Investments Recession-Proof

By Carolyn Tang

We ’ ve seen the collapse of glor ified investment houses, gover nment takeover s of bereft corporations and a steep downtur n in the markets that some say is even har sher than that of the Great D e p re s s i o n G i ve n t h e s e c o n d i t i o n s , t h e q u e s t i o n o f where to put your investment dollar s is a heady one. Should the money be invested, or should it be stashed deep under a mattress to r ide out the stor m?

Jeff Nabers is the founder of the IRA Association of America and CEO of Nabers Group, which specializes in self-directed retirement accounts. Perhaps surprising to some, he suggests that, in a depressed economy, investors turn to investment strategies such as real estate, commodities and even private companies. “Alternative investments are a way for individuals to distance themselves from the lies and greed of Wall Street in the interest of their own financial security,” he contends Dan Deighan, founder and principal of Deighan Financial Advisors, agrees “It’s important right now to focus on hard assets like real estate and energy as opposed to paper assets,” he says “The volatility that everyone is experiencing these days, and the significant drops in their paper assets such as stocks and bonds and so on, is due to the fact that they are liquid. They sell every nano-second.”

Real Estate

Real estate is a prime example of a tangible good. “It has intrinsic value, which means it has worth in and of itself,” Nabers explains. “Unlike a piece of paper, which represents something of value, real property actually i s something of value ”

The real estate market may be an area of particular opportunity right now, due to the fact that existing home sales continue to be soft and prices remain depressed According to the National Association of Realtors® (NAR), in February 2009, existing home sales in the United States were 4 6 percent down year-over-year Commercial real estate follows a similar trend as losses in the job market continue to reduce demand for office space The NAR’s Commercial Leading I n d i c a t o r f o r B r o k e r a g e A c t i v i t y, w h i c h t r a c k s m a r k e t b e h a v i o r i n major commercial real estate sectors, fell 6 percent to an index of 109 2 in the fourth quarter, from a downwardly revised reading of 116.1 in the third quarter. The slowing index means commercial real estate activity, as measured by net absorption and the completion of new commercial buildings, is likely to weaken further over the next six to nine months.

What’s more, “The supply-and-demand curve favors investmentgrade real estate because, right now, construction projects are all on hold or have been shut down It’s going to take awhile for that supply to recycle after we get back on top of the economy,” Nabers explains

However, he cautions that many people invest in real estate for the wrong reasons Many will purchase property expecting it to appreciate, eventually being sold for a gain “This was temporarily rewarding during the real estate bubble, but the timeless concept of investing is based primarily on cash flow on buying assets for income,” he says “Investors can rent out a property for 10 years and make 310 percent returns But they can’t count on appreciation We’re all seeing what happened to those fix and flippers who are hurting now ”

Gold and Other Commodities

It has long been said that when economic uncertainty hits, invest in g o l d L i k e r e a l e s t a t e , g o l d i s a t a n g i b l e a s s e t U n l i k e r e a l e s t a t e , gold’s value has thousands of years of human history behind it

Investors generally turn to gold as a hedge against wavering markets and unpredictable politics. “Gold is like insurance,” states Peter Miralles, president of Atlanta Wealth Consultants. “Throughout the 1990s and this decade, the Federal Reserve has practiced a low interest rate policy, and gold is basically a type of insurance against the unintended consequences of government intervention, and if a currency crisis occurs with the dollar ”

Elizabeth Versace, a California-based commodities trading advisor, agrees that there is profit to be had due to the rise and fall of commodity prices “With stocks, unless you short sell, you can only profit from up moves Short selling is out of favor in the stock market, but perfectly legal and ethical in the commodity markets Commodities are the last bastion of supply and demand,” she says

According to experts, gold may reach a record high this year, as d e m a n d f o r t h e m e t a l a s a h e d g e a g a i n s t i n f l a t i o n o u t p a c e s a n expanding scrap supply and weakened usage in jewelry An April 2009 report issued by GFMS, a precious metals research and consulting firm, states that the price of gold could easily reattain its $1,000 mark, and perhaps push past the $1,100 barrier.

The demand driving this pricing is clearly visible. In 2008, official coin minting hit a two-decade high due to increased demand in North America and Europe, while bar hoarding increased by 62 percent, driven mainly by demand in East Asia and the Middle East

Miralles contends that there is also investment potential in comm o d i t i e s o t h e r t h a n g o l d . H e s a y s t h a t t h e w e a k e c o n o m y h a s depressed prices for alternative commodities, resulting in some attractive valuations “Commodities will benefit from the rebound in the economy Companies may have defective balance sheets, but commodities do not, and are fundamentally sound,” he says

Versace agrees, pointing to copper as today’s most promising upward-trending commodity “Recent news suggests that China is stockpiling copper because the price is cheap relative to the highs of last year. China uses a lot of copper in manufacturing and infrastructure, and the country is spending a lot on a stimulus package that will most likely create the need for copper,” she explains “There is still copper in the ground, but getting it out is becoming more expensive and harder to do This means that creating new copper supplies will likely be expensive, and there will be less new copper going forward.” This decrease in supply has the potential to drive copper prices up in the short term.

Versace does warn, however, that researching the right commodities to trade in is difficult, mainly because the information available for free or to the general public is often either wrong or out-of-date “Since it is possible to lose a great deal of money trading commodities, you should research the best expert from which to take advice,” she says.

Technology

Although the sector has been out of favor for several years now, it still holds strong fundamentals, says Miralles. “Technology valuations are at some of their lowest points in the last 15 years Corporations will always invest in new technologies to become more efficient It’s not a question of if, just when,” he explains

Bill Hayes, director of asset management for Chicago Investment Group, says that the continuous, evolutionary nature of the sector is one reason why investing in technology is a smart move. “The other day I was watching the movie Uncl e Buck. The amazing thing is that the movie was made in 1989, and there were no cell phones, no ATMs, no Internet,” he says What’s more, he adds, the top 10 jobs in demand for 2010 didn’t even exist in 2004

“This is because of the incredibly fast advances in technology,” Hayes explains “Products we use today will be different in just 18 months. Technology will always advance, change and present new and exciting opportunities.”

The key, he says, is finding the right technologies, companies and opportunities to invest in He recommends that the average investor consider a tech mutual fund, since it often takes a professional advisor to stay on top of developments in the industry

Energy

Ori Pagovich, managing partner of Gotham Financial Services, projects that the second half of the year will see increased consumption of energy-related goods and services “There will always be cyclical, seasonal trends in energy consumption, but speaking much more broadly, traditional energy companies such as oil and gas will continue a general upward trend,” he says

Pagovich also predicts that prices will remain relatively low, but will show modest increases partly due to OPEC’s determination to create a more profitable floor for oil prices “As we begin to come out of this deep recession, I see oil prices rallying more aggressively and trending upwards. Other components of the energy sect o r, a l t e r n a t i v e / g r e e n , n u c l e a r, e t c . , w i l l t r a d e w i t h i n a n a r r o w range for the balance of the year,” he says

art & antiques

The world of fine art and antiques might seem a lot like fluff in comparison to other investment options. But people such as artist Pablo Solomon could convince you that collecting is more than a hobby; it is, in fact, a viable and potentially profitable investment strategy particularly during a recession y s Solomon “When times are booming, everyone from main street to Wall Street buys art. They buy it on their vacations, they buy it from the local gallery, they buy it at art fairs However, when times are economically tough, art is often sold off. In the top financial circles, great art is always in demand, and even in the worst of times, it is being bought and sold The bargains are there ”

Price, however, isn’t the only lure of this investment Fine art and antiques also serve as hedges against inflation, since their tangible nature holds universal value “From conquering armies to escaping refugees, art remains one of the things that is considered of timeless value,” says Solomon

Gallery owners and directors like Waltford Gonzalez, director of Valerio Antiques in Florida, are seeing “a great resurgence of consumer spending on antiques ” “Clearly,” he says, “consumers are looking for safe investments; they want to invest in something tangible instead of the stock markets that have failed them ”

B s e d M . S . R a u A n t i q u e s , agrees He says that he’s seen investors turn to art and antiques as a way to diversify their portfolios during volatile economic times.

Rau refers to the annual Antiques Furniture Price Index (AFPI), w h i c h s h o w s t h a t a n t i q u e f u r n i t u r e h a s o u t p e r f o r m e d b o t h t h e stock market and home values for most years since it began tracking figures in 1968. “Fast forward to 2007 when, according to an Art & Anti ques article, the overall art market saw an impressive gain of 20 percent compared to a much more modest 5.5-percent increase of the S&P 500,” says Rau

To further his point, he explains that more than 1,000 new auction records were set globally in 2008 “The art and antiques market is fueled by a host of investors anxious to diversify into less v o l a t i l e a r e n a s , a n d o m emerging economies such as China, Russia and India,” he says.

Diversify

Hayes emphasizes that while investors might want to focus on tangible assets now, they should not neglect the importance of diversification in their portfolios. “Think of your portfolio like a seesaw. If you have just two investments, one on each side, the movement of one causes greater overall swings. The more diversified assets you have, or the more seats on the seesaw, the greater stability you have when one swings. Having real estate and fine art are both good investments for any portfolio; the key is keeping these investments in the right percentage of your overall invested assets,” he explains.

Surely though, there are signs of a recovering economy “Every w e s Pagovich “While unemployment is still high and growing, many leading economic indicators are showing positive signs like interest rate spreads, manufacturers’ new orders for consumer goods and materials, and building permits.

“The seeds for greater economic activity are being sown now,” he says

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