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Where to invest money when stocks are at all-time highs (or tanking!)

29 October 2018

Stocks at all-time highs attract investors who are seeking opportunities to expand and grow their portfolio. And we are certainly experiencing one of those periods now.

As stocks rise, the upward momentum churns out a feverish psychological dilemma amongst typical investors who tend to invest with their gut. It’s the fear of losing out that drives many investors to continue piling in money in a stock hoping that it will never peak and that it’s bound to continue its upward trajectory.

Let’s not fool ourselves into believing stocks have no upward limit. There are cycles that with every stock market and when a market reaches a seemingly uncontrollable pace achieving new record highs, the opportune and savvy investors exit and leave. While the naive investors at the mercy of the market.

There are options for sophisticated investors to take some money off the table, and place it in a much more safe investment vehicle—such as real estate. But more on that later.

What to do when investments are tanking?

Proper analyses are the key to avoid tanking markets; however, if stocks are already in the dumps, investors should look for ways to prevent further losses.

Most investors will sell to get rid of bleeding.

Whether rising or falling, wise investors should carefully study the micro and macro indicators that can potentially change the momentum of any stock. Having an exit strategy and sticking to it is another mental strategy many investors keep close to heart.

Alternative investments

When stocks are at all-time highs, investors have the opportunity to ride with the flow or fall. To avoid falling into the tank, investors should know where to invest money during this peak.

Is it time to take some money off the table and diversify into a more stable investment vehicle? Perhaps.

Investors should always consider proper allocation, including into real estate. Among the several different types of real estate investment funds an investor can participate in, some of the more common ones found in Canada are listed below.

  1. REITs or Real Estate Investment Trusts – A company that provides income-producing real estate like commercial, residential, office, nursing homes, and more. Public REITs are safer to invest with than private ones since transparency is a must.
  2. RELP or Real Estate Limited Partnership – RELP is developing or managing real estate properties controlled by a general partner who oversees the development. The general partner can use the money from investors to purchase undeveloped properties and may develop or sell it.
  3. MIE or Mortgage Investment Entity – This corporation raises money from investors to lend to borrowers.
  4. Real Property – Allows investors to purchase their real estate properties and manage it through rents. This investment requires hands-on management.
  5. Syndicated Mortgage Investments – This real estate investment type allows two or more individuals to engage in a single mortgage on real property. Only FSCO (Financial Service Commission of Ontario) mortgage brokers and agents are permitted to join in syndicated mortgage investments.
  6. MICs – A mortgage investment corporation pools capital and invests this capital in private mortgages across Canada. They are a way for an individual investor to gain direct exposure to the mortgage market in Canada.

While investing into real estate is promising, investors should take a more in-depth look into each type of real estate they should consider.

Earn exceptional returns through real estate investment funds

Over the years, real estate has produced immense wealth for many investors, yet the world is still a bit skeptical about it.

Investors have a higher opportunity to build wealth in real estate as compared to stocks, mutual funds, bonds, ETFs and more. Real estate in Canada has a positive outlook and is currently trending upwards in most markets.

Real estate investments do not necessarily require a massive amount of money or time. Finding the right vehicle to invest in will save you the hassle of having to manage the rents, sale, and mortgage of properties.

Consider these factors in finding the right real estate investment

Type — Investors should carefully study the different real estate investment funds that can bring income and diversification. MICs are typically the best choice for steady cash flow and less management involvement.

Timing — Strategic investors say that the best time to invest was 5 years ago, the second best time is now. Unlike stocks, however, timing isn’t a huge deal breaker in real estate given the long-term upward trajectory of market values, particularly in Canada.

Yes, in some markets in Vancouver and Toronto at this time it may be unwise to buy particular property types. However, in other markets like Ottawa and Montreal, the timing couldn’t be better. Further, if you invest more strategically alongside a real estate professional who has done due diligence for you—such as with MICs and private lending—you will help ensure you are making a better investment decision when it comes to real estate.

Location — Where you buy is critical. In the real estate market, having an understanding of the local markets along with the economic fundamentals helps in identifying real estate funds where their portfolio is comprised of exceptionally performing markets. This is why finding the right mortgage professional is absolutely critical.

Stocks and real estate

Stocks are liquid assets which are easy to sell while real estate is illiquid wherein properties need to hold off before selling. Real estate investment has a lot of advantages such as tax deductions, depreciation, and capital gain taxes.

Stocks tend to come with a lot of volatility and are subject to uncontrollable market forces including speculation. Real estate, on the other hand, remains steady amidst the rise and fall of shares.

MICs are a safer investment that provide stable and modest returns. Stocks may come with a higher-income potential but carry higher-risks characteristics whereas MICs tend to have mid-income and mid-risk.

When everything in the stock market increases, it is also the best time to invest in MICs. There are a number of factors that play a role in determining the rise and fall of housing markets however when MICs are in the business of mortgage lending, mortgage loans are paid across all market cycles and the equity built into the property acts as a hedge to mitigate the risk of default.

It is the cushion that the investor’s risk sits upon. Combined with the added benefit of diversification through the pooling of mortgages, an investor can rest assured that risk is mitigated at different levels.

Canada’s market structure

The stock market is very unpredictable, and Canada’s stock performance is lagging behind the rest of the world in the first quarter of 2018. Although it is experiencing bumpy rides, there are still great investments to look for, one of these is in real estate.

The commercial real estate properties in Canada remain strong. Residential properties in Canada have increased by notable figures throughout the past couple years in most major markets.

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