Buy-and-Hold Investing: The #1 Choice for Savvy Investors

Attempting to time the market frequently leads to underperforming portfolios and disappointed investors. Yet employing buy-and-hold investment strategies, incorporating long-term alternative investments, and carefully monitoring progress against specific life goals can lead to a wealth-generating portfolio with the potential for long-term success.

Investopedia puts it this way: “If volatility and investors’ emotions were removed completely from the investment process, it is clear that passive, long-term (20 years or more) investing without any attempts to time the market would be the superior choice.”

Image credit: Betterment.

As the best gardeners know, reliable, long-term growth takes time and careful cultivation. The same is true for a successful portfolio: investors need long-term professional management that works behind the scenes, along with a diverse blend of stocks and alternative investments such as private equity real estate. At JTOO Ventures, we plant capital into fertile, high-yield opportunities so our investors can passively monitor their growth and free themselves from the stress and anxiety of trying to time the market.

The Unbearably High Cost of Market Timing

Market timing is an investment strategy in which investors attempt to predict the market’s future performance. Usually, investors make these predictions based on speculation, past performance, or mathematical assumptions. Unfortunately, studies have shown that “past performance was not an indicator of future outcomes 96.22% of the time,” hence why most mutual funds come with fine print that reads: “past performance is not an indicator of future outcomes.”

Image credit: Wake Forest University.

Still, many investors blatantly reject well-documented research and continue to predict how the market and specific industries and funds, will perform. Using those predictions, investors then make decisions about when to be in the market and when to get out. Although market timing allows for potentially higher returns, there are a number of reasons why the practice is not recommended even for professional investors.

According to Merrill Lynch, “One of the biggest costs of market timing is being out when the market unexpectedly surges upward, potentially missing some of the best-performing moments.” Essentially, if an investor misreads the market and isn’t invested during peak months, they could incur huge losses.

In addition, even the brightest minds don’t have a great track record when it comes to analyzing and predicting market trends. Data from numerous sources, including the SPIVA U.S. Scorecard from the S&P Dow Jones Indices, shows that active managers frequently underperform. During a 15-year period, “92.2 percent of large-cap managers missed their marks, while the number was 95.4 percent for mid-caps and 93.2 percent for small-caps.” In Dalbar’s 22nd Annual Quantitative Analysis of Investor Behavior, the data “shows that when investors react, they generally make the wrong decision.”

Image credit: Gensler.

Disciplined Advisors Prefer Buy-And-Hold Investing

With the well-documented pitfalls of market timing, many sophisticated investors are now demanding buy-and-hold investment strategies. As the name suggests, this long-term approach involves buying and holding investments for a long period of time, which allows the market to move through its natural cycles without negatively impacting your portfolio.

Buy-and-hold investing is an excellent complement for goal-based investors, as it requires looking toward the future instead of being fixated on outperforming the stock market today. Hugely successful investors like Warren Buffett and Peter Lynch are often remembered for their buy-and-hold investment approaches. Their strategies focus on the long-lasting, underlying value of each investment, not its day-to-day market swings.

In a CNBC interview, Buffett discussed why buy-and-hold strategies are the most successful approach. According to the billionaire and philanthropist, “The money is made in investments by investing and by owning good companies for long periods of time.”

Of course, the buy-and-hold investment strategy still requires ongoing maintenance and professional management. Yet this long-term strategy has proven to be significantly more successful than attempting to time the market. The Dalbar study clearly finds that disciplined investors with long-term time horizons are more likely to reap the rewards that the market has to offer.

Menlyn Link – Johannesburg, South Africa

Why Long-Term Investors Choose Private Equity Real Estate

So where do buy-and-hold investors like to put their money? Actor Will Rogers puts it best: “Don’t wait to buy real estate. Buy real estate and wait.” Private equity real estate is extremely well-suited for long-term, buy-and-hold investors. Since real estate prices aren’t correlated to the cycles of stocks and bonds and are driven more by supply and demand than market speculation and timing, returns are higher compared to other alternative investments with similar expected risk.

Not only is real estate less volatile than the stock market, it’s also more predictable: many investors trade stocks speculatively, but when you invest in real estate, you are investing in a physical piece of land—a tangible building with a solid underlying value. As the world population continues to rapidly grow, so does the demand for high-quality real estate, especially in the main metropolitans of the fastest growing cities.

When exploring how the length of an investing period impacted annual returns from 1928 to 2014, Betterment clearly demonstrated: “Amongst all the edicts investors should heed, one stands out above all others: It’s time in the market that builds returns, not market timing.”

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9 Reasons Why Investors Love Real Estate

Illovo Central – Johannesburg, South Africa

The market is an unpredictable beast. In a bull market when funds are performing well and optimism is high, investors try to time the market and pour money into stocks hoping to strike big. Yet when the market inevitably dips, people who are solely invested in stocks and bonds face huge losses.

To weather the stock market’s instability, many sophisticated investors—from ultra high net worth individuals to public pensions—seek alternative investments with high returns and low volatility. Unsurprisingly, real estate has emerged as their investment of choice. Due to its unique characteristics, long time horizon, and creative methods for yielding high returns, private equity real estate remains a solid investment with great upside.

Here are some of the most notable advantages of real estate investments.

1. Cash Flow

Disciplined investors know that real estate is an excellent long-term investment, but that doesn’t mean they’re giving up short-term benefits. One of the biggest advantages of real estate investments is they generally provide a regular stream of rental income that’s higher than typical stock dividend yields. This passive cash flow is one of the main reasons investors prefer real estate. Rental income can make up about half of the returns on real estate investments and can help you build equity in your property.

Coral Point –Umhlanga, South Africa

2. Leverage

With a little creativity, real estate provides investors with many unique ways to leverage their money to build wealth. For instance, mortgages let investors purchase real estate with a relatively small initial investment. Rental income generally pays down the mortgage each month and these investment opportunities continue to appreciate with time. Investors can also utilize the equity value of their real estate investment by taking out a home equity loan to get cash or a home equity line of credit (HELOC).

Menlyn Link – Johannesburg, South Africa

3. Tax Shelter

Real estate investments provide significant tax sheltering, which is essential for high net worth individuals to wisely protect and significantly grow their wealth. Robert T. Kiyosaki said it best: “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” Rental income is not subject to social security and Medicare taxes, and depreciation and mortgage interest deductions work in an investor’s favor. Lastly, the IRS doesn’t tax real estate appreciation, providing an incentive to hold real estate long term to minimize your tax exposure.

Northern Lights – Sandton, South Africa

4. Diversification

Private equity real estate investments aren’t correlated to stock market fluctuations, which makes them an excellent choice for goal-based investors. Real estate investments can remain unaffected despite market volatility. Because they achieve different investing goals than traditional stocks, private equity real estate is a great way for savvy investors to diversify their portfolio.

The Vogue – Cape Town, South Africa

5. Appreciation

Known for its excellent appreciation, real estate is an investment opportunity that’s well-suited for individuals with a long time horizon. A number of factors—both internal and external—contribute to real estate appreciation. In Cape Town, South Africa, the country’s unique geographical features have resulted in a fixed supply of real estate. As demand naturally increases, real estate prices have soared, providing an incredible investment opportunity.

In terms of internal factors, investors can make smart improvements that tangibly improve the value of their real estate investments. While there may be short-term dips in real estate, disciplined investors who seek a long-term investment will almost always see their investment opportunities appreciate.

Ridge 7 – Umhlanga, South Africa

6. Security

Unlike stocks which fluctuate and are dependent on numerous factors that are entirely out of your control, real estate investments offer more security and peace of mind. Like gold, oil, and diamonds, real estate is a hard asset with meaningful intrinsic value; both the property and the land on which it sits provide value. Therefore, “By choosing the location and asset quality wisely, investors can benefit from the security of knowing that they own an asset that has the potential to earn income regardless of what happens to the existing tenant(s).”

Obs Court – Cape Town, South Africa

7. Improvable

As mentioned above, stocks and bonds are tied to a number of factors, many of which are completely out of your control. Real estate investments, on the other hand, are improvable. Selecting responsible tenants, proactive management policies, appealing marketing campaigns, creative financing strategies, cost-effective and strategic improvements to structure and aesthetics—all of these can impact your investment property’s value and make a long-term, positive impact.

35 on Main – Cape Town, South Africa

8. Tangible

Famous real estate investor and philanthropist Louis Glickman’s simple words help explain why people have been drawn to real estate for all of history. He says, “The best investment on earth is earth.” While purchasing stock in a company does entitle you to a tiny slice of “ownership,” in reality your position is shared by thousands of other investors. With real estate investments, you own a specific, physical building. You can look it up on a map, or point it out to friends and family as you drive past. The tangible nature of real estate gives owners a certain amount of pride that intangible investments just don’t have.

Zero2ONE Tower – Cape Town, South Africa

9. Hedge Against Inflation

Private equity real estate investments are a great way to hedge your portfolio against inflation. As governments across the globe print more money to stimulate the economy, inflation rises and the value of many goods and services struggles to keep up.

Real estate, however, is one of the few assets that reacts proportionately to inflation. When inflation rises, home values and rents generally rise with it. While nearly all real estate investments react this way, rental properties are especially effective since rents can be adjusted upward during inflationary periods.

Illovo Central – Sandton, South Africa

Real Estate: The Smart Choice for Savvy Investors

Providing consistent cash flow, greater security, and broad tax sheltering are just a few reasons why more sophisticated investors are adding private equity real estate investments to their portfolios. As part of a diversified portfolio, these investment opportunities offer long-term value and high returns regardless of how well the rest of the market is performing. With a rapidly growing global population driving demand, real estate investments are only going to become more lucrative with each passing year.

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Why Goal-Based Investors Are Looking to Real Estate

Zero2ONE Towers – Cape Town, South Africa

Think about your biggest dreams and goals. Perhaps you want to retire early and purchase a houseboat or vacation home for your family. Maybe you always had a business idea in the back of your mind and eventually want to bring it to life. Or maybe you want to ensure that when your daughter gets accepted into her dream college, you can afford to pay the tuition without scrambling for cash.

We all have different life goals and financial situations, which is why a one-size-fits-all investment approach simply won’t cut it. Instead, investment advisors recommend goal-based investing, which centers on the simple idea that your portfolio is successful when it can fund your most important goals.

Goal-Based Investing: The New Standard

In goal-based investing, we help clients identify specific life goals (and related time horizons) and then build a portfolio that suits those unique needs. Instead of reacting to short-term dips and spikes in the market, our long-term strategy and performance metrics are based on the progress being made toward our investors’ concrete goals.

This increasingly popular investment approach redefines the term “risk.” Jean Brunel, author of “Goals-Based Wealth Management,” explains how goal-based investors measure risk as “the probability of not achieving your goal,” rather than focusing on subpar returns. By shifting the focus away from beating the stock market, investors can better weather market volatility while knowing that their portfolio is designed to get them closer to their goals every year.

How Private Equity Real Estate Helps Investors Achieve Their Goals

Due to the long-term nature of goal-based investing, private equity real estate and other alternative investments are well-suited for such portfolios. As David Scherer, Principal of Origin, states, “advisers are taking a page from the real estate, private-equity playbook by timing their investments for maximum returns when the asset will be sold, rather than constantly chasing short-term gains.”

For many sophisticated investors, real estate is an excellent alternative investment due to its superior returns combined with lower volatility. By nature, Scherer claims, real estate is a goal-seeking investment: “Value-added real estate projects work long-term to create value in under-performing assets, building both an income stream and market value.” So when creating a diverse portfolio that’s meant to achieve long-term goals, private equity real estate is an excellent choice.

Ridge 7 – Durban, South Africa

Switching to a Goal-Based Investing Approach

While the exact details of our goals vary greatly from person to person, many investors share some of the same basic desires. These are frequently centered around some of the following categories:

  • Retirement – How do you envision your retirement? When do you want to retire? Do you expect your lifestyle to change once you’re retired?
  • Family – With rates increasing every year, will you have enough money to afford your son’s college tuition? Do you have enough money to keep up with your daughter’s traveling soccer team fees? We all know that children are expensive to raise, and this is one aspect of our lives where nobody wants to fall short.
  • Legacy – Will your family be taken care of when you leave this world? What will be left behind for your children? Are there charitable organizations that you want to support?
  • Leisure – Will you finally purchase the vacation home in Hawaii you’ve been talking about for years? What are your passions and hobbies? Where do you want to travel? How do you want to celebrate your life of hard work?

If you are tired of following the short-term rises and dips of the stock market and want to make sure that your portfolio is optimized for your biggest dreams, it’s time to make your money work for you. If you’re interested in using a goal-based investing approach, then ask yourself the following questions:

  • What are my biggest goals?
  • Is it time to update my portfolio to reach these goals?
  • Is my portfolio taking advantage of alternative investments?
  • Are traditional investments like stocks and mutual funds getting me closer to my goals?
  • Do I want to invest in the lucrative asset class of real estate?
  • How do I measure the success of my portfolio?

We complement goal-based investing with private equity real estate investments that provide higher risk-adjusted returns compared to alternative investments. By looking at your individual goals and assessing your tax situation, risk tolerance, and time horizon, we can suggest real estate investments that will help you achieve your goals and diversify your portfolio to win.

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Real Estate: The Alternative Investment Your Portfolio Needs to Win

Menlyn Link – Johannesburg, South Africa

As humans, we tend to stick with what we know and trust. Unfortunately, this tendency can prevent us from pursuing once-in-a-lifetime opportunities, taking calculated risks, and achieving our goals. At JTOO Ventures, we frequently notice this issue when we meet with prospective investors and analyze their portfolios. Most individuals simply aren’t taking advantage of the lucrative alternative investments that are available.

Donald Calcagni, chief investment officer at Mercer Advisers, a registered investment adviser based in Santa Barbara, California, sums it up pretty well: “People stick with stocks and bonds because that’s what they see every night on the evening news.”

Just because stocks and bonds are so well known, doesn’t mean they’re providing the best return on investment, which is why investment managers around the globe are seeking alternative investments to diversify their portfolios and outpace public equities. Nearly all top financial advisors recommend alternative investments for high net worth individuals, including a mix of private equity, hedge funds, managed futures, real estate, commodities, and derivatives contracts.

Real Estate: The Shining Star of Alternative Investments

“There’s no way to outperform the stock market by investing only in the stock market,” Calcagni says. So in order to achieve higher returns and surpass the limitations of the stock markets, investors are turning to alternative investments. This trend can be seen in a variety of sectors. For example, according to the National Association of College and University Business Officers, “managers of higher-education endowments now allocate a majority of their assets to alternative investments.”

Private equity real estate is quickly becoming the alternative investment of choice for sophisticated investors worldwide. Investment managers are incorporating real estate into their portfolios for superior returns at lower volatility. In its 2018 Public Pension Study, the American Investment Council (AIC) analyzed investment returns by 163 U.S. public pension funds and found that on a dollar-weighted basis, U.S. public pension funds invest 8.1% of their portfolios in real estate, with another 8.6% of the portfolios in private equity–a combined total of $578 billion. So why all the hype surrounding private equity real estate investments?

Since real estate prices aren’t correlated to the cycles of stocks and bonds, returns are higher compared to other alternative investments with similar expected risk. Plus, property values and rents generally keep pace with inflation. Rental income is also an important factor, as it makes up about half of the returns on real estate (appreciation is also a factor). Yet according to Brian Davis, “the most interesting case for real estate lies in its risk-reward ratio.”

Numbers Don’t Lie: Real Estate Is a Great Investment

When a team of economists from the University of California, Davis, the University of Bonn, and the German central bank reviewed over 145 years of economic data from 16 countries, they found that residential real estate provided extremely high returns with low risk. In fact, when compared to equities, residential real estate, short-term treasury bills, and longer-term treasury bonds, residential real estate had the best returns, averaging over 7 percent per annum. When measuring the investment’s Sharpe ratio (essentially a risk-reward ratio), real estate averaged 250% better than treasury bonds (0.2) and 185% better than equities (0.27).

Breaking Barriers: Why More Investors Are Choosing Real Estate

Numbers don’t lie, and the numbers are all pointing to real estate as an excellent alternative investment opportunity for discerning investors who seek higher returns. So why isn’t everyone investing in private equity real estate? Traditionally, there has been a high barrier to entry, which has kept many investors out of the residential real estate space: “The minimums to get into a quality fund are often too high for most investors — usually $250,000 per fund,” says Calcagni.

So while many investment managers have been championing real estate investments for some time, many investors simply haven’t been able to play ball.

However, our goal is to provide new ways of co-investing with lower minimums for savvy investors who understand the strategy of alternative assets such as private equity real estate and want to diversify their portfolios with higher return, lower volatility assets. Keeping factors such as risk tolerance, tax situation, time horizons, and objectives in mind, we can help you position your portfolio to win with a private equity real estate investment.

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Cape Town Luxury Real Estate Takes #2 Spot Worldwide

With double-digit growth in 2017, Cape Town’s luxury real estate market is the second-fastest growing in the world. The South African coastal city has long been an economic hub and is now making a name for itself as the real estate market of choice for ultra high net worth individuals (UHNWI) around the globe.

8.5x Growth in Cape Town Compared to Overall PIRI 100 Index

According to Knight Frank’s 2018 Prime International Residential Index (PIRI) 100, which tracks the movement of the world’s luxury residential property markets, Cape Town’s luxury real estate market grew a staggering 19.9% in 2017. Not only did it outperform the city’s wider mainstream market, but its growth has far outpaced the overall index, which increased by just 2.1% this year.

Cape Town’s high growth luxury real estate market has caught the attention of sophisticated investors worldwide. In May 2018, executives from the top 300 Japanese companies visited South Africa to take advantage of prospective investment opportunities. And they’re not the only ones heavily investing in the South African strategy. South African President Cyril Ramaphosa is set to raise $100 billion in new investment capital in just five years.

The Vogue – Cape Town, South Africa

Cape Town Outperforms 98% of PIRI 100 Cities

Cape Town’s rapid growth in the luxury real estate market has propelled it to the number two spot on the 2018 PIRI 100 Index. The economic hub outperformed a number of other notable cities, including Aspen (19%); Amsterdam (15%); Seoul (13.2%); Frankfurt (12.9%); Seattle (12.2%); Paris (12%); Sydney (10.7%); and Madrid (10.6%).

In fact, only the Chinese city of Guangzhou reported higher growth. Of the 100 cities on the index, two thirds reported flat or positive annual price growth in 2017, while only 11 cities, including Cape Town, enjoyed double-digit growth. Cape Town’s growth is virtually unmatched, making it an excellent investment for individuals who want the best return on their investment.

One of the most notable opportunities in Cape Town’s high growth luxury real estate market is the city’s relative value compared to other countries. In cities like Hong Kong, New York, and London, a million dollars won’t give homebuyers much: a reported 22, 25, and 28 square meters of prime property, respectively. In Cape Town, however, one million dollars will net buyers 127 square meters—about five times more than its foreign counterparts. With relatively less costs, high net worth and ultra high net worth individuals are coming here to get more for their dollar.

Zero2ONE Tower – Cape Town, South Africa

The Economics Behind the Boom

The mechanics of supply and demand helped fuel the recent market boom in Cape Town. On the supply side, there is a shortage of high-quality new and existing properties. Together, the coastline and iconic mountain range have made it challenging for investors to secure prime real estate in what has become an extremely competitive marketplace. Only large, well-established players are able to successfully navigate the landscape to capitalize on double-digit growth opportunities.

At the same time, demand is booming with both foreign and domestic buyers scrambling to get a piece of the pie. Specifically, Knight Frank noted that the area near Table Mountain, including the Atlantic Seaboard and City Bowl, had attracted a strong inward migration. While many South Africans are choosing to move to Cape Town, it’s also an in-demand city for the international community.

Since 2015, according to FIN24, “Cape Town has set South African records for both the highest-ever sale price achieved for a residential home  – R290m for a house in Bantry Bay – as well as the highest-ever rental price – R450 000 a month for an estate in Constantia.”

Zero2ONE Tower – Cape Town, South Africa

A Richly Diverse Coastal Hub

Cape Town is South Africa’s legislative capital and the second-most populous urban area in the country. The lush coastal city is a showcase of biodiversity (some of the greatest in the world) and a growing tech and startup community, making it a fresh, innovative, and welcoming environment for both international and local buyers alike.

According to Deon de Klerk, head of wealth for Africa regions at Standard Bank, “Cape Town is fast becoming a truly global holiday destination and an increasingly desirable residential address for [South Africa]’s high net worth individuals (HNWIs), as well as those from abroad.” In fact, the city was recently dubbed the Monaco of the South.

Investing in Cape Town

Despite marginal growth from many cities on the 2018 PIRI 100 Index, Cape Town is proving to be a dominant region for high-growth property investments. Rich in natural resources and economic opportunities, yet without the high costs associated with places like New York, Seoul, and Paris, it’s a no brainer that investors are looking to this South African hub.

With demand from savvy investors accelerating, Cape Town’s high-growth real estate investments are a smart choice for people who seek unique investments with high upside potential. We are excited to be leading exclusive co-investments into South African developments.

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