When Others Sell, Those With Longer Horizons Can Benefit

Editor’s note: This is the second of three blog posts to help you analyze the economic impact of the coronavirus pandemic on investments in Opportunity Zones such as our Nest Opportunity Fund. Read the first post here.

By Clint Edgington

If you’re reading this, you probably already know the three most basic rules of investing:

• If at all possible, you want to avoid selling when everyone else is selling and buying when everyone else is buying.
• Market timing is for fools. No one knows exactly when markets will go up or down.
• Other than funds you can truly afford to put at risk, you need to take a long-term approach to the investment choices you make.

Still, it’s advice worth repeating when we have a global pandemic that has pushed economies around the world into recession, including America’s.

So, let’s take a look at the importance of these points today, particularly because we’re in a moment with a lot of selling and a lot of speculative market timing. In an environment filled with motivated sellers, those who can avoid panic (because this, too, shall pass) and afford to be long-term investors have real advantages.

Some Factors to Consider

I’m not an expert on pandemics, but I can predict that if the impact on the economy can be adjusted rapidly, we’ll look back and be grateful fewer lives were lost while second-guessing whether it was overkill – in terms of the government’s unprecedented response to the public health crisis and the efforts to prop up the U.S. economy. 

What’s interesting to me is that even if the necessary public health responses continue for several more months or longer, the economic response still could turn out to be overkill as, eventually, the benefits of reducing interest rates and increasing liquidity could expire in an economy that isn’t working. 

We’re now getting closer to restarting at least some aspects of the economy, though the pace and timing vary by region to region. The hope is that the $700 billion or more of monetary stimulus will allow the economy to get back on its feet without having to pump “unlimited” money in the economy. This is unprecedented power that the Federal Reserve has been given. However, at a certain point, the Fed loses any ability to apply leverage. If unemployment sticks around for months at levels not seen since the Great Depression of the 1930s, we also could potentially have inflationary pressures at the same time as high unemployment. This “stagflation” is an outcome everyone, not just economists, should fear. Many older Americans remember living through such a situation in the 1970s.

We’re more optimistic than that, and it’s likely that a low-interest rate environment is in the cards for the foreseeable future as the pandemic crisis plays out.

How Should This Impact My Investments?

The government’s stimulus efforts in reaction to the 2008-09 can be instructive. After the economy began growing and fear subsided, stock prices rose. Hard asset values such as real estate also increased.

As we come out of this downturn, it’s quite possible that owners of assets with pricing power will generally do well. Regarding interest rates, borrowers always like reduced interest costs, though that’s not good for those on fixed incomes with limited assets to invest. 

For some investors, certain sectors of real estate and infrastructure may be good places to be, especially if there are motivated sellers in place. Regarding real estate, opportunity zones are attractively structured to provide significant tax advantages for those with capital gains to reinvest. At the same time, the money invested helps communities improve with a goal of significant appreciation in the investment. The NEST Opportunity Fund is focused on single-family housing or small-scale multi-family housing units, traditionally the least-volatile area of real estate investing. That is likely to continue to be the case in the coming months, given the volatility in commercial real estate in particular.

We’re here to help guide you in these decisions. We invite you to contact us today.

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Clint Edgington is co-founder of Nest Opportunity Fund and leads the investment team at Beacon Hill Investment Advisory. Beacon Hill provides advisory and family office services to business owners to simplify their financial lives, including their businesses, their retirement plans, and their public and private investment holdings.

Beacon Hill works with a business owner’s team of tax, M&A and legal professionals to evaluate and invest, in a tax-efficient manner, in private and direct investments – primarily focused on private debt, direct real estate, and small- to middle-market buyout and equity investments.

Clint has been admitted as an expert and testified before the National Association of Securities Dealers (NASD), New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) on his analyses of portfolios and securities. He has also acted as trustee and administrator in a corporate role for 401(K)s, Profit Sharing Plans and defined benefit Pension Plans. As a plan fiduciary, he has managed brokers, evaluated the performance of money managers and managed other vendor relationships for ERISA-based plans.

He has been published or quoted in the Chicago Tribune, the Columbus Dispatch, the Journal of Financial Planning, Plan Sponsor Magazine, CNBC and other publications. In addition, he serves as the Chairman of the Columbus CFA Society Private Wealth Committee.

Clint graduated with a B.S. from Miami University with a major in Economics. He resides in Grandview Heights with his wife, Jenny and sons, Cole, Grant and Connor.

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Nest Opportunity Fund is an Opportunity Zone (OZ) investment program designed to not only do well for investors, but also do good for those in the communities targeted for fund investments. “Qualified Opportunity Zones” (OZs) were created by Congress in late 2017 with passage of the Tax Cuts and Jobs Act. This program offers deferral of initial capital gains tax owed, reduction of capital gains tax owed and elimination of capital gains on new investments. Our leadership team performed extensive research to select which type of under-invested Opportunity Zones will benefit from our engagement. We chose single-family homes and smaller multi-family homes because they present a lower risk to investors while maintaining the culture and character of the neighborhoods. We partner with thoroughly-vetted, regionally-respected contractors who specialize in managing multiple property upgrade projects at once. These homes are built to last, complete with solid wood cabinets, upgraded appliances, tankless water heaters and a catalog of other amenities to help improve the lives of residents and ease our management of them.