Like many investor, I try and diversify my investments, in an effort to spread risk and create multiple streams of income. 2020 proved to be a good year in the stock market, but 2022 has proven the average investor isn’t that good. This year has been a roller coaster in the stock market. But the part of the stock market that I just can’t wrapped my mind around is the volatility. On Monday, the economy is winning, while the very next day the world is ending. It’s hard to make this stuff up, but just take a look at the market volatility index.

On a good note, I don’t stress about it.

Really!… you ask?

Absolutely. This is because my investments are spread into commercial real estate (CRE), where values are much more stable. If the market take a turn down, I will just cash flow, until the value returns. But this blog is less about those fundamental, but more about the stability of CRE. I came across these exerts from Marcus & Millichap, a leading commercial broker and thought I’d share some of the quotes.  

Recent volatility in the stock market has made commercial real estate even more alluring to investors seeking security in the midst of the market turmoil. The stock market has fallen by 10% over the past month and by 24% from its peak at the start of this year. And while it increased by 27% in 2021, the losses this year have essentially eliminated the gains from that year.

John Chang of Marcus & Millichap showed that the commercial real estate sector also saw significant price increases in 2021. The distinction? Chang claims that even after the stock market reached its peak at the end of 2021, “commercial real estate kept going.“

Commercial Real Estate, posted gains, in the first half of 2022. The stock market, meanwhile, experienced a 20% decline in the first half of 2022. The big caveat though for commercial real estate is that the FED rate increase will undoubtably have an impact on the CRE sector, but it will be far less volatile than what we see in the stock market.

“In general, CRE values tend to move more slowly than the stock market. They also tend to be less dramatic,” he says, adding that quarter-over-quarter pricing swings over the last 20 years have been “enormous” while commercial real estate pricing has largely remained steady.

Its interesting that CRE has delivered a compound annual growth of 7.8% since 2000, while the S&P delivered a 5.3%. Although, CRE still experiences some ups and downs, we can say that those swings are less volatile, and this helps me with not stressing out.