Navigating The Investing World During Unprecedented Times

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This Covid crisis has certainly changed the World in many different ways.  It has certainly exposed a lot of problems with the way our lives currently operate.  In the personal finance World, this surely has exposed many who did not have any contingency plans for what happens when the tide goes out.  Luckily the government stepped in and infused all those impacted with cash to keep them afloat.  Things would have been much worse if they did not.

We still have yet to see the entire impact these months of shutdown will have on the economy.  Many people deferred mortgages, property taxes, income taxes and utility bills.  Deferral does not mean that these go away, it just means paying them will get pushed back to a later date.  What happens if some are not back on their feet in a few months when the bill collectors come knocking?  Another government bailout?  My point is this can't go on forever.  We need to take control of our own situation and be ready to come up with a plan to manage to stay afloat and pay our bills.

If you were 100% in stocks, your portfolio would have taken a 30% haircut.  Stocks have bounced back and are now down only about 10% from their highs in February, but the market feels really frothy right now.  Yes, the economy is opening up and a Covid vaccine is in the works which should indicate a return to normal, but what about the damage done by shutting down the entire economy for a few months?  What about that 25% unemployment rate?  What about those business that had to close their doors permanently?  Clearly these are huge issues that won't be immediately fixed by opening things up right away.  It's going to take years to get things back to normal, economically speaking.  Once the stock market players catch wind of this, I see a much bigger drop on the horizon.

Real estate also has some issues of its own to deal with.  All of the immigration to Canada going on pre-Covid basically stopped for a few months as well.  This immigration has been propping up the big city housing markets in Toronto and Vancouver.  There was a lot of additional product that is now coming online with no one to fill in the void.  CMHC expects the vacancy rate in Toronto to rise from 1.5% to 4.5%.  By their calculation, each rise of 1% vacancy translates roughly into a 4-5% decline in home prices.  Things are looking frothy there too.

So with all of this uncertainty, what is an investor to do?  There isn't really a clear answer, other than stick to your guns and stick to your plan.  Make sure to look at the big picture and ask yourself what has changed.  For example, we are continuing to keep our eyes on Florida.  It's not the same state it was after the crash of 2008, where properties were way too overvalued due to all of the money being leant out to anyone with a pulse looking to buy a home.

The way we see it, there will actually be an increase in the number of people looking to call Florida home.  Think about why many people are moving there.  After seeing what the Covid working World looks like, there will surely be a large increase in people working remotely.  Without having to commute and report to an office in a frigid climate, many will be packing up and moving south, as lifestyle begins to replace employment as a reason to live somewhere.

Lets also think in terms of government debt.  How are governments planning to get out of the economic trouble they are in? Raise taxes? Reduce spending?  Either way, not an ideal situation.  Prior to Covid, there was already a big trend of people moving from the higher taxed states of New York and California to cheaper tax/cost of living states like Florida and Texas.  New York's medical system was hit particularly hard and California's extremely slow opening up of the economy will ensure that those states in particular will have issues balancing their books.  I expect to see more and more people continue this migration trend.

Now is probably not the most ideal time to enter into a big rental property purchase, but it's time to start getting things in order to strike at the right time.  I would probably wait a few more months to see what happens when the government benefits start to run dry so we get a clearer picture of what will happen to home prices and rents.  This is an unprecedented situation in our history and no one knows exactly what will happen.  One thing we do know from history, is that this will create all kinds of opportunities for those who have their eyes open to them.

In the words of Winston Churchill, 'Never let a good crisis go to waste.'

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