Feb 2, 2023
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It’s hard to say how effective the U.S. Federal Reserve’s tightening monetary policy has been at taming inflation. But one thing’s for sure: higher borrowing costs do not bode well for the economy.
Unsurprisingly, experts — including Tesla CEO and Twitter owner Elon Musk — are now calling for rate cuts.
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“Fed needs to cut interest rates immediately,” Musk said in a tweet in November. “They are massively amplifying the probability of a severe recession.”
But even the richest person in the world doesn’t always get what he wants.
“Given our outlook, I don’t see us cutting rates this year, if our outlook comes true,” Federal Reserve Chairman Jerome Powell said on Wednesday, following another 0.25 percentage point increase — the central bank's eighth consecutive rate hike.
Investors don’t like prolonged rate hikes. Even though equity markets have rallied recently, the S&P 500 is still down almost 7% over the last year. But not all assets are created equal.
Here are three other asset classes that might help recession-proof your portfolio.
Real estate
While mortgage rates have been on the rise, real estate has actually demonstrated its resilience in times of rising interest rates.
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“Between 1978 and 2021, there were 10 distinct years where the Federal Funds rate increased,” Invesco says. “Within these 10 identified years, US private real estate outperformed equities and bonds seven times and US public real estate outperformed six times.”
Well-chosen properties can provide more than just price appreciation. Investors also get to earn a steady stream of rental income. But you don’t need to be a landlord to start investing in real estate.
First National Realty Partners lets accredited investors own a share of institutional-quality properties leased by national brands like Whole Foods, CVS, Kroger and Walmart.
You’ll get a stable, positive cash flow and the firm handles the work for you.
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Artwork
You probably think of art as just some canvas that makes your living room look nicer, but art has quietly outperformed other asset classes for years.
Contemporary art has outperformed the S&P 500 by 131% for the past 26 years, and it has a near zero correlation to stocks according to Citi, making it a useful hedge against market volatility.
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Masterworks makes it possible for every savvy investor to access fine art. Instead of buying a single painting for millions of dollars, you can now invest in shares of individual works. All you have to do is select which shares you want to buy and Masterworks will handle the rest.
Skip the waitlist with this exclusive offer for MoneyWise readers.
Fine wine
Since 2005, Sotheby’s Fine Wine Index has gone up 316%. As a real asset, fine wine can also provide the diversification you need to protect your portfolio against the volatile effects of inflation and recession.
You can invest in wine by purchasing individual bottles — but you’ll need a place to store them properly, which can cost tens of thousands of dollars.
That’s why some investors choose to go with a wine investing platform called Vinovest. The company can buy fine wine at below-retail prices through its connections and handle the storage for you. Your bottles would also be insured against breakage and loss.
Vinovest automatically selects ideal wines for your portfolio based on your goals, and it recommends the right times to sell to get the best value for your wine.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
