Do you have Amazon, Google, Microsoft, or Meta (Facebook) stock? If you do, you’re not alone, as most investors have one or more of these companies in their portfolios. Tech stocks are popular among retail investors. Some investors have only tech stocks in their portfolios.
It’s not surprising that tech stocks dominate stock portfolios. They get all the attention in financial news and traditional, new, and social media channels. Besides, tech stocks have always been viewed as sexy and appealing. Nobody wants to hear about lumber or paper stocks. They want to hear about stocks of technology companies that they use or have ties to daily.
If you have stocks of tech titans like Amazon, Google, Microsoft, or Meta in your portfolios, consider reassessing and adjusting your portfolio. That’s because these tech giants have been in the news lately for all the wrong reasons. They’ve been in the news for their recent mass layoffs. In fact, since the beginning of the year, they’ve led the entire country in the number of total layoffs.
See the chart below:
– Source: https://layoffstracker.com/
These mass layoffs come when the job market appears to be slowing. U.S. employers added just 236,000 jobs in March, below expectations – a sign that the Federal Reserve’s yearlong rate-hiking campaign to chill inflation is also cooling the labor market.
Slowing job growth and mass layoffs are typically precursors to a recession, and it’s only a matter of time before the stocks of these companies conducting mass layoffs start a steep descent. During the 2008 Financial Crisis, stocks shed more than 50%, and in the early days of the pandemic, the stock market lost more than 33%.
How do you protect your portfolio from layoff and recession-induced stock market volatility and declines? Pivot. Pivot like savvy, ultra-wealthy investors who are shedding stocks and allocating to assets they have long relied on for recession-resistant returns. Which assets are they turning to?
Look at the following chart:
The above chart shows the asset allocation of the members of Tiger 21, an exclusive peer-to-peer network of ultra-high-net-worth individuals (UHNWIs) across Europe and North America who all must show a minimum of $50M in investable assets to join.
The latest report shows an increase in real estate and private equity allocations from a year ago. Still, the wealthy have always had an affinity for commercial real estate (CRE) and private equity (PE) – consistently allocating more than 50% of their portfolios to these two asset classes.
The allocations of wealthy investors like the members of Tiger 21 should tell all of us something about our investing habits. While the wealthy allocate heavily to alternatives and retire early, the average investor allocates heavily to public stocks and bonds and still needs more funds at retirement.
That should say something about the average investor’s allocation strategy, and maybe it’s time to rethink and pivot that strategy.
So why commercial real estate and private equity?
In a nutshell, the following benefits are what appeal to wealthy investors:
- Low Volatility.
- Inflation Hedge.
- Passive Income.
- Low Volatility.
- Tax Benefits.
In addition to the multiple benefits cited above, it really comes down to the higher returns alternative assets like CRE and PE can generate, usually at reduced risk.
Higher Returns, Less Risk
The data shows that the more a portfolio is allocated to alternatives, the better it performs and is less risky.
– Source: JP Morgan Asset Management
The chart above shows what happens when investors pivot from a traditional stock/bond portfolio and adds alternatives. Even at only adding a mix of 30% alternatives, a portfolio increases in terms of annualized returns and does so with less volatility.
Passive Income = Compounding = Wealth
Passive private investments in cash-flowing alternatives like CRE and PE are the keys to wealth. The ultra-wealthy have known this forever. Partnering with seasoned experts allows smart investors to put their money to work for them 24-7. It also allows them to accelerate wealth building through compounding gains through multiple passive income streams. While the average investor struggles to survive during retirement, ultra-wealthy investors retire early thanks to the compounding power of passive income.
Recession and Inflation Insulated
Besides generating higher risk-adjusted returns, alternatives offer protection during downturns and in the face of inflation due to their noncorrelation with the stock market and broader economy. In addition, certain segments of CRE and PE tied to essential goods are also good buffers to inflation – making them ideal for protecting income during layoffs and recession.
Don’t let layoffs impact your portfolio. Like the wealthy, pivot to private alternatives like CRE and PE to protect your portfolio and your income.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.