It’s crucial to remember that nothing can fully protect you against a recession. Any venture has weaknesses and hazards, and each economic downturn presents new obstacles.
While no recession is the same as the last, there are some real estate sectors that are more robust during a downturn. Real estate investments that meet people’s basic requirements, such as housing and agriculture, or that provide important services for economic activity, such as data processing, wireless communications, industrial processing and storage, or medical facilities, are more likely to weather the storm.
Investors can own and manage properties in any of the asset classes, but many prefer to invest in real estate investment trusts (REITs) (REIT). REITs can be a more affordable and accessible method for investors to enter into real estate while also obtaining access to institutional-quality investments in a diversified portfolio.
Data centers
We live in a data-driven technology era. Almost everything we do now requires data storage or processing, and the demand for data centers will only grow in the next decades as more technological or data-driven gadgets are released. During recessions, more people stay at home to watch TV, use their computers or smartphones, or, in the case of the recent coronavirus outbreak, work from home, increasing the need on data centers. According to the National Association of Real Estate Investment Trusts, there are currently five data center REITs to select from, with all five up 33.73 percent year to date (NAREIT).
Self-storage
Self-storage is widely regarded as a recession-proof asset type. As budgets tighten, some families downsize, relocating to other places to better their quality of life or pursue a new work opportunity, or downsizing by moving in with each other to save money. This indicates that there is a higher need for storage.
The COVID-19 pandemic, on the other hand, has had an unforeseen influence on the storage industry. While occupancy has remained high, eviction moratoriums and increasing cleaning and safety costs have resulted in lower revenues. According to NAREIT, self-storage REITs are down 3.51 percent year to date. However, this industry is expected to recover swiftly, particularly for companies like Public Storage (NYSE: PSA), the largest publicly traded self-storage REIT, which has a strong credit rating and a diverse portfolio.
Warehouse and distribution
E-commerce has altered the way our economy works. Demand for quality warehousing and distribution centers has soared as more consumers purchase from home than ever before. Oversupply of industrial space, particularly warehouse and distribution space, is a risk, given that this sector has been steadily growing for the past decade; however, as a result of COVID-19, it has already proven to be the most resilient asset class of all commercial real estate, making it an excellent choice for a recession-resistant investment. Prologis (NYSE: PLD), one of the major warehousing and logistics REITS, and Americold Realty Trust (NYSE: COLD), a REIT that specializes in cold storage facilities, have both proven to be quite durable in the present economic situation, with plenty of space for expansion.
Residential housing
People will always require housing. Residential housing, which can range from single-family homes to high-rise flats or retirement communities, fulfills a basic need that is necessary even in difficult economic times. During economic downturns, rents may stagnate and evictions or foreclosures may increase, but residential rentals are a relatively reliable and constant source of income. Despite the COVID-19 challenges, American Homes 4 Rent (NYSE: AMH), which specializes in single-family rental housing, and Equity Residential (NYSE: EQR), which specializes in urban high-rises in high-density areas, are two of the largest players in residential housing, both of which have maintained high occupancy and collection rates.
Agriculture
Aside from housing, agriculture and food production are two additional critical services on which our country and the rest of the world rely. Our existing food system is primarily reliant on industrial agriculture, but more and more autonomous and regenerative agricultural projects are springing up, allowing for more crop diversification, increased productivity, and reduced economic and environmental risk.
Wireless communication
Wireless communication has grown into a giant sector, with American Tower (NYSE: AMT) and Crown Castle International (NYSE: CCI) being two of the world’s largest REITs. Cell tower REITs that provide telecommunication services are an important part of our world today, and while growth prospects can be difficult to come by, very good track records and rising demand make this a terrific real estate investment that will weather any economic downturn.
Medical facilities
Medical facilities, senior housing, hospitals, urgent care clinics, and surgery centers all provide a vital service that will always be in demand, even during economic downturns.
Retail centers
Before you abandon ship when you see this category, let me state unequivocally that retail is not dead, at least not in all forms. Grocery stores and other retail outlets that provide critical services and products will continue to be in demand, as they did during the last pandemic. The issue here is for retail REITs to invest in the vital service sector with such focus that other sectors such as tourism, restaurants, or general shopping and goods do not put the company or investment at risk.
What investments do well in a recession?
During a recession, you might be tempted to sell all of your investments, but experts advise against doing so. When the rest of the economy is fragile, there are usually a few sectors that continue to grow and provide investors with consistent returns.
Consider investing in the healthcare, utilities, and consumer goods sectors if you wish to protect yourself in part with equities during a recession. Regardless of the health of the economy, people will continue to spend money on medical care, household items, electricity, and food. As a result, during busts, these stocks tend to fare well (and underperform during booms).
Do REITs pass through losses?
Finally, a real estate investment trust (REIT) is not a pass-through corporation. This means that, unlike a partnership, a REIT is unable to pass on any tax losses to its shareholders.
How will bonds perform in 2021?
Bond investors may discover chances in high-quality bonds, higher-yielding debt, and assets that hedge against a decreasing US currency as global economic growth accelerates this year. We expect 2021 to be a year of recovery for fixed income investors.
Why are REITs a bad investment?
Real estate investment trusts (REITs) are not for everyone. This is the section for you if you’re wondering why REITs are a bad investment for you.
The major disadvantage of REITs is that they don’t provide much in the way of capital appreciation. This is because REITs must return 90 percent of their taxable income to investors, limiting their capacity to reinvest in properties to increase their value or acquire new holdings.
Another disadvantage is that REITs have very expensive management and transaction costs due to their structure.
REITs have also become increasingly connected with the larger stock market over time. As a result, one of the previous advantages has faded in value as your portfolio becomes more vulnerable to market fluctuations.
Weak Growth
REITs that are publicly listed are required to pay out 90% of their profits in dividends to shareholders right away. This leaves little money to expand the portfolio by purchasing additional properties, which is what drives appreciation.
Private REITs are a good option if you enjoy the idea of REITs but want to get more than just dividends.
No Control Over Returns or Performance
Investors in direct real estate have a lot of control over their profits. They can identify properties with high cash flow, actively promote vacant rentals to renters, properly screen all applications, and use other property management best practices.
Investors in REITs, on the other hand, can only sell their shares if they are unhappy with the company’s performance. Some private REITs won’t even be able to do that, at least for the first several years.
Yield Taxed as Regular Income
Dividends are taxed at the (higher) regular income tax rate, despite the fact that profits on investments held longer than a year are taxed at the lower capital gains tax rate.
And because REITs provide a large portion of their returns in the form of dividends, investors may face a greater tax bill than they would with more appreciation-oriented assets.
Potential for High Risk and Fees
Just because an investment is regulated by the SEC does not mean it is low-risk. Before investing, do your homework and think about all aspects of the real estate market, including property valuations, interest rates, debt, geography, and changing tax regulations.
Fees should also be factored into the due diligence process. High management and transaction fees are charged by some REITs, resulting in smaller returns to shareholders. Those fees are frequently buried in the fine print of investment offerings, so be prepared to dig through the fine print to find out what they pay themselves for property management, acquisition fees, and so on.
Do REITs get depreciation?
Rita, thank you for your inquiry. Real estate investing is unquestionably one of the more tax-efficient ways to put money to work, but the answer is unfortunately no.
For some more context, real estate investment trusts, or REITs, do profit from depreciation on the properties they hold. REITS, on the other hand, claim depreciation on their own to lower their tax bill; it is not passed on to shareholders. To avoid corporation taxes, REITs must pay out at least 90% of taxable revenue to shareholders, and depreciation is utilized to lower the REIT’s taxable income.
As a result, you’re benefiting from depreciation in the sense that your REITs won’t have to pay out as much as they would otherwise, leaving them with more money to reinvest in their business. When it comes to cutting your own tax bill, however, it won’t help you much. REIT dividends, in fact, are often taxed at a higher rate than dividends paid by most other types of stock investments.
The only way to reduce your tax bill through REIT investing is to sell a REIT for less than you purchased for it, which is obviously not a desired outcome.
If you’re looking for a way to cut your taxes right away, you might be able to do it by purchasing an investment property. It’s extremely usual for cash-flowing investment properties to display a loss for tax purposes due to depreciation and other allowed expenses.
However, if both of these conditions are met, you can use any investment property losses to offset your other income each year:
You take an active role in the investment. In other words, you can’t merely buy an investment property, leave the rest to a property manager, and then claim a loss. You may be eligible to deduct your rental income “losses” if you manage the property yourself, recruit renters, or otherwise play an active role.
If both of these are true, you can deduct up to $25,000 in rental property losses per year, which can significantly reduce your tax burden.
Finally, while investing in REITs will not reduce your tax burden directly, purchasing them through a traditional IRA or other tax-deferred retirement plan will. Americans who qualify, for example, can contribute $6,000 to a standard IRA ($7,000 if you’re 50 or older), and the entire amount is tax deductible. You won’t have to pay any tax on the REITs’ dividends, and you won’t have to pay any capital gains tax if you sell your REITs for a profit. Until you withdraw money from the account, your investment will be totally tax-deferred.
Who profited from the 1929 crash?
I recently discovered your site/column, and after spending days and nights reading it, I’m convinced you are the brightest person on the planet, and thus the best prepared to answer my question: Who made money during the 1929 stock market crash? Because you’re so clever, I’m sure you’ll be laughing all the way to the bank during this one.
I can’t say I’m disappointed, but intelligence had little to do with it. Don’t forget to put money into your retirement account: you can’t lose if you don’t bet. You can’t beat such a system.
People making out like bandits right before or during the 1929 stock market crash are relatively uncommon, presumably because the fortunate few kept it to themselves given the prevailing atmosphere. However, we can be certain that some fared well – a panic sale for one person typically equals a quick profit for another. Years ago, I wrote about how Joseph Kennedy, the father of John F. and other Kennedys, made his money in part by selling stocks just before the crash. Joe wasn’t the only one on the job. Here are a couple more of their tales:
A short sale is a classic technique to profit in a dropping market by selling stock you’ve borrowed (e.g., from a broker) in the expectation that the price will drop, allowing you to pay off the loan by buying cheaper shares. Speculator Jesse Lauriston Livermore was one prominent individual who made money this manner during the 1929 crash. He began his career as a chalkboard boy at Paine Webber, where he began searching at market trends and making fictitious bets that resulted in fortunes in his diary. He was playing with real money as a successful stock trader by the age of 16. He got lucky on occasion, as when he made a killing selling short just before the 1906 San Francisco earthquake, which he couldn’t have predicted. At other times, he just played his cards correctly. During a market crisis in 1907, he sold short and made a profit of over $1 million.
Livermore made his share of blunders, frequently losing large sums of money in the commodities markets and becoming bankrupt on at least one occasion. But he continued to yell back. He claimed to have won $3 million shorting wheat in 1925 after making a few million betting the right way in the 1916 World War I bull market. That was simply a warm-up for the main fun, which came after the 1929 stock market crash, when he sold short and made more than $100 million, which is a lot of money even today and a huge jackpot back then.
He could have stopped right there and lived a comfortable life if he’d been clever. Uh-uh. He managed to lose the majority of his money once more, and in 1933 he married Harriet Metz Noble, a well-known “black widow” whose four previous husbands had all committed suicide. Livermore became a member of the club by shooting himself in the head just after Thanksgiving in 1940.
During the crash, some people made money the old-fashioned way: by stealing it. Following the initial crisis on Black Thursday, a group of powerful bankers attempted to calm the market by buying equities with a $130 million pool of funds, often at prices over market value. Albert H. Wiggin, the head of Chase National Bank, was a member of the group who began short selling his own portfolio at the same time as committing his bank’s money to buying. He made almost $4 million by shorting over 42,000 shares. He didn’t even have to pay taxes on his gains because he bought the stocks through a Canadian shell company. Wiggin, despite being forced to quit in disgrace, was unpunished and got to retain the money, the jerk.
Although Charles Edwin Mitchell stole less than Wiggin, he is known as one of 1929’s villains since he not only looked after himself but also managed to impoverish everyone else. He conducted a high-pressure campaign to sell $650 million of stock in his National City Bank at an average price of more than $340 per share not long before the crisis. By 1933, the stock would be worth less than a tenth of its original value. He subsequently sold 18,300 shares of stock to his wife and then bought them back for a tax loss of over $3 million, meaning he didn’t pay any income taxes in 1929 despite having earned a lot of money. When questioned by a Senate committee about these transactions, Mitchell admitted to the scheme and was charged with tax evasion in 1933. A jury found him not guilty of the criminal charges, but the government was awarded a civil judgment for more than $1 million in delinquent taxes.
Because they kept their avarice in check, a few people gained in the run-up to the crash. Early in 1929, speculators Bernard Baruch and John Raskob exited the market, fearing trouble. Baruch remained a renowned personality and counsel to presidents till the conclusion of his long life, his money intact. Raskob later lost a lot of money when Anaconda Copper’s stock dropped, but he was still wealthy enough to build the Empire State Building, proving the trader’s maxim: There’s a place for bulls and bears, but not for pigs.
What jobs are recession proof?
If you’re looking for work during a downturn in the economy, a recession, or when the job market is at its lowest point, here are some industries to look into to improve your chances:
Health Services
Health care is at the top of the list of recession-proof industries. We will always require access to health services, regardless of how bad the economy is or how many people are unable to find work. Even with limited resources, people continue to get sick, require specialized care, or even give birth—the need for decent health care is unavoidable.
Education requirements for the health service industry
A bachelor’s degree is required for the majority of health-care employment, although higher-paying positions such as physician or dentist require a doctoral degree. A certificate or diploma may also be required for some vocations, such as health care aid or medical transcriptionist. Furthermore, most health-care vocations require you to be qualified or licensed by industry authorities in order to work in the sector. On the Canadian Job Bank or the Canadian Information Centre for International Credentials (CICIC) websites, you can look up specific qualifications required for your profession.
Social Work
Because the demand for social workers does not drop simply because of a downturn in the economy, the social work business is deemed recession proof. In reality, it may result in a greater demand for social services. Stress and financial difficulties can play a role in serious situations like abuse and domestic violence. As a result, most public-sector social workers rarely witness a significant shift during a recession.
Education requirements for the social work industry
Most social work positions require a bachelor’s degree, however some therapy-related employment may necessitate a master’s degree or higher.
Financial Services and Accounting
The importance of financial services in everyday life cannot be overstated. Because everyone has to pay taxes and manage their money, people who work in the industry are more likely to keep their positions. While individuals can do their own taxes, having a tax accountant can help them avoid mistakes and save money. Auditors play a function even when individuals pay their own taxes. Companies must also file financial statements and follow regulations in the commercial sphere.
Education requirements for the financial services and accounting industry
A bachelor’s degree plus a certification or license are required in most financial services sectors, while more complex financial work may necessitate a combined law and accounting education.
Will bonds go up in 2022?
The 10-year Treasury yield is expected to rise in 2022, with a range of 1.5 percent to 2.0 percent by the end of the year. The yield could overshoot this range in 2022. We are pessimistic on long-term bonds, but not because the Federal Reserve of the United States (Fed) is about to raise interest rates. On the contrary, we believe interest rate hikes for the next year or two have been overpriced in the markets. Because the supply of Treasury bonds rises while official sector demand diminishes, upward pressure on long-term interest rates is expected to endure. To bring the Treasury market back into equilibrium, higher 10-year rates are likely to be required in light of this shift in demand and supply dynamics. However, we do not believe that this business cycle’s peak Treasury yield will be much higher than 2.5 percent.
Is now a good time to buy I bonds?
While buying before the end of October may be a good idea for some, I Bonds are still a good choice if you wait until November or later.
You could purchase I Bonds at any time between November 1 and April 30, 2022, at a six-month annualized rate of 7.12 percent. The official rate will be released on November 1st.
Buying before the end of October, according to Pederson, simply provides you more certainty regarding the rate you’ll get for the next 12 months.
If you buy I Bonds from November to April 2022, you’ll get a good rate right away, but you’ll have to wait until May 2022 to see what the next six months will bring.
Of fact, no one knows if things will calm down or flare up in May 2022, when another six-month rate will be published.
Another aspect to consider is that the interest generated on savings bonds is not subject to state or local income taxes.
Interest is taxed at the federal level, as well as federal estate, gift, and excise taxes, as well as any state estate or inheritance taxes.
When money is used to pay for higher education, you may be able to deduct interest profits from federal income taxes in some situations. However, there are a few complicated rules to follow. According to TreasuryDirect, “a bond purchased by a parent and issued in the name of his or her child under the age of 24 does not qualify for the exclusion by the parent or the child.”
