We are living through interesting economic times. Inflation is extremely high, interest rates are historically low, and cryptocurrency investing is changing our financial landscape. After studying historical trends and America’s current economic situation, I have three market predictions as of October 2021. [Click here to listen to the corresponding podcast.]
Prediction 1: Stock Market Correction
What is a stock market correction?
When the stock market has been going up for an extended period, a stock market correction may occur. A correction is when a bull market regulates by going down a certain percentage. Typically, this percentage is about a 10-20% drop in a major market index.
What does a stock market correction mean?
Many economists think the coming stock market correction will be as much as 60% (that’s a crash, not a correction.) Personally, I think it will be more around to 20-30% in the next 4-6 months. Still, if the bulk of your investments are in the S&P 500, I recommend selling at least 50% of your shares and diversifying into other investments.
Typically, when the stock market (paper assets) goes down in a dramatic fashion, hard assets (such as precious metals) will do better. So consider purchasing precious metals, real estate, or begin cryptocurrency investing.
Prediction 2: Cryptocurrency as a Hard Asset
There are two types of investments: hard assets and intangible assets. Hard assets have fundamental value and include things like commodities, business products, and real estate. As you can imagine, intangible assets are not physical in nature. They include things like copyrights, intellectual property, and financial property like stocks and bonds. Since you can’t touch a feel a Bitcoin, you might guess that digital currency is an example of an intangible asset. However, cryptocurrency is currently acting as a commodity. In a sense, it’s becoming digital gold. In the future I think it will literally become a hard asset—that is, backed by a tangible asset that has a comparable degree of value.
Cryptocurrency is at about the same place as the internet was in 2000. It’s on the rise, and people are finding new ways to monetize its potential. In response to its growth and perceived volatility, current administration is looking to tie hard assets to cryptocurrency. This would be similar to when America operated on the gold standard. In those days, every dollar in the US Treasury was backed by a certain amount of gold. I think that crypto will follow a similar model sooner rather than later.
Should you do cryptocurrency investing?
Personally, I think you should only do cryptocurrency investing with money that you can afford to lose. There are a lot of changes still to be made. You need to be able to afford the fluctuations in the market, and it’s always good to diversify your portfolio. Don’t put all your eggs in the crypto basket.
Prediction 3: Inflation as a positive for real estate
The price of a single-family home has gone up tremendously throughout the United States. If you own real estate, that’s good news. It means that you have more equity in your property(s). However, the key area where inflation helps the investor is with rental prices. Real estate prices can always go down, but rental rates stay consistent or rise.
You always know how much something is worth by how much it’s paying you. Real estate investors need to ensure that the rent they charge is providing them cash flow (I recommend at least $300/mo after PITIM.) As long as that happens, they have nothing to worry about when the real estate market levels out and property prices soften. Even if real estate inflation subsides, rental prices should remain at the rate they’ve risen to recently.
[Related: 3 Real Estate Formulas for Efficient and Lucrative Investments]
If you haven’t already, listen to this episode on The WealthBuilders Podcast. New episodes air every week!