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Crisis-proof assets : Diversification and Real Estate
Diversification is a key strategy to form a crisis-proof portfolio of assets. Investors must find sound investments in which to place their wealth while the crisis heavily impacts financial products.
Stock markets are highly volatile as traders panic-sell their stocks. On 16th March 2020, oil prices were at their historic lowest of 22.4 USD.
During these hardships, it is the tangible, full-ownership real estate properties which are considered a safe haven to secure one’s capital.
Diversifying one’s assets to mitigate the risks
Owning several assets such as both financial products and real estate means taking advantage of the strengths of each, while mitigating the risks of loss during crises. During favorable times, a good stock market investment can yield high returns, but it is not secured as you can lose the whole capital just as fast during crises.
On the contrary, real estate is a tangible and “stone” investment. It will stay no matter the economic situation : real estate prices can also go down during crises, but unlike stocks, the capital initially invested can not be entirely lost.
In a freehold investment, the investor and his designated heirs will always fully own the property, even if a systemic breakdown should occur. This is a secure asset, as the physical walls and stones do not depend on the fluctuation of the Stock market.
Diversifying currencies and countries of investment
Currency diversification is important to avoid depending on the value of a unique currency, and to profit from situational rises. The US Dollar for example is widely used in Southeast Asia and around the world.
In today’s crisis, it leads to the Dollar gaining value as many countries depend on and ask for it. Since the start of March 2020, the US dollar has strengthened by 5.9% against the Euro. It means that owning an asset and investing in USD is now highly profitable compared to the Euro.
By investing in several countries, you can benefit from more advantageous tax systems, exchange rates and prices. For example, taxes in Thailand are lighter than most European countries.
And for the same price as a city center, 2 bedrooms apartment in Paris, London, Bangkok or Hong Kong, you can purchase a 4 bedrooms villa in Koh Samui island. With the decrease in Chinese tourism, 1 EUR is now around 36 THB (v.s. 33.5 THB in January) which is a good opportunity for Europeans to invest in Thailand properties.
An example of both currency and geographic diversification would be : having a Freehold Condominium under Foreign Quota in Thailand in THB, and investing in USD in Philippines properties. The first allows for a secure, full ownership property in Thailand. The second takes advantage of a presently strong currency in the Philippines.
The safe haven of real estate
While the COVID-19 crisis may indeed impact all sectors, the goal is to mitigate the risks of wealth loss. With full ownership real estate, the property is truly yours and is not at risk of being lost. The same cannot be said of financial assets which are intangible and depend on the economic health of the organizations and financial institutions founding them.
This is why real estate is considered a safe haven during crises. It is a secured, tangible investment with a concrete ownership registration which cannot be taken away.
Thaï Property Group is a network of real estate experts in Thailand and South East Asia. Do not hesitate to contact them for more information on real estate properties in Asia.
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