Recession vs Depression: Navigate Market Volatility

When it comes to investing, understanding the differences between a recession and a depression is helpful nuance for navigating market volatility, mitigating risk and capturing opportunities. An economic downturn can cause concern and confusion among even the most skilled investors, so having strategies in place to minimize risk and capitalize on opportunities becomes crucial. The comparison of recession vs depression, two terms that describe periods of economic decline, has distinct characteristics and impacts on the market. By grasping these differences and implementing strategies to navigate market volatility, investors can make informed decisions and protect their assets. Let’s go over the essential differences between recessions and depressions and provide strategies to navigate market volatility. 

 

Recession vs Depression: What’s the Difference? 

Recession: A Moderate Economic Downturn 

A recession is a significant decline in economic activity lasting for a relatively short period. It is characterized by a slowdown in economic growth, a contraction in business activity, and an increase in unemployment rates. During a recession, consumer spending tends to decrease, so business revenue and profit margins decrease, too. 

Recessions can be caused by various factors such as high-interest rates, reduced consumer spending, natural disasters, or financial market crashes. One significant historical example is the 2007-2008 recession, which was primarily triggered by the bursting of the housing bubble and subsequent financial crisis. However, it is important to note that every recession has its unique combination of factors and causes. 

Key indicators of a recession include declining GDP (Gross Domestic Product) for two consecutive quarters, a rise in the unemployment rate, and a decline in consumer confidence. Recessions can be caused by factors such as a significant shift in supply demand dynamics, employment market volatility, geopolitical instability, inflation, trade disruptions, and financial market crashes. 

During a recession, investors face unique challenges and considerations. The reduced consumer demand during this period can directly impact businesses and subsequently affect the stock markets. Therefore, it is crucial for investors to closely monitor the financial health and performance of the companies they have invested in or are considering investing in. Stock markets often experience increased volatility, with prices fluctuating based on investors' perceptions of the overall health of the economy. 

To mitigate risks during a recession: 

  • Diversify your investments and focus on defensive options. 

  • Research and select investments with strong financials and a history of resilience. 

  • Maintain a long-term perspective and avoid reacting to short-term market fluctuations. 

  • Stay informed and monitor the financial health and performance of your investments. 

  • Keep a cash reserve to provide a buffer in case of emergencies or investment opportunities. 

  

Depression: A Severe and Prolonged Economic Downturn 

A depression is a more severe and prolonged economic downturn . While there is no universally agreed-upon definition of a depression, it is generally characterized by a significant decline in economic output, widespread unemployment, and a lasting impact on various aspects of the economy. characterized by a significant decline in economic output, prolonged periods of reduced economic activity, a significant decline in GDP, widespread unemployment, and a lasting impact on various aspects of the economy. Unlike a recession, a depression extends beyond a few quarters and can last for several years or even a decade.  

Depressions typically have a cascading effect on the economy. Job losses lead to reduced consumer spending, which dampens business activity, leading to further job losses. The cycle perpetuates itself during the economic downturn and creates uncertainty, fear, and distrust in the overall economy. 

Depressions are often accompanied by massive bankruptcies, widespread business closures, and financial crises. Stock markets can experience significant declines, causing widespread investor apprehension. Governments often intervene by implementing fiscal and monetary policies to stimulate economic growth and stabilize the financial system. 

Investing during a depression can be challenging but here are a few tips: 

  • Assess your risk tolerance and invest accordingly. 

  • Diversify your portfolio across different asset classes. 

  • Stay informed and adapt to changing market conditions. 

  • Maintain a long-term perspective and avoid reacting to short-term fluctuations. 

  • Evaluate investment opportunities selectively. 

 

Multifamily syndication investors saw stable rental income during the economic downturn.

 

Navigating Market Volatility through Multifamily Syndication 

Though we are not in a recession or depression at the time of this writing, it is always important to protect your assets against market instability. At CF Capital, we operate with a long-term viewpoint at all times, and recognize that we operate in a cyclical investment class that goes through various phases of the market cycle: expansion, hyper supply, recession, and recovery. In the event of a potential downturn, multifamily syndication can be an effective strategy to achieve risk mitigation and wealth protection. By pooling capital from multiple investors to acquire and manage larger real estate properties, such as apartment communities, investors can gain access to steady cash flow, diversification, professional management, tangible assets, tax benefits, passive income, and potential for appreciation. 

During periods of economic turbulence, multifamily syndication can offer a safe haven for elite investors looking to protect their assets and generate stable returns. The consistent rental income generated by these properties can offset the impact of economic downturns, and investors can benefit from the expertise of professionals who manage the properties on their behalf. 

There have been historical instances where multifamily investing during a recession or depression has proven to be a wise investment strategy. One example is the Great Recession of 2008. During this time, while the housing market experienced a significant downturn, the multifamily real estate sector remained resilient. 

Investors who had allocated their capital into multifamily syndications found that the consistent rental income from residents helped offset the impact of the economic downturn. Additionally, the demand for rental properties increased as individuals and families affected by foreclosures or financial hardships turned to renting instead of owning homes. 

 

Explore Multifamily Syndication Opportunities with CF Capital 

Understanding the differences between a recession vs depression and having strategies to navigate market volatility is crucial for investors. By investing in multifamily syndication, individuals can protect their assets during economic downturns. 

At CF Capital, we specialize in multifamily investments and leverage our expertise in acquisitions and management to deliver superior risk-adjusted returns. Our primary focus is on prioritizing the preservation and growth of our investors' capital. We are committed to protecting your financial security and building lasting partnerships. With our track record and dedication, we strive to be a reliable option for investors seeking more exposure to the multifamily real estate market. 

Take the next step and explore the multifamily syndication opportunities with CF Capital today. 

 

Elevate Your Invesment Portfolio with this infographic outlining 9 key benefits of investing in multifamily real estate

 

Investing in CDs vs Multifamily Syndication

Investing in CDs vs multifamily syndication, which one is better? Understanding the key differences between CDs and multifamily real estate can be an example that helps you decide where to invest your capital. These investment strategies offer a range of differing benefits and risks. Let’s take a look! 

 

What is Investing in CDs? 

When you open a CD (Certificate of Deposit), you agree to entrust a certain amount of money with a bank or credit union for a/over fixed period of time: generally ranging from a few months to several years. In return, the bank or credit union agrees to pay you a guaranteed interest rate on your deposit during the term of the CD. This is different from a savings account since the money must not be withdrawn for the entirety of the term. Generally, CDs have a higher interest rate than a savings account, however, the rate of return is typically lower than other investment types. CDs are still appealing, though, because they are considered a safe and predictable investment with minimal risk. 

 

What is Multifamily Syndication? 

Multifamily syndication is a real estate investment that is a way for investors to pool their capital into a larger real estate project, such as an apartment complex or other types of residential or commercial properties that have multiple units. In this type of investment, a professional real estate sponsor researches and identifies a real estate investment opportunity and then invites multiple investors to contribute their capital to passively invest alongside the sponsorship team. The best part of this type of investment is that you will not be responsible for managing the property, leasing, and dealing with the many day-to-day issues. Instead, the sponsor will manage the investment on your behalf. You can receive returns in the form of positive cash flow generated by the property and from the appreciation of the property’s value over time. 

Multifamily real estate syndications can be an attractive investment option for investors looking to diversify their portfolio without the responsibilities of property management. It can also provide access to larger, higher-quality real estate assets that may not be available to individual investors. 

 

Investing in CDs vs Multifamily Syndication: Which is Better? 

Risk and Return: Multifamily investments have higher risk and higher potential returns; whereas CDs are low-risk investments with a low rate of return. According to the National Council of Real Estate Investment Fiduciaries (NCREIF) report, the return rate for multifamily real estate investments was 7.52% over the past 10 years, while CDs typically provide a lower rate of return: usually 1% to 2%. 

Liquidity: CDs are very liquid, which means you can withdraw your money at any time, however, if you withdraw your money before the fixed period, you may have to pay a penalty. On the other hand, multifamily real estate is illiquid, which means it can be difficult to sell your stake quickly. Typically, real estate investment takes more time and effort to sell compared to liquid assets. 

Management: Both require little management. CDs require you to simply deposit your money and wait for the CD to mature; multifamily syndication management responsibilities are handled by the sponsor. 

Diversification: CDs investments are stable and diverse, but they’re low-risk, and therefore low-returning. Multifamily real estate investments also provide diversification with the potential for high returns, especially since they are not directly tied to the stock market or other traditional investments. 

 

CF Capital: Your Investment Partner 

Ultimately, the decision between CD investing vs multifamily real estate investing depends on your goals and risk tolerance. However, if you are looking to make the most out of your capital, then multifamily investment may be the right investment opportunity for you. When you invest alongside the CF Capital team, we will be committed to maximizing your returns and minimizing the risks associated. Get in touch with CF Capital to see how we do it and get started on passively investing with us.  

The Two Types of Inflation: What You Need to Know

Inflation refers to the rising prices of goods and services, which typically happens gradually, however, the current inflation rate is far from gradual. At the time of this writing, the country is dealing with two types of inflation: demand-pull inflation and cost-push inflation, both influencing your purchasing power. Let’s discuss these types of inflation, the conditions that cause them, and how investors like you can hedge against them.

What is Demand-Pull Inflation? 

Demand-pull inflation is the most common cause of inflation. It occurs when the aggregate demand for a good or service exceeds the aggregate supply. Sellers can meet that increase with more supply, but if the additional supply is unavailable, then the sellers can raise their prices. If something is in short supply, sellers will generally ask people to pay more for it.  

There are a few reasons why demand-pull inflation occurs, this includes: 

  • Growing economy: When the economy is booming and unemployment is low, consumers typically earn and subsequentially spend more money. This drives up aggregate demand throughout the economy, which can lead to higher prices. 

  • Government spending: Government response to economic conditions, including providing a stimulus during the economic downturn or providing tax breaks can impact how much money people spend on goods and services. When the government spends more freely, prices typically go up. 

  • Inflation expectations: Inflation expectation refers to the rate at which people expect prices to rise in the future. When consumers expect inflation soon, they tend to start buying more now to avoid paying higher prices later.

What is Cost-Push Inflation? 

Cost-push inflation is a result of supply conditions, rather than demand. It occurs when the costs of delivery products or services increase, but demand is unchanged. Cost-push inflation often happens alongside demand-pull inflation. When raw materials prices increase, then businesses raise their prices to maintain profit margins, regardless of the demand.

For example, let’s say you love steak tacos from your favorite restaurant, but the price of beef keeps going up. Eventually, they will have to raise the prices of their tacos regardless of demand. 

Another cause of cost-push inflation includes increased labor costs. This happens when there is a mandatory wage increase for production employees causing product prices to increase. Also, a work strike will likely lead to a decline in production. Natural disasters and government regulations can also make an impact. 

How You Can Hedge Against Inflation 

Inflation is a decrease in your purchasing power and the decrease in the value of each dollar in your pocket. This means it takes more money to buy the same product, asset, or investment. A growing economy will bring with it steady inflation, but economists and consumers prefer to see prices rise slowly, unlike what is happening now. When inflation increases faster than usual, consumers tend to worry about paying higher prices for gas, groceries, rent, and other products and services. 

Fortunately, there is a way to hedge against today’s current inflation, and that is investing in multifamily properties. Though any investment property can be a good hedge against inflation, investing in multifamily provides more protection due to the nature of the asset. Generally, rents reset every 12 months, and rent typically outpaces inflation. Those who live in multifamily communities are obligated to their lease, and over time the rent (and other income generated) can pay for the investment itself plus excess cash flow.  

 

Though inflation is currently rampant and at a historically high rate, you can use real estate to hedge against inflation to protect your capital and purchasing power, along with so many other financial benefits. At CF Capital, our experienced team can help you invest in the future. So, if you are ready to explore your options to passively invest in real estate, get in touch with us.