The year 2020 will forever be known as the year of the 2020 market crash.  An eleven year bull market came to end, as fears of the coronavirus pandemic infected the markets. In addition oil wars between OPEC and Russia inflamed an already volatile situation.  Even gold and bonds failed to act as reliable safe haven investments.  So, where should you invest after the 2020 market crash? To answer this question it is important to first attempt to sort out this complete financial chaos. 

The Coronavirus Financial Impact

The Coronavirus, also known as COVID-19 originated in Wuhan, China.  And the first case is believed to have occurred in November of 2019.  As of the middle of March, the Coronavirus pandemic has spread throughout the world, causing havoc in people’s lives and financial markets. 

Countries across the globe are closing their borders, shutting down restaurants, and some have instituted city wide quarantines. 

The impact to businesses is completely unimaginable.  People are canceling travel plans en masse.  As such, airlines, cruise lines, resorts, hotels, etc will be heavily impacted financially and otherwise.  These impacts are also affecting all other industries, including the real estate market.

By now, everyone with some basic financial knowledge is well aware that the US, and the world, just experienced a major stock market crash.  Unfortunately, for those close to retirement, events like these can have a big negative impact on their retirement accounts. 

Indeed, the US stock indices (S&P 500, Dow Jones Average, and Nasdaq) are down close to 30% from their recent highs.  And what’s more, we still don’t know where the bottom of the 2020 market crash is.

The Oil Wars Financial Impact

But, as devastating as the coronavirus impact has been to financial markets, the coronavirus was the first of a one-two punch.  The second punch came from the oil wars that erupted between Saudi Arabia and Russia. 

These oil wars have caused oil prices to drop from about $55 per barrel to less than $27 per barrel.  That’s a 50% price drop! And if that wasn’t low enough, some analysts are predicting oil prices in the teens!

Although low oil prices can be a good thing for many industries, including the airline and cruise industries, the overall impact to the US economy is a much bigger concern.

This is because over the last few years, the US has become a global oil superpower, thanks to oil hydraulic fracking.  In fact, late last year the US briefly overtook Saudi Arabia as the world’s top oil exporter. 

In simple terms, low oil prices would normally be a form of stimulus to the US economy.  However, low oil prices will negatively affect US oil producers, which are now a larger section of the US economy than in years past. 

Financial Chaos

Before addressing the question of where to invest after the 2020 market crash, it is important to make sense out of the financial chaos.

Generally, when investors sell stocks out of fear, they tend to buy safe haven investments such as bonds and gold.  However, as I look at the big picture I fail to see such correlation between assets.

And I’ve been paying attention to this, because I’ve been a gold investor for the last 15 years. 

In addition, about 6 months ago I moved a significant amount of my retirement account stock investments to bonds.  I did so because I was convinced the US stock market could not continue to climb in the manner it had been without a correction. 

As I look at the various markets today, I am somewhat puzzled at the current situation.  People seem to be selling stocks, bonds, and even gold.  Or, at least, they are not buying other asset classes in the same amounts as they are selling.  In fact, people seem to be selling everything and are not buying much of anything.  In other words, people are hoarding cash!!!

Actually, people hoarding cash makes sense for various reasons.  First, when people are in panic, they want some form of protection and it makes sense that they want cash in hand.  Second, many stock investors use margin (loans) to buy and trade stocks. 

However, when stock prices decline, margin investors are forced to sell what they can to cover margin calls.  So, even if an investor doesn’t want to sell their bond and gold positions, often they have no choice.

In short, a large number of investors are selling what they can and they are keeping cash.  They aren’t willing or ready to buy anything at this time.

Upcoming Corporate Bailouts

As can be imagined, governments around the globe are very concerned that the current situation will lead to a long lasting economic recession.  And they will do everything in their power to increase confidence and to prevent a recession.  As such, there is already talk of bailouts of one type or another to entire industries like the oil industry, airline industry, hotel industry, small business, etc.

I could somewhat understand if a nation wanted to bailout a given industry, but when a nation wants to bailout all industries, things don’t make sense. 

Think about this.  Where do governments get money for bailouts?  Governments either tax people to get money or they create paper money from nowhere.  However, in the current situation the US government is also talking about reducing taxes on people.  So, the only way the government will be able to get the money to provide bailouts, is by creating money out of nothing. 

If creating money out of nothing is a good strategy, why do governments tax people?  If creating money was a solution, then governments would create money rather than tax people. 

Do you see my point?  Government bailouts of all industries, while reducing taxes, is crazy talk.  It will never work. 

Upcoming Tax Cuts and/or Financial Assistance

In an effort to prevent a recession, the Trump administration has been considering a payroll tax cut.  More recently, it appears to be considering the idea of sending direct cash payments to Americans to help them cope with the economic turmoil.  In either case, the price tag could be around $1 trillion.    

Again I ask, where will all this money come from?  The answer is from nowhere.  Paper money will be created out of thin air.

Over Supply of Money – Cheap Cash

Furthermore, in an attempt to prop up the US economy the Federal Reserve is also lowering interest rates to an interest rate of nearly zero!   And by the way, the same thing is happening with other governments around the world. 

The Federal Reserve can print money without restriction because the US dollar does not have anything of financial value backing its value.  In other words, the Fed can just print money whenever. 

However, as should be obvious by now, an oversupply of money will only lead cheap cash.  In other words, when the supply of money increases, the purchasing value of the dollar decreases. 

What effect do you think this has on those individuals that are selling stocks, bonds, and even gold to hoard cash?  You guessed it! Those individuals hoarding cash will only see the value of their hard earned money continue to dilute. 

So, hoarding cash is surely not a good long term strategy. 

Where Should You Invest After the 2020 Market Crash

Even after sorting out the 2020 market crash chaos, things remain uncertain.  In addition, every investor has a different risk appetite.  Nevertheless, opportunities always arise after a market crash. So where to invest after the 2020 market crash is a great question to ask. 

In short, the few asset classes I believe may provide opportunities are gold and some real estate investments. 

Certainly some stocks, other than gold and real estate related stocks, may also present some opportunities.  However, buying simply because things are at a discount is probably not a good strategy.  Rather, a keen investor must understand the various market forces at play.  And in the 2020 market crash environment, making sense of all the market forces at play won’t be easy.

This is especially true if the US government and Federal Reserve continue to intervene and impact the markets. 

Having said all of this, let’s examine some possible opportunities in real estate and in gold. 

Real Estate Opportunities

Out of all the investment types, I generally prefer income real estate for various reasons.  But will real estate continue to be a good investment in the future?

Unlike paper assets, the real estate market has not been hit in this market crash.  And I for one am really glad, because a significant part of my net worth is allocated to real estate. 

Regardless, it is difficult to know how the real estate market may react to the current financial chaos.  What we do know is that interest rates are declining to very low levels.  In theory, people will be incentivized by low interest rates to buy real estate. 

I speculate the current condition may turn out to be a good situation for buyers.  First, there may be less competition from other buyers due to a drop in showings.  But also, other potential buyers may be out of the market after the recent market drops and out of a desire to keep cash in hand. 

In addition, I speculate that a few potential sellers may be more inclined to sell their properties after the recent market crash.  In fact, this may be an area where I’ll be looking for opportunities. 

In my case, I am looking for income real estate opportunities.  Many of the sellers in the income real estate market are baby boomers.  Obviously, most of them are looking to retire in the near future.  With their retirement accounts taking a big hit, many of these potential sellers may have a bigger incentive to consider selling their income real estate properties. 

Real Estate Investment Trust (REITs) Opportunities

In general, REITs tend to benefit from low interest rates.  The main reason is REITs borrow money to purchase and develop properties.  So, as the Federal Reserve lowers interest rates, REITs will see lower expenses and higher profits. 

There are lots of REITs to choose from.  Regardless, I am fond of low income multi-family real estate.  More specifically, I like mobile home parks.  There are multiple reasons why I believe investing in mobile home parks is a good long term strategy. 

One reason I like mobile home parks is that mobile home parks tend to be fairly recession resistant.  This is because mobile home parks provide extremely affordable housing.  And during a recession people will still need affordable housing. 

In fact, I personally own a mobile home park.  In addition, I am constantly on the lookout for an opportunity to purchase another such investment. 

Although I tend to avoid investing in individual companies, there are three REITs I recently began a position in.  These are Sun Communities, Inc, Equity Lifestyle Properties, Inc. and UMH Properties Inc. The article ‘Manufactured housing REITs: Find Shelter Amid Volatility’ provides some great information.

I mention these REITs not as a recommendation, but simply as a way to share some of what I am doing. 

In fact, it is worth noting these REITs have PE ratios that are significantly higher than what I would normally look for. This is true even after the 2020 market crash.  Nevertheless, I have a level of confidence in the mobile home park market.

Real Estate and REITs Risk

All investment types come with risk.  Real estate is not different.  And within real estate, there are different types of real estate.  As mentioned above, I prefer income real estate.  Yet, that can still mean strip malls, apartment complexes, office space, etc. 

Consider that the Coronavirus pandemic may continue to demand social distancing.  In such case, people would stop going to strip malls, coffee shops, offices, and to other similar commercial real estate buildings.  If things persist, business owners may find themselves with little or no income to cover their rent payments.  All of which could result in lack of income to the property owner.  And the end result could very well be property owners defaulting on their loans. 

Although vacancies within multi-family real estate are unlikely during the Coronavirus pandemic, the financial risk could still be devastating.  Tenants forced to stay home due to the Coronavirus may not have enough income to pay rent.  And as a result, property owners may find themselves unable to pay their loan obligations 

Thus, even multi-family real estate comes with a risk.  But, let’s bring things back full circle; if you have the resources to purchase real estate, when others are defaulting, then you’ll be in a great financial position.

Gold Opportunities

Although gold has also taken a hit in this 2020 market crash, gold remains in a bull market.  Gold’s current bull was born in December 2015.  Recently, gold reached a high of $1,674 per ounce.  And this week gold reached a low of $1,456 per ounce.  That’s a drop of 13% from its high. 

This drop in gold’s price pales in comparison to the drop in the stock market. 

Gold is falling because investors are clueless as to what is coming. Their mindset is similar to that of central bankers. They have no idea how bad the consequences of the current monetary & fiscal policy mistakes will be. When they figure it out en masse, #gold will skyrocket.

— Peter Schiff (@PeterSchiff) March 16, 2020

Even more interestingly, gold appears to have found support at the $1,450 level. 

Again, it is difficult to forecast how gold will perform in the future.  This is especially true when government intervention could change things drastically at any time. 

Yet, from our earlier discussion it seems likely that any government intervention could actually result in an oversupply of cheap cash.  All this cash can easily result in inflation.  And when paper currencies lose their value, gold becomes more valuable. 

Gold Stock Opportunities

Gold stocks in particular appear poised to shoot up.  First, as can be imagined, gold stocks go up when the metal itself goes up.  The obvious reason is that gold miners make more money when gold prices go up.

Nevertheless, over the last few months gold stocks have not followed gold’s climb.  This disconnect won’t last long.  Just this week gold stocks seem to be moving in tandem with gold prices, as they should. 

Second, one of the largest costs related to gold mining is fuel. With the oil price wars between OPEC and Russia, oil prices are way down and are likely to remain down.

In fact, the combination of higher gold prices and lower fuel costs is a dream come true for gold mining companies.  Many of these companies were already in position to show a very profitable quarter.  Well, the future could be much brighter with even higher gold and lower fuel prices.

Third, when stock traders were running to the exits due to the 2020 market crash they also sold gold stocks!  In fact, gold stocks got hammered last week, despite their strong fundamentals.  Some gold stocks are currently trading at very low PE (price to earning) ratios. 

As should be evident to keen investors, the current market conditions are very bullish for gold and extra bullish for gold stocks. 

Gold and Gold Stocks Risk

One potential risk for gold and gold stocks is the uncertainty that comes from government intervention.  Although it appears government intervention is more likely to be bullish for gold, no one knows what governments will do next. 

And for sure, no one knows how the markets will react to government intervention.  Herd mentality could cause gold and gold stocks to sell despite these having terrific fundamentals.   

What Gold Stocks to Buy?

When reviewing gold stocks I personally prefer to stay away from individual stocks.  I prefer gold mining ETFs such as GDX or GDXJ. The latter one is for junior mining companies, where the risk and reward is definitely higher. 

The chart below shows GDXJ’s price over the last 6 months. Notice the huge drop last week! Yet, the companies represented by GDXJ are extremely well positioned to report great profits due to higher gold prices and due to lower fuel costs.

I began increasing my positions in GDXJ as of Friday of last week.  And I intend to continue to buy in incremental steps for as long as I see an opportunity there. 

If you prefer to invest in individual stocks, then the GDX’s holdings may be a great place to start.  In addition, Adam Hamilton’s most recent publication titled Gold Miners’ Q4’ 19 Fundamentals is a great place to start. 

Disclosure

As much as I love this researching this and other financial subjects, keep in mind I am not a financial advisor, not a professional in this space.  Simply, I am an investor with a passion for learning and for sharing from my own experience.  As such, I can’t give you financial advice. 

Moving Forward

If you’d like to learn more about gold I highly recommend the article titled Reasons Why You Should Own Gold .  And if you’d like to learn more about real estate, I highly recommend the article titled How to Improve Creative Thinking in Business to get Win-Win Deals .

Finally, if this article has helped you in any way, please post a comment below.  In doing so, you will likely be of help to others visiting this website.  In addition, please consider sharing this article in your favorite social media platform.  You can also follow me on Twitter at @Cash_Keen.