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This Hits Home

Being a resident, I have experienced Denver’s hot housing market first hand. All residents can attest to the fact real estate has a short shelf life in this town. An influx of out of state buyers who regularly comes in with cash to quickly buy up our already low housing inventory. I have always wondered where this cash is coming from. Are buyers liquidating investment assets to purchase a home in Denver under assumptions of continued year over year real estate appreciation?

As I discussed in my last blog, investor participation in the stock market is at an all-time low. Does this mean investors are stock piling hordes of cash for future use? No. We know people are still investing with hopes of better returns than what is earned in their savings accounts. So, who are the recipients of these funds? According to Gallup, real estate is the current preferred driver of net worth. When looking at the chart below, I would have to say that Americans’ view of the stock market as the best long-term investment option is changing.

Over the past few years there has been a steady increase in real estate investing. Thirty-five percent of Americans now choose real estate over stock and mutual funds. Both asset classes suffered catastrophic losses during the great recession and both have now recovered to well above their pre-crash highs. But Americans now seem to have more confidence in real estate than the stock market. I hope they understand the risks associated with direct real estate investing; illiquidity, expensive to exit, high entry price… but that’s for a later discussion.

According to Tiger 21, a network of investors with assets of at least $10 million, wealthy investors have shifted assets out of equites and hedge funds and into real estate. The group had 33 percent of their portfolios on average in real estate, a record high since the group started measuring aggregate allocations in 2007.

While investors in both the stock market or real estate have experienced stellar returns, fewer are benefiting from the recent gains in the stock market than would have been the case a decade ago. As we approach record highs in both markets, we know all things cannot continue to trend upwards. A pull back in either, or both, asset classes should not come as a surprise to investors. It’s how you react when the correction comes that will shape your future wealth.

Kyle Kersting

Kyle Kersting, CFA is Director of Investments at Janiczek® Wealth Management. Kyle’s experience includes expanding the firm’s Evidence Based Investing platform for high net worth investors ($2 to $20 million portfolios) and ultra-high net worth investors ($20 million+ portfolios). He graduated from Colorado State University with a Bachelor of Arts degree in Finance and Real Estate, and Regis University with a Master in Business Administration degree with a concentration in Finance.

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