Updated: Apr 17, 2020
Some investors may panic as prices plummet, but the cool-headed, forward-thinking and savvy ones will see it as a smart time for buying.
A study by a research group that looked at 28 global crises over the past hundred years revealed that investors who sold on fear found that they made a mistake because they had to buy back their investments at higher prices; the patient ones were rewarded.
Historically, markets have always rebounded from a crisis and those foresight can invest now and earn handsome returns.
Which investment option is the soundest and most likely to survive the storm and give the best return?
The markets have entered a period of extreme volatility with COVID-19 pandemic. The stock market plunged so sharply that the Philippines Stock Exchange, like the rest of the world, had to suspend trading. The risk are extraordinarily higher because no one really knows exactly what is going on with the economy right now. Some experts advise to wait it out until a clearer picture of the situation emerges.
When faced with a crisis, some opt to divest their equalities and invest in bonds. This poses an even higher risk because of market volatility and credit risk. In such a volatile situation, bond issuers may default or declare bankruptcy. This is particularly true for companies that are financially shaky.
Investment funds come in different forms, such as mutual funds, equity funds, balanced funds and money market placements. These are complex investment vehicles that are a combination of stocks, bonds and other investment vehicles. With a very volatile market, the risk for default or bankruptcy in a time of crisis is likewise high.
4. BANK PRODUCTS
Though bank products are safe in a time of crisis, savings accounts earn very modest interest. The more complex bank products involve much larger amounts and utmost confidence on the services of the investment counselors. A disadvantage of bank products, however, is that they are more strongly affected by inflation.
5. LIFE INVESTMENTS
Life insurance and pre-need plans are sound investments to prepare oneself for future needs. However, these investment instruments offer a one-time benefit; policy holders receive the benefit when the policy matures. But in a time of crisis, companies have been known to go bankrupt or illiquid. When policy holders can no longer pay their installment dues because of a Covid-19-like crisis, where will the insurance and pre-need companies get their cash to honor maturities and terminations?
6. REAL ESTATE
Of the investment options available, real estate is overall the soundest. For one, the asset is real and permanent. Because of the limited supply of land, especially in urban areas, prices are less likely to be volatile. During a crisis, real estate is able to withstand price pressure and remain stable. In good times and bad, the basic movement of real estate prices is steadily upward.
All investments face risks, In the face of a calamity or uncertainty, the best option is one that involves the least risk and the greatest prospect for price stability. As pointed out earlier, real estate investment is the soundest from all standpoints.
But how does one go about choosing which real estate investment to make? Here are 4W's to remember:
WHO is the Developer?
Choose a developer that has a solid financial standing, credibility, reputation, track record, after-sales service and commitment to buyers.
WHERE is the Development Located?
Choose projects located near infrastructures, business districts, schools, churches, malls and market as these projects will command higher rental yields and capital appreciation.
WHAT Type of Real Estate?
Choose a condominium because the demand for this has been growing and will continue to do so. Condominiums also have better perks and benefits-wide range of amenities, sound-the-clock security and utmost convenience in terms of accessibility to basic essentials.
WHEN is the Best Time to Buy?
With a reliable developer, the pre-selling stage of a development is the best time because then prices are still low and offers of flexible payment terms and special promos are available. But for investors wanting to buy ready-for-occupancy (RFO) units, the best time is now, or during a time of crisis, because developers are more inclined to offer promos.
Whether it is pre-selling or RFO unit that one is looking for, the current situation presents a great opportunity for advantageous buying.
Developers may be offering special promos or incentives to buyers.
There is still ample supply of RFO units.
Borrowing from banks may be cheaper as they are projected to offer lower and more competitive lending rates.