Many investors that we talk to including Family Offices and Private Equity Funds have taken a risk-off posture going into the current stagflationary environment and are hiding out in “safe havens” like money market funds and short-term U.S. Treasury notes. In fact, The Wall Street Journal said about $186 Billion flooded into money market funds in the first quarter of 2023, the highest level since 2007.
Historical data however suggests these safe haven vehicles may not actually be the best place to be in going into a recession.
A Chicago-based investment firm just released research that indicated private real estate offers historically higher and just as stable returns in troubled economic times. They showed real estate actually outperformed US Treasuries, in periods that included the last three economic crises – from the early 1990’s recession, to the dotcom bubble that burst in 2000, and the infamous Great Financial Crisis of 2008!
Gathered from data from the National Council of Real Estate Investment Fiduciaries and the Treasury Department, private real estate generated a 5.9% annualized return versus 3.8% annualized return for Treasuries over the three seven year periods that included recessions, and 5.6% annualized for real estate versus 3.5% for Treasuries over the same 10 year periods.
While there is certainly value in being able to sleep well at night sitting in Treasuries earning 4-5%, it may not be appropriate for investors with a long-term horizon seeking to grow their wealth, keeping up with inflation, not to mention the tax benefits that come with investing in recession resistant apartment complexes.