By CJ Follini | NOYACK Logistics
October 20, 2022
The second piece in the Let’s Talk Logistics series focuses on investment stability in recessions. It’s a particularly newsworthy topic given our current market environment. Equities, bonds, and even some alternative investments have all fared poorly. Given this unique environment, it’s important to consider additional investment options that are better accommodated to hold up such as private investments.
Read on for more on why investors should prioritize stability in recessions, how some typically stable investments have held up, and why logistics REITs are designed to provide safety in this market.
In recessionary environments, stability is important because it helps investors avoid the negative consequences of volatility or erratic and significant price movements. In market downturns, highly volatile investments can experience sharp price drops. Investors want to avoid this scenario because if they must sell, they’re locking in returns at a relatively low price. Another consequence of selling at a low is that it forces an investor to withdraw a greater proportion of their portfolio. When a market rally occurs, they’ll have less money invested to soak up a high return.
That last concern is particularly important for early retirement investors because of sequence-of-return risk, or the chance that negative returns occur when an investor begins to withdraw from their portfolio. This scenario can drain a larger proportion of their portfolio early into retirement and reduce the likelihood that their portfolio will sustain their retirement needs. For these reasons, it’s important to have a healthy amount of your portfolio in investments that remain stable even in market downturns.
How typically stable investments are faring
Investors typically use bonds to provide stability in recessions, but most aren’t holding up well given rising interest rates amid inflation. Bond yields have fallen, and corporate have performed particularly poorly since recession fears have introduced concerns around financial distress. Treasuries and shorter-duration bonds are faring better, but this stability comes at the expense of long-term return given that these yields aren’t outpacing inflation.
Other stable investments have also performed poorly. With rising interest rates, tangible assets like gold are hitting two-year lows. With typically stable investments experiencing volatility, investors might wonder where they can go to maintain stability.
Why our logistics REIT is more stable:
NOYACK’s logistics REIT is a solid option for investors in this environment for a few reasons. First, it’s part of the REIT asset class that generally offers stability. These investments are required to distribute almost 90% of their taxable income in the form of dividends via their rental income, which is prone to remain stable even amid large market swings. Second, REITs can offset inflation through price raises in rent contracts. (Our properties even have special provisions that raise rent in lockstep with inflation.)
Second, our logistics REIT offers unique diversification benefits. We invest across five broad property asset classes: Dry storage, cold storage, life sciences, medical offices, and mobility hubs. Each property represents growth opportunities in different industries. We also diversify within each individual category, with some examples provided below:
Future articles in this series will dive into the various ways that our logistics REIT can add value.
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