What Asset Classes (Besides REI) are you looking at in 2022?

Question

It's 2022 and the market is frothy in a lot of different asset classes. I'm a long-term investor, and I do most of my investing in stocks and real estate, because I believe that over a very long period of time, they will outperform other asset classes. But, I wanted to see what others think in the coming year or two. Where are you investing?

Here's my take (lots of hard choices here):

- Stocks, even with a little bit of a dip, are near all time highs with respect to P/E ratios. I'm heavily invested here in spite of this, because I believe that companies are likely to continue to increase profitability and handle inflation well over the long-term. But I am worried at some point about a period of relatively flat growth here, especially in a period of high inflation and rising interest rates.

- Similarly, Medium to Large Private businesses / private equity seem at all time highs in terms of multiples and valuations, perhaps edging back a hair from where they were a year ago

- I've long thought that small private businesses, especially in the services sector are poised to do very well as an asset class (lots of opportunity to buy businesses for 1-3X Cash flow in this space). I'd be looking here if I weren't leading BiggerPockets honsetly.

- Bonds seem like a bad bet as an investment with interest rates seem poised to increase for the forseable future

- Cash seems like a poor choice, with inflation currently high and I believe likely to continue

- Cryptocurrency is super volatile and while everyone has a great argument for this currency vs the other one, it seems like anybody's guess as to which coins will actually be widely adopted long-term

- Gold and commodities, like energy, seem interesting and like they might do well with challenges in the supply chain and inflation looming.  But with a long-term focus, it seems hard to believe that these assets will outperform businesses and real estate over long periods of time.

- Real Estate is both scary and attractive. It seems like there are huge supply/demand imbalances driving price and rent growth, but also more starts coming into the market and interest rates rising. I'm heavily invested here because I believe the pros outweigh the cons, perhaps like many folks in this forum.

Anything I'm missing? What do you all think?

Aaron Breckenridge · Answer

I think crypto and de-fi will be interesting to watch the next 5 years. I have zero investments in either. Right now, crypto is a terribly expensive and inefficient way to store and transfer value. The transaction fees are ridiculous compared to non-crypto currencies. And it really wouldn't take much for a large and capable nation to destroy crypto via a 51% attack, which I think people are kind of blind to that possibility.

Eric Bilderback · Answer

Rolexes, guns and ammo

But 90% Real Estate.

Lucas Bernard · Answer

I am trying to invest in a house-hack by the end of the year, and have been wondering the same thing as you. I'm trying to settle on a short term investment strategy though, as I want to fund my RE project around Feb '23. I personally think crypto is a good move long term though, and I think it's already been adopted by a considerable portion of both the market and financial institutions.

Bjorn Ahlblad · Answer

We have stocks and index funds but they really are not where it is at for us. REI is the thing that is funding our retirement-we are doing very well I might add.

We are in cash even though there is no return today cash enables you to quickly take advantage of an opportunity if one arises. It is difficult to find REI in our area today that measures up-and yeah I know that is what everybody says.

Denver McClure · Answer

@Scott Trench Adding to your views on crypto, I'd suggest Web3 and DeFi as reasons to invest in the asset class. Personally, and as an Investment Advisor, I stick to various index funds over individual stocks due to the risk and historical performance between passive indexing and active trading. However, in crypto you could assume that a blockchain that supports Web3, DeFi, and is an industry disruptor would be a viable investment for a small allocation of your portfolio. I'd rather take the volatility and speculation with one crypto over one stock. An example that comes to mind is the Helium blockchain, although there are several more projects that fit that criteria.

The only category I think your missing is leverage. I believe this is a common category people don't consider when investing. As we know in REI, you can use HELOCs and Cash Out Refi's to access cash (at a cost) to do more deals. Well we can do nearly the exact same thing in our Individual or Joint Taxable accounts. We can continue to invest (ideally dollar cost averaging into Index funds) in those accounts, then utilize a Margin Loan (sometimes called line of credit) to access cash at an even lower rate then HELOCs or hard money lenders can offer. I recently completed an ADU Airbnb renovation just using my Margin Loan at 2% interest, without having to sell any of my ETFs. Good examples of brokerages that offer low cost Margin Loans are Interactive Brokers and M1 Finance.

You might call this a self-lending strategy. This allows us to build our portfolio, increase our leverage, then utilize that leverage on a rental property for example. It's all about preparing our finances and purchasing power for the next deal!

What Asset Classes (Besides REI) are you looking at in 2022?

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