Is your retirement at risk?

am sure the thought of retirement has crossed your mind in the past. The media is awash with stories of relatively young people retiring early and admittedly I have found myself envying some of them. Whilst retirement may mean different things to different people, our definition of retirement slightly different. It is freedom from a 9 to 5, an ability to live life on your terms and chase your “true” dreams, be it traveling or for that matter starting up a business. Would it not be nice to be on your own boss and not having to worry about foregone income from an active job?

The classical wisdom is to work hard for upwards of 3 decades for most people, save diligently in IRA’s or other tax advantaged accounts and hope to have enough of a nest egg after those long years of hard work. Albeit, the classical wisdom is also a big lie propelled by Wall Street. The two big reasons why the classical wisdom fails you are: Inflation and Volatility. With the kind of currency printing that has been happening in the US (and all over the world really), it is easy to intuit that cash will basically be trash, if not already. Money printing in the US it not new, the Fed has been printing money for quite some time now. But, 2021 took things to a new level. 40% of all the available US dollar supply was printed in the last 12 months alone! This is a staggering fact that has implications on asset valuations and more importantly accelerating erosion of cash sitting in bank accounts. The other reason why stocks/IRA investments don’t really work is because of the fact that the investments can and have been historically volatile. Imagine someone retiring in 2008 only to see upwards of half of their stock holdings evaporate (in the 2008 mortgage induced crash). Admittedly it was a horrible time. But the fact remains that stocks are volatile and often one has no control over such investments. The US does seem to have a bit of a “Retirement Crisis”. The NRRI or the National Retirement Risk Index measures the percentage of working age households that are at risk of not being able to maintain their pre-retirement standard of living. And the results are abysmal. The NRRI estimates that about 50% of those households will struggle in their retirement, you heard it right, 50%!

Why do multi-family apartments shine on both those fronts? Real estate, especially yield producing real-estate acts as a natural inflation hedge. Why is that? Well rents are tied to inflation and often outplace inflation, apartment valuations are a close function of their income producing potential (rents). Yield producing assets also tend to fare better on the volatility front. In-fact over the previous 4 decades or so, investments in Real estate have proved to be significantly less volatile than stock investments according to a detailed study conducted by the Federal Reserve of San Francisco (The Rate of Return on Everything – 1870-2015).

Arguably, someone with a well balanced exposure to yield producing Real estate would have fared much better in the 2008 recession. Apartments continued to thrive during that period as it was not the case that demand for housing went down. In-fact quite to the contrary it went up, as people lost their single family homes they needed a place to live. A lot of them chose to rent and apartments was an obvious choice. The Data shows this also. Apartment rents remained robust through the 2008 mortgage crisis despite the seismic storm in the single-family home market.

Do you want to de-risk your retirement? Investing in multi-family is a great way to do that!