World vs. Local – Volatile vs. Stable
As the Russian invasion of Ukraine unfolded this week, the markets took a nosedive, with oil prices surging on fears of supply constraints. Bitcoin prices also reacted negatively. Many wonder why events halfway around the world have on stock prices or even Bitcoin prices, but the reality is the U.S. markets are intertwined with the world economy and world events.
The liquidity of the markets coupled with the rapid pace of news on the internet and social media ensure that investors will be spooked at the slightest sign of chaos in the nation or the world.
Herd behavior was on full display this week as the crowds rushed for the exits on global fears.
While the global markets shook, chances are prices of real estate, and values of local businesses in your local markets didn’t move. Real estate is illiquid, unlike stocks and Bitcoin, where investors can unload their positions at the swipe of a phone screen. In other words, even as news and social media posts move the needle on stock and crypto prices, they have little effect on real estate prices because the masses can’t just unload their assets at will.
Besides being insulated from broader market volatility, smart investors favor local assets for other advantages. The pandemic had the effect of turning investor interest inward to support local businesses.
Besides the newfound interest in supporting local economies and workers, smart investors favor the familiarity of investing locally where they can leverage their information advantages and professional connections to find off-market deals and bargains.
Here are some additional financial advantages to investing locally:
- If you’re investing passively in a local private business, having boots on the ground means you can have eyes on your investment. The ability to touch and inspect an asset gives you peace of mind and a complete picture of the opportunity and chances of success. In addition, having some background on local and regional communities and economies gives investors an information advantage out-of-state investors don’t enjoy and offers a competitive advantage in finding the best deals.
- Investing locally also offers the opportunity to interview the promoters and managers of potential opportunities in person. The opportunity to meet with decision-makers allows you to align your investment objectives with those of the company seeking your capital.
- Investing locally with a pulse on the local economy and businesses allows you to assess risk more adequately with a complete picture of all the economic metrics involved.
- Investing locally also puts you in a position to learn about and take advantage of local economic incentives like local tax breaks and revitalization incentives you wouldn’t know about if you were from out-of-state.
If you want to avoid investor shock from global volatility, consider investing locally where your assets can be insulated from Wall Street madness while leveraging multiple financial advantages.
Michael Foley, president and CEO of Humabilt Capital, oversees the entitlement process, funding, and operations for Humabuilt Capital. Mr. Foley has been a full-time real estate investor since 1995 during which time he has developed hundreds of single-family homes, townhomes, condominiums, and apartments. Mr. Foley started his investment ventures in Long Beach, California, and has expanded to Apex and Durham North Carolina. Mr. Foley is a graduate of the University of California at San Diego.