What Are the Best Income-Producing Assets for Self-Directed Investors in 2023?
It’s no secret that investors are jittery this year. Although the S&P 500 is up about 6% at the time of this writing, rapidly rising inflation, recession fears, and ongoing market volatility have many investors nervous.
But while the stock market may be in flux, that doesn’t mean everything else is. As a self-directed investor, you have investment options far beyond traditional equities and bonds to make your money work for you.
No one can predict the future (I certainly can’t!), but reading the signs in the economy is one way to capitalize upon your self-directed investment strategy. Below, I share my thoughts on a few pertinent economic conditions that may shed some insight into the prospects for certain alternative asset classes in 2023.
Relevant Economic Conditions for Self-Directed Investors in 2023
Let me begin by stating that my analysis here is by no means comprehensive, nor is it set in stone. This article contains forward-looking statements that are naturally uncertain, so actual outcomes may be quite different than what I express here.
Additionally, I do not purport to provide investment recommendations or advice in any online publications, as every investor’s investment strategy is unique. Individual rates of return and investment outcomes depend on a multitude of factors that every self-directed investor should fully research and account for before making any investment.
With those disclaimers out of the way, here are a few economic trends I’m watching closely, as well as my thoughts on the ripple effects for alternative asset classes my clients are already investing in.
Interest rates and inflation
In an effort to curb inflation, the Fed has admitted they will risk a “self-inflicted” recession by continuing to raise interest rates in 2023. By the end of the year, we could see rates as high as 5-5.25 percent, according to the median forecast among Fed officials. The hope is that if higher interest rates are successful in tamping down inflation, a subsequent recession will be mild.
In the meantime, consumers and businesses are reckoning with the fact that leveraging debt isn’t as easy as it used to be. As interest rates rise and the high prices of real estate remain relatively steady, many homebuyers are finding themselves priced out of the market.
And while a self-inflicted recession may be milder than previous recessions, the fact remains that a recession is a recession. There will necessarily be painful repercussions for individuals and businesses alike. There’s truly no telling how long a recovery might take.
The labor shortage
Additionally, the US economy is continuing to suffer from a labor shortage. While the labor shortage is due to a number of factors, one of the biggest is a phenomenon known as the Great Retirement. Due to pandemic-related pressures, more than two million Baby Boomers have left the workforce. And as far as we can tell, they’re not planning to come back.
Unfortunately, there isn’t an easy way to replace the Baby Boomers with younger workers. Many Millennials and Gen Xers who aren’t working literally cannot afford to work, as the eye-popping costs of childcare or elder care for their aging parents continue to rise. Women, especially, are struggling to reenter the labor force due to caretaking burdens.
The labor shortage has a number of repercussions for the economy as a whole. For one, the labor shortage is aggravating the supply chain issue. Without workers, businesses can’t keep up with demand. So they have to slow production or reduce their service offerings, crippling their ability to grow and expand.
Secondly, the labor shortage is forcing employers to raise wages to attract the talent their way and retain their existing employees. Higher wages are certainly good for workers—US wages have been stagnating since the 1970s—but there is no doubt that increasing wages is further contributing to the problem of inflation.
What Are the Ripple Effects of Current Economic Conditions on Income-Producing Assets?
With all these conditions at play, smart investors are figuring out where they can best put their money to work given the changing economic landscape. It is undeniable that the pandemic has brought about long-lasting and possibly permanent changes to the workforce and the economy as a whole. It’s up to investors to figure out how they’re going to adapt to those changes.
While every investment you make carries an element of risk (there are just so many things at play), some asset classes may be particularly poised to do well given current economic conditions. So, what are the best income-producing assets to own in 2023? Here are my top four:
Self-storage facilities
Foreclosed property
Robotics equipment leasing
Medical equipment leasing
1. Self-Storage Facilities
Rising interest rates and high property values are making it more difficult for people to buy homes right now. Whether it’s young couples looking to accommodate a growing family, single homeowners bringing in roommates to help pay for the mortgage, or elderly parents moving in with their kids to save money on care costs, many families are choosing to make do with smaller living spaces.
This means that while household sizes are expanding, the sizes of the houses themselves are not. People need a place to put all their stuff as they make the best of living in the properties they have. And they’re using self-storage facilities to do that. Self-storage investors who own facilities in highly desirable areas may stand to benefit from these economic conditions.
2. Foreclosed Property
Property foreclosures are also starting to pick up due to the end of the pandemic-related foreclosure moratorium and mortgage forbearance options. As real estate prices remain high, investors may turn to foreclosed properties to continue growing their real estate portfolios.
Lenders want foreclosures off their books, so they’re usually sold at a discounted rate compared to non-foreclosed properties. Plus, foreclosures are often big projects requiring significant capital and labor to rehabilitate. These projects can be too costly (and intense) for the average homebuyer, so there may be less competition for these properties than there is for others.
For real estate investors who are prepared to take on the challenges of foreclosed properties, the rewards can be well worth it. Rehabbing foreclosed properties into long-term or short-term rental units (depending on the market conditions of the property’s location) can be a good way to generate income for decades in retirement.
3. Robotics Equipment Leasing
The labor shortage means that businesses are having to figure out how they can continue to offer their products and services without relying on human workers. Furthermore, rising interest rates mean that it’s more expensive for business owners to leverage debt to reinvest in the business. Financing their own robotics equipment simply isn’t feasible—or desirable—for many businesses at this point in time.
As artificial intelligence (AI) technology continues to evolve, I predict that robotics equipment will become smarter with greater capabilities and applications every year. Once it’s time to upgrade, it’s too expensive for businesses to dispose of their own outdated robotics equipment. It’s typically better for them to hire an equipment leasing company to take care of installation, maintenance, and disposal.
These combined factors make it a potentially excellent time to invest in robotics equipment leasing. As a self-directed investor, there are many ways to get in on the robotics equipment action. You can invest in equipment leasing funds, equipment leasing private equity companies, or even the physical assets themselves.
4. Medical Equipment Leasing
Another equipment leasing opportunity lies in the medical field, as 2022 saw incredible medical technological advancements. Virtual reality devices, neurotechnology devices (also known as neurodevices), and 3D printers are just three examples of technological innovations in the medical field. And they are all going to require healthcare institutions to make use of modern medical equipment.
Furthermore, healthcare is one of the hardest-hit industries in terms of the labor shortage. (In fact, this problem has been ongoing for years. The Coronavirus pandemic just exacerbated it.) For this reason, healthcare facilities may be turning to more medical equipment solutions to help replace the healthcare workers they simply can’t find.
As with robotics equipment, medical equipment leasing companies can provide cost-effective ways for healthcare facilities to gain access to breakthrough technology and better serve their patients. These factors all point toward a bright future for investors who hold medical equipment leasing interests in their portfolios.
Recession-Proof Your Retirement Savings with Income-Producing Assets
Investing your entire nest egg in stocks and bonds leaves you at the mercy of the markets. And for some people, they’ve had enough. They demand more security. To get that security, they’re turning to income-producing assets.
I’ve said it before, and I’ll say it again. No one can predict the future. But what you can do is take steps to diversify your portfolio beyond stocks and bonds. Many alternative assets are significantly more stable than the stock market and can actually help you hedge against volatility without sacrificing the potential for high returns.
Furthermore, income-producing assets provide you with more predictable revenue streams. As a self-directed investor, you can earn more reliable income in retirement from monthly rents on your real estate assets or leasing payments from your robotics equipment. Income of this sort can help offset any income fluctuations you experience from your assets in the stock market and allow you to more accurately plan for your future.
Grow Your Self-Directed Investment Portfolio
The foundation of self-directed investing is to invest in what you know. As you’re watching market conditions unfold, consider the domino effects of those conditions in industries you’re already familiar with.
And instead of waiting for the stock market to return to normal—whatever the new “normal” will look like—put your investment dollars to use in assets that will generate income for years down the road.
At Chicago Trust Administration Services, I’ve helped clients invest in all the assets above and more. With more than three decades of experience, I can help you navigate the complexities of self-directed investing by simplifying the process, operating at lightning speed, and ensuring your transactions are IRS-compliant. To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.