By John Grace
Contributing Columnist
If we haven’t met, I’m one of those diversity, equity and inclusion guys my fellow Gemini, President Donald John Trump, dislikes. But don’t worry — I’m not here to lecture. I bring news of potential profits, not political debates.
We all know what goes up must come down. Just ask your 2002, 2008 and 2022 portfolios. Unlike many peers, I won’t tell you to “just ride it out.”
“Be Prepared” is the motto of the Boy Scouts. Someone asked Robert Baden-Powell, the founder of Scouting, “Be prepared for what?” Baden-Powell replied, “Why for any old thing.”
Baden-Powell said in his book, “Scouting for Boys,” that instead of being complacent, ”you are always in a state of readiness in mind and body to do your duty.”
In May 2024, I wrote an article about my time as a 15-year-old Boy Scout working as a summer camp counselor at Lake Arrowhead Scout Camps. Determined to achieve the rank of Eagle Scout, I had the privilege of learning from the U.S. Forest Service about the perils of fire suppression. They explained that putting out every small fire prevents natural burn cycles, leading to a dangerous buildup of dry brush. Eventually, when a fire does break out, it’s not just a little blaze — it’s an unstoppable inferno.
Little did I know that this lesson would later mirror the financial world.
The Federal Reserve’s monetary policy reminds me of those well-intentioned but short-sighted fire suppression strategies. The Fed has been dousing economic flames with low interest rates, quantitative easing and bailouts for years.
But just like an overgrown forest, the economy doesn’t like too much intervention. Eventually, something sparks — maybe inflation, a banking crisis, a virus from another country, or an unexpected recession — and suddenly, we’re in a financial wildfire.
That is why investors can’t afford to have all their eggs in one basket. Like an overgrown California hillside, that basket could go up in smoke with little warning and an insufficient water supply.
The past few years have been a brutal reminder that traditional investment strategies aren’t foolproof. Stocks have been erratic, bonds haven’t been the haven many expected, and real estate — well, let’s say that if you were banking on another golden era of skyrocketing property values, you might want to rethink that strategy.
This may be the best time you will see in your lifetime to learn from Warren Buffett, at 94, who has taken chips off the table holding a record amount of $325 billion in cash, per Yahoo Finance, so he, unlike most investors, is well prepared to buy from distressed sellers. Active management plays a crucial role in protecting your portfolio.
By strategically adjusting holdings, managing risks and diversifying, investors can avoid the financial version of a five-alarm fire.
It might be time to rethink traditional real estate. Instead of loading up on office buildings in struggling metro areas and high-end homes, investors are turning to:
• Data center infrastructure — Artificial intelligence isn’t a passing trend. Data is the new oil; some places must secure, store, manage and process vast digital information.
• Student housing — As long as college exists (and student loans remain a thing), student housing will be in demand. For a host of reasons, student housing is preferred outside of California.
• Multi-family and affordable housing — Homeownership isn’t getting any cheaper. People still need places to live, and rental markets remain strong.
• Industrial properties — E-commerce and manufacturing shifts fuel demand for warehouses, distribution centers and flexible industrial spaces, particularly in the Sun Belt, far from California’s taxation nightmares.
Markets move in cycles. The people who pretend every boom will last forever are most shocked when the tide goes out. You don’t want to be that guy or gal, or do you? Instead, take a moment to assess your exposure. Are you too concentrated in one area? Are you prepared for the unexpected?
Like maintaining a healthy forest, financial success requires balance. Letting things grow unchecked is dangerous, but so is trying to control everything too tightly. A little proactive management — whether in your yard or your portfolio — can go a long way.
So, let’s get that yard work on autopilot to help prepare for the good, the bad and the downright ugly. Your financial future and longevity will thank you.
John Grace is a registered representative with LPL Financial. His On the Money column runs monthly in The Wave. The opinions expressed here are for general information only and are not intended to provide specific advice or recommendations for any individual.
LIFTOUT
By strategically adjusting holdings, managing risks and diversifying, investors can avoid the financial version of a five-alarm fire.
