Many of us know that Latinos were hit harder than any other demographic during the great recession of 2008 to 2012, but not everyone knows why. Those of us in the real estate business were taught that we should invest in real estate, because it is what we know. That makes a lot of sense. Real estate professionals, at least in theory, should know a good real estate deal when they see one. However, something most people don’t consider is if your income is reliant on the strength of the real estate market, when the market goes through a rough patch, you’ll get hit twice as hard. Your income will be impacted and your investments will take a hit as well. When you consider that real estate is a cyclical business, meaning downturns are a regular part of the business, and real estate assets are not very liquid when the market is soft, some diversification of your investments is something you should seriously consider.
Real estate professionals should definitely use their expertise to make good real estate investments, but investing only in real estate can be risky. Investing in blue-chip dividend stocks is a good way to hedge against a recession in the real estate market. Overall, Latinos invest in stocks and retirement accounts at a lower rate than every other racial demographic. This is one of the reasons Latinos lost two thirds of their total wealth between 2008 and 2012. Consider this: On December 31, 2008, the Dow Jones Industrial Average closed at 8,776. On December 31, 2012, it closed at 13,104. Think about that. The stock market gained more than 50% during the roughest years of the great recession – at a time when real estate prices in most markets were flat or negative. It was also really hard to sell a home for a decent price during that period, and almost impossible to get a cash-out loan. Unfortunately, I know a lot of people who lost everything during that time. While real estate prices have been trending upward since 2012, and have increased by about 100% in the last 10 years, the Dow Jones currently sits at just over 36,000 – roughly a 300% gain during that same 10-year period.
Don’t get me wrong, I am not suggesting the stock market will always be a better investment than real estate. To the contrary, I believe real estate will continue to do well for a while, but I do believe if your business is real estate, it makes good sense to educate yourself on the stock market and other investments outside of real estate.
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