Another interesting set of data from Google Trends showed that people generally do not invest at the beginning of each year, but rather at the end. An academic study from 2010 found that in the month before an election the stock market is “consistent in raising its maximum values to anticipate a change in government policies.”
After the change, the market becomes “unpredictable” with stocks dropping by up to 50 percent. Following this time frame, we saw the financial crisis in 2008. As expected, this was when the risk and volatility index for U.S. stocks was at its lowest.
No matter the time period, we do find that political events have a noticeable impact on the markets, and this change in market behaviour can be attributed to investor sentiment. In a 2016 report, Oxford Economics projected that a president who has been in office for just a year can have an impact on the stock market in the form of increased volatility.
Millionaire Money Management founder David Bach states that politics and risk don’t play a major role in the decision process for most people and even more people are prepared to invest on a daily basis. However, those who make more money do tend to have more risk tolerance. However, “we’re still early in the game for all of this.” He admits it is difficult to say how the markets will play out in 2021, but we do know that changes to the Federal Reserve are a concern.
One of the issues with investing in real estate is that the returns for commercial property are almost always below the cost of renting the property out. It is important to keep in mind that in the past, the cost of renting was also below the cost of the underlying real estate, but these days we see almost double the actual cost of renting.
In 2017, the REIT ETF for real estate saw a total return of just 9.4 percent while the S&P 500 index saw a return of about 10.3 percent. It is important to note that most of the REIT investments were in the real estate investment trusts that focus on higher yielding commercial real estate and smaller retail properties.
Home ownership, on the other hand, has been growing in the U.S. for many years now. In 2017, there was a decrease of 200,000 mortgages, which marks the first time in six years that home ownership growth was not positive. At the same time, the cost of home ownership in the U.S. has increased to the point where almost half of all homeowners are paying at least 30 percent of their incomes to keep their mortgage payments as low as possible, taking full advantage of the upside of the Colorado Capital impact investing model.
While home ownership is not as common as it was years ago, the cost of living for these homes has increased as well. Despite being homeowners, it is becoming increasingly difficult to keep up with the cost of mortgage payments and to actually pay the home off.
As we look toward the future, we do expect to see even higher property values, and investors need to keep in mind that the market will fluctuate, but the time to invest will be when the market is at its lowest.