Diversify Now Or Pay Later: Why You Need To Sell Your Stocks

As some countries in Europe and some states in the United States begin reopening for business, the long-term impacts of shutting down global economies are being debated by experts and amateurs alike.

The U.S. stock market, as tracked by the S&P 500, is still down about 10% from its pre-virus peak in February.

On the other hand, it has recovered 31% from the bottom five weeks ago.

First-quarter U.S. GDP was down 5.8%. The second-quarter fall is expected to be even greater, and corporate income will be down across the board for 2020.

Why is the stock market heading back up?

We could debate theories. Some say CARES Act funds are mostly going to big business. Some point out that the rest of the world sees the U.S. stock market as a safe haven right now.

And some remind us that the entire market is manipulated by Wall Street.

The bottom line for anyone who holds much or most of their net worth in stocks and mutual funds is that you now have a second chance to take some profits off the table.

Even though you may be down 10% from February’s high, you’re way up from the recent meltdown low. Plus, you likely invested before February.

All that aside, you know my mantra: Diversify or die broke.

The message from one gold guy I’ve known for years has become even more narrow in response to the coronavirus crisis. He’s always maintained that gold is the only true storage of value. Paper money is worthless. Stocks are worthless. Now he’s arguing that even real estate is worthless.

This gold guy has been touting his arguments for more than 40 years, and he’s probably feeling vindicated right now. Gold is up about 11% since the beginning of February.

Still, I have to disagree.

Paper money, sure. That’s not worth the paper it’s printed on (to mis-reference Voltaire).

But I don’t want to be invested in any one thing—including gold.

I own some gold… the kind that makes sense to me—coins. These are easily stored, easily transported, and easily traded. I have gold coin reserves in each place where Kathleen and I intend to spend time long term. That way, wherever we end up in a time of crisis, we have a safety net in place.

I also have a small stock portfolio. It’s been down, down, and down and now back up again over the past couple of months. I check in on it a couple of times a week, but I don’t worry when I see falling values.

I don’t have to worry, because, again, it’s one piece of a bigger picture.

I’m a real estate guy, and this is where the gold guy and I are really at loggerheads.

He holds that, when fiat currencies completely implode and we humans revert to medieval strategies like barter and gold coins for commerce, then real estate will have no value.

I don’t follow.

Of course real estate will continue to have value. The question will become how the value will be counted. Will my apartment in Paris be worth 10,000 chickens or 1 million chickens? More important, if I wanted to sell my apartment, what would I do with all those chickens?

Probably smarter to rent out the place for a combination of chickens and goats paid monthly.

Cash flow… or gold coin flow… or chicken and goat flow is the main reason to have real estate in your portfolio.

The other reason to invest in real estate, as I see it, is as a storage of wealth.

Maybe you can’t rent the piece of land you own in Fill In The Blank Country, but it will hold some value even if the world walks away from fiat currency. Worst case, you could build a hut on it and grow your own food.

The other thing that real estate (like gold) does is ride out inflation.

That’s going to become key over the next couple of years, I believe, as the world works through pandemic crisis effects. Governments are printing trillions of dollars, billions of euros, and loads of other currencies to help prop up their economies. The increases in money supply will impact inflation, even as global GDP shrinks this year.

Of course, no one, including me, really knows how our current extraordinary circumstances will play out.

So I say again: Diversify.

Take whatever you’ve got and spread it around.

If everything you’ve got is in stocks, it shouldn’t be.

Use the current window, while values have rebounded, to adjust.

Lief Simon