have spin-off consequences of an economic or military nature.
- And I’ve only described the next 6 months, and that’s the stuff that we can SAFELY predict.
Factor in unpredictable events, terrorist activities, another market crash or recession and you can see how complicated it can get.
The bottom line: If you own a portfolio of stocks or funds, your portfolio is at risk. Period. Yes, the optimists among you might point out that your stocks could go up. But when I look at the ladder of facts I’ve built above, I don’t see it happening.
Of course the choice is ultimately yours – but if I were you, I’d sell now while the market is still somewhat stable and there are buyers for stocks.
Don’t wait until things start to turn sour because when they do, that means there are no buyers for your holdings.
And once sold, put your money into turnkey real estate investments.
Following the same ladder of logic…
First, a portfolio of real estate is built on sound fundamentals and if you acquire them from American Wealth Builders, you can have the confidence that plenty of research has gone into these properties.
Second, a portfolio of real estate can go up or down and it doesn’t actually matter because what really matters is the consistent, predictable cash flow.
Third, real estate will not likely go to zero. That’s because even in the unlikely event that the underlying value of the property diminishes for a long-period of time and you want to sell it instead of taking the cash flow, there is still intrinsic value in the structure and the land.
Fourth, turnkey real estate is often insulated from external factors like macro-economic conditions because (again) you’re not investing based on the popular perception of the value of the investment but rather on what income it can deliver to you.
The difference between a portfolio of stocks/funds versus a portfolio of real estate is dramatic.
If you’ve followed this ladder of logic I built for you in this email, and if you agree with each of the four precepts, then I think you’ll agree that it’s probably time to make a change in your portfolio.
And if that’s the case, then pick up the phone and call us here at American Wealth Builders and we’ll see about getting you into a portfolio of safe, consistently cash flow properties.
Your AWB Team