We decided it’s time to talk about the epidemic of the Coronavirus. It’s all over the place and it’s important to help everyone to understand the impact of it.
When people tend to hear about the Coronavirus most of us tend to think this is just a health issue that is impacting the world. However, we are here to tell you that it’s a lot more than that. It’s gone beyond the health issue part of it. Now it has economic repercussions that are impacting pretty much everybody all over the world.
We are going to do a full-blown analysis to demonstrate to you the impact of it and how you can actually adjust your investment portfolio in general so that you can minimize the negative impact of this powerful virus.
We’re going to look at some articles and try to understand the overall picture and how that impacts the economy, how that impacts our investment whether stuff related or real estate investment-related.
Pandemic of the Coronavirus: What the market fears
It’s basically the fears. Investors are fearing the Coronavirus, investors are fearing an economic downturn due to the impact of the virus. People are getting sick, chaos is happening, people are giving in to their emotions, in this case, fear.
What do they do? They want to sell up. If they see everyone else selling up the stocks they want to go ahead and sell up as well and fear that if “I don’t sell today I may wind up losing everything. At least if I sell now even though I’m losing something, at least I can salvage or save some of my investments and have something with me in case of an emergency”. Same thing with bank accounts, people tend to liquidate everything. An example of it is what happened back in Greece over a decade ago back in 2008 where people fear the worst and they’re selling off. They liquidate everything.
They want to basically hoard their cash with them. They needed to apply what they call circuit breakers. Circuit breakers were actually put in place on I think it was October 19 – 1987, to prevent a market crash due to panic sell outs. People once again, get into a panic sell-off and they just want to sell all their securities.
What happens when they do that? The economy can crash because no one is investing, no one is feeling confident about the economy. They had to take these measures in order to prevent a crash.
The impact doesn’t necessarily have to be something negative or positive. The stock market crashed, the oil prices dropped, and if that wasn’t enough the FEDeral reserve bank also announced that they were going to cut interest rates. Two things can happen in this kind of situation:
- Some people can get good news out of it and say, “This is the best time for me to refinance. This is the best time for me to get a new mortgage because I’m getting a low-interest rate.
- Some other people might interpret this as a sign of the economic weakening. The Fed is not trusting the economy.
The Fed has to do two things. It’s what they call the dual mandate.
- They ensure maximum employment.
- To basically maintain stable interest rates in the long-term.
Coronavirus and its impact in your investments: The FOMC
A couple of times a year a special committee meets up. That’s the FOMC, and it stands for the Federal Open Market Committee. What they do is that every time they get together they basically analyze the economy to see what’s going on around the world, what’s happening in the US, what happens with trading. Pretty much anything that makes up the economic landscape. After they analyze the whole picture, they make a decision.
This time around they chose to decrease them mainly it was because of the Coronavirus. It’s not mainly because they’re not trusting the economy but they clearly understand in the case Jay Powell understands that this virus has the potential to wipe out the economy and we have to take measures to make sure that we have everything under control and that we are helping the economy.
If that wasn’t enough to add to the fear, the Fed also announced that they’re going to add $15 billion to its overnight lending which can be open to interpretation. A lot of people may say if the Fed is pumping money into the economy and they’re lowering interest rates then this is a potential for another economic downturn, we’re heading into a recession. The reason why they’re doing this is because they’re taking, once again, preventative measures against the Coronavirus.
Every day is a good time to invest. It’s all a matter of education. You have to educate yourself to understand what’s going on and to take the right measures so that you:
- Protect your investments.
- Can just adjust yourself to that change.
In this case, while most people are fearing and they want to pull their money out, those investors who are very well-educated what they do is that they go in and then buy. Buy low, sell high. Same thing applies for mortgages. People are thinking this is not a good time because things are going bad. Banks right now are super duper overwhelmed with the amount of refinance applications that they’re receiving because a lot of people are trying to refinance their mortgage into a lower rate.
For example, if you had a mortgage at 5% originally a couple of years ago, and now you have the opportunity, assuming you have great credit, to refinance into a much lower rate because of the announcement that the Fed did. Now you have the chance to get a mortgage at 4.25%, that’s actually a great deal assuming you still have a lot of money owned in your mortgage.
If you’re about to pay it off and you owe very little money in your mortgage then it wouldn’t make sense for you to refinance. Why? Because you have to take into consideration appraisal fees, closing costs and any legal fees in general. When you add all of that together if it exceeds the benefits that you’re getting out of the refiners, then it will probably not be the best option for you.
Buying and Holding
If you’re buying and holding, this is the perfect timing for you to invest in real estate. Why? Because prices are not going off the roof. This is a good timing for you to come in and buy-in at a good pricing. Have the ability to finance a mortgage and get assets to funding at a low rate. This is perfect for you.
Investing it’s a long term thing. It’s not just about the stock market. It’s not just about real estate. Overall, you should have something else to compliment your investment.
You shouldn’t live solely on your investment. This is just something that’s going to guarantee a better financial future but it’s not something that’s going to happen overnight. We all, as investors, whether you’re a real estate investor, whether you’re a stock market investor, everything has its fluctuations. The market always has it’s corrections. It will always be an up and down.
You will always see fluctuations up and down. As long as the overall lane, it’s going upwards then that’s all that cares. For those who are interested about understanding how long term investment works, then you should read The Intelligent Investor.
There are going to be fluctuations in the market. There are going to be changes in the market because of many reasons. Years ago it was hurricane Candy. Years ago it was the real estate crash back in 2008. Now, it’s the Coronavirus. It’s all about you adjusting to what’s going on but that’s not to say that the only time to invest is when things are doing poorly, when things are going badly.
Let’s say for example, when we have a thriving economy, what some call the bull market. Then it’s time for you to apply a different investing strategy in real estate.This is when the flippers start coming in because they’re taking advantage of the appreciation of their properties. They’re taking advantage of the price going up.
If the economy’s doing well and you’re doing Airbnb, what happens when the interest rates goes up? Everything is incentivized to go up as well. That means rents are going up which means you’re going to make more money in rent. That means you get to charge more in Airbnb because now everyone is traveling, the prices are going up. Everyone feels confident about the economy because the Fed decided to raise the interest rates.
Even in times of crisis, there’s always an opportunity for you to invest and make money out of it.
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