A Flight to Quality

Looking back on it, the pandemic has taught us all a valuable lesson or two. For starters, it drove home the notion that anything can happen at any time.

It also reminded many of us of how much in our lives we take for granted. The ability to dine at our favorite restaurants, spend time with friends & family, go to a ballgame and breathe fresh air without a cloth filter were all suddenly taken away from us. If you’re like us, the idea of losing those basic freedoms would have been unfathomable in February of 2020. Then the unfathomable happened. 

Now that the worst appears to be behind us and our team is confident that the sky is not going to fall on us, we also see a silver lining in the pandemic cloud. The virus kept most of us at home with our immediate families. Definitely a good thing. It also gave us more time to think about the quality of our lives and the things that are truly more important to us, most of which we don’t (or shouldn’t) measure in dollars and cents. It gave us the chance to think more about being happy with what we already have because our efforts to accumulate more were impeded. In our minds, that’s a good thing, too, and we are as grateful for that lesson as we are to see the pandemic in the rear view mirror. 

You have accumulated your wealth through innovation, hard work and a willingness to take risk. Whatever you have, you earned it and you deserve it. And you are probably still working hard to preserve your wealth and expand your investment portfolio, so that you can maintain the power to choose how you’ll live the rest of your life. If you are like many of our clients, the uncertainty caused by the pandemic may have you thinking more about protecting what you already have and increasing your focus on that bucket list of things you’ve been putting off, rather than concentrating on just earning more. 

Playing defense has probably not been a big part of your game plan. If it was, you wouldn’t have achieved the success you now enjoy. But, as you get a little older and your appetite for risk diminishes, a little more focus on defense may be a prudent course of action. By that we mean taking a hard look at your portfolio to determine if the risk you are exposed to is aligned with your plans for the future.

As we have commented many times in previous posts, many investors hold their highly appreciated properties solely because of their aversion to paying roughly 36% of their gain in taxes. As property owners ourselves, we understand that position. However, that 36% could soon go to 57% if the president’s American Families Plan becomes law. This is a real threat that, along with other elements of the plan, which include limiting 1031 exchanges and taxing gains at death, is worthy of your attention. If passed, the plan would increase your tax exposure, but perhaps more importantly, could cause a significant correction in property values, as well.

We are not suggesting that you rush to cash out of your entire portfolio overnight in response to something that hasn’t happened yet. However, this may be a good time to consider taking some of your hard-earned property appreciation off the table to minimize unnecessary exposure to elevated risk in the future. As the old saying goes, no one ever lost money taking a profit.

If you own more than one property, perhaps it would be prudent to sell a portion of your portfolio and use your profits to improve the quality of your life, while you remain in the game. If you own just one and it is central to your retirement strategy, you may want to consider selling to reposition your equity into a more liquid asset class. 

Whatever you decide begins with a complete evaluation of your current position relative to the level of risk you can tolerate. Will it cost you a couple of bucks to consult with your financial experts? A few perhaps, but a worthwhile investment considering the potential consequences of inaction. We can help you on the real estate side by bringing you up to speed on market conditions and property values. That’s what we do. 

Gathering information and gaining knowledge are inexpensive, but imperative if you want to make the most of your lifetime of effort and action. Taking a hard look at your options may just be the most important action you’ll ever take. Please give us a call to get started. We are here to help.