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Is Mastercard Stock a Buy?

March 25, 2023March 25, 2023 admin_coinvest

Investing behind broad secular trends is a worthwhile strategy to undertake. Leading companies in a particular space can benefit from a rising tide as an industry continues to grow and become a larger part of the global economy. With this in mind, an extremely lucrative area to look at is digital payments.

Within this secular trend, Mastercard (MA -0.77%) is a popular ticker. The payments giant has seen its shares rise 102% over the past five years (as of this writing), crushing both the S&P 500 and the Nasdaq Composite Index during the same time. But what does the future hold? Put differently, is this blue chip stock a buy?

Here’s what investors need to know.

Mastercard has momentum on its side

While many companies struggle with a normalization period in a post-pandemic environment, as well as what appears to be a deteriorating macroeconomic situation, Mastercard’s operations keep humming along. During 2022, gross dollar volume (GDV), or the value of payments the business handles, jumped 5.9%. This helped net sales increase 18% year over year, with free cash flow (FCF) of $10.1 billion, up 17% year over year. Thanks to a resurgence of consumer interest in travel, Mastercard’s cross-border fees were up 30% year over year in the fourth quarter, a potential ongoing catalyst to pay attention to.

Since Mastercard collects a tiny fee from every transaction that runs across its payments network, the business is essentially an inflation hedge. If consumers are forced to spend more money on things, the gross dollar volume of the payments Mastercard processes can increase. And this favorable dynamic supports higher revenue.

Besides the recent success, which is a positive sign given the macro headwinds, the long-term opportunity is huge. According to McKinsey, a consultancy, the revenue opportunity in the global payments industry will be $3 trillion in 2026, up 43% from $2.1 trillion in 2021.

Mastercard’s revenue has increased with relative consistency at a compound annual rate of 11.6% between 2012 and 2022, a stellar increase, no doubt. If the company can simply continue doing what it has been doing throughout its history, its GDV, net revenue, and FCF are set to be markedly higher well into the future. This raises the chances that shares will be much higher as well.

Mastercard’s quality might justify the valuation

For such a dominant company with strong trailing returns, it’s not a surprise that Mastercard’s stock currently trades at a price-to-earnings (P/E) ratio of 35, a substantial premium to the market. Mastercard is also more expensive than its chief rival, Visa, which trades at a P/E of 31 right now. For what it’s worth, Mastercard’s current valuation multiple is in line with its trailing-10-year average, and the stock has crushed the market over the past decade. This could indicate that shares should be trading at a premium valuation.

This might be a valid argument, given just how wonderful of a business Mastercard really is. If there was a ranking of the best companies in the world, this one would surely be among those at the top of the list. Margins are through the roof, growth has been impressive, and as I touched on earlier, Mastercard is ridiculously profitable on an FCF basis. And thanks to its minimal capital expenditures, it can continue to grow while returning excess capital back to shareholders. In the fourth quarter, Mastercard paid out $473 million in dividends and repurchased $2.4 billion of its stock. From a shareholder perspective, these are the kinds of things you like to see.

And looking at the competitive landscape, it’s difficult to find any looming threats to Mastercard’s dominance. Sure, Visa is the leading card payments network in the world, but both of these businesses have had a stranglehold on the industry for quite some time, competing in a rational manner so as to not threaten their powerful positions. The opportunity is so massive to continue ushering in a cashless society that there will be room for both Visa and Mastercard to keep up their gains going forward. That’s a great outlook to consider.

From a quality perspective, Mastercard is top-notch. Investors then need to consider if the valuation is worth it. Instead of buying your entire allocation to this stock at once, it might be a better idea to dollar-cost average into Mastercard over several months to take advantage of multiple entry prices. This is a company you definitely want in your portfolio for the long haul.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

Source: https://www.fool.com/investing/2023/03/25/is-mastercard-stock-a-buy/

Why Carnival Stock Popped on Thursday

March 25, 2023March 25, 2023 admin_coinvest

What happened

Shares of cruise company stock Carnival (CCL 0.11%) slipped 1.4% on Wednesday, only to change course and sail ahead 5.4% on Thursday as of 11:35 a.m. ET.

The positive note from Stifel Nicolaus, which lies behind today’s rally, actually came out on Wednesday. But yesterday’s rejoicing was quickly snuffed out by later news of a new 0.25-percentage-point interest rate hike by the Federal Reserve, and by Treasury Secretary Janet Yellen’s statement that regulators are not considering expanding deposit insurance for bank customers. With so much bad news clamoring for attention, investors couldn’t really focus on Carnival’s good news yesterday.

But perhaps today they can.

So what

StreetInsider has the details, reporting that investment bank Stifel Nicolaus yesterday reiterated its buy rating, and its $18 price target, on Carnival stock. With gallows humor, Stifel admitted “we will probably be dead wrong” in predicting good news for Carnival investors next week. Nevertheless, the analyst is looking at Monday’s upcoming earnings report as a positive short-term trading opportunity for the stock.

Why?

Stifel cites “recent trading weakness in CCL shares” as its reason for optimism, arguing that “expectations are subdued, which we really like” — because it will make it easier for Carnival to exceed expectations when it reports on Monday.

Now what

And what are these expectations, exactly? According to Yahoo! Finance figures, most analysts are expecting Carnival to report a $0.60-per-share loss (subdued expectations, indeed!) on sales of $4.3 billion.

That sounds like bad news, but consider: Even if the news is as bad as analysts forecast, it would mean Carnival grew its revenue 167% year over year in the fourth quarter of 2022, and cut its losses by 64% year over year, saving more than $1 a share. That already would be kind of good news — and there’s the potential for Carnival to surprise investors to the upside if its losses aren’t as bad as feared.

A second way Carnival could make investors happy on Monday might be by following up Q4 earnings with strong guidance for 2023. There, a positive surprise is even more likely. Analysts are forecasting 73% sales growth for Carnival in 2023 ($21 billion), and a loss of only $0.08 per share. That prediction is already pretty close to breakeven. It wouldn’t take much — slowing interest hikes at the Fed perhaps, or a bit less discounting on ticket prices — to flip Carnival from a loss to a profit this year.

That’s what investors are hoping for. I’ll bet it’s what Stifel is hoping for, too.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.

Source: https://www.fool.com/investing/2023/03/23/why-carnival-stock-popped-on-thursday/

US stocks close higher as markets assess fresh bank woes and recession fears

March 24, 2023March 24, 2023 admin_coinvest

US stocks ended higher Friday, capping off a week of Fed moves and more bank fears.
The 2-year and 10-year Treasury yields both notched their lowest levels in six months.
Deutsche Bank stock plunged as a new round of bank jitters hit the market in the wake of SVB and CS failures.

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US stocks ended higher on Friday as investors rallied to end the day in the green, throwing off new banking fears out of Europe.

All three major indexes ended the day higher, capping off another tumultuous week for markets.

Deutsche Bank stock plunge and unsettled financial markets early in the day. The slide came as bets on the German lender defaulting on its debts soared, with the price of credit default swaps linked to its bonds posting their largest-ever single-day jump.

Yields on key Treasury bonds were down. The 2-year and 10-year Treasury yields tumbled to six-month lows as investors wager the Federal Reserve’ interest rate hikes could soon be over, and the central bank could cut rates as the economy slows.

“Confidence is fragile, market volatility is likely to stay high, and policymakers may have to go further to make sure faith in the global financial system stays solid,” Mark Haefele, chief investment officer at UBS Wealth Management. said in a note on Friday.

Haefele added: “Financial conditions are also likely to tighten, which increases the risk of a hard landing for the economy, even if central banks ease off on interest-rate hikes.”

Here’s where US indexes stood shortly after the close at 4:00 p.m. on Friday:

S&P 500:3,970.99, up 0.56%
Dow Jones Industrial Average: 32,237.53, up 0.41% (132.28 points)
Nasdaq Composite: 11,823.96, up 0.31%

Here’s what happened today:

A recession is nearly certain in 2023, according to Fed chair Jerome Powell’s preferred bond gauge,
Moody’s chief economist Mark Zandi says that the central bank is putting the US economy in jeopardy by not prioritizing the stability of the country’s banking system.
Top metal traders say copper prices could jump 33% to as high as $12,000 per metric ton within the next year.
Deepwater’s Gene Munster says a ban on social media app TikTok is coming and that could be bad news for some US stocks.

In commodities, bonds and crypto:

West Texas Intermediate crude oil fell 1% to $69.24 per barrel. Brent crude, oil’s international benchmark, dropped 1.2% to $74.99.
Gold fell 0.7% to $1,980 per ounce.
The yield on the 10-year Treasury tumbled to 3.37%.
Bitcoin fell 2% to $27,836.

Get the latest Gold price here.

Source: https://markets.businessinsider.com/news/stocks/stock-market-news-today-wall-street-bonds-bank-crisis-equities-2023-3?op=1

GeoWealth investment platform expands down-market with deal for First Ascent

March 24, 2023March 24, 2023 admin_coinvest

GeoWealth, a Chicago-based turnkey asset management platform designed specifically for registered investment advisors, is acquiring First Ascent Asset Management, a Denver-based TAMP with a focus on smaller RIAs.

The deal, which is expected to close within 30 days, brings with it $1.3 billion in investor assets, pushing GeoWealth beyond the $21 billion mark.

“This wasn’t an asset purchase; we love the First Ascent team and we really like their business model,” said Colin Falls, GeoWealth president and chief executive.

Ten years after GeoWealth’s founding as a technology-focused TAMP for independent advisors, Falls said this first acquisition will expand its market to an “underserved” corner of the wealth management space.

GeoWealth’s portfolio management system, which targets RIAs with between $200 million and $6 billion, was built from the ground up and is designed to engage RIAs in more of a traditional TAMP model by “meeting RIAs where they are,” Falls said.

“Over 70% of our assets is from advisors building their own models,” he added.

By comparison, First Ascent’s market has primarily been sole proprietor advisors with less than $200 million worth of client assets.

“They have traditionally focused on smaller RIAs that don’t have their own investment team,” Falls said. “What we saw in First Ascent was a fast-growing, early stage, full-service TAMP.”

Falls said First Ascent will operate as a subsidiary of GeoWealth “for the time being,” keeping its name and headquarters location.

“When we first met the GeoWealth team, I remarked that First Ascent should have been built on top of its integrated technology; that’s how seamless and user-friendly it is,” said First Ascent CEO Scott MacKillop.

“First Ascent was designed to maximize the benefits of the TAMP business model for fiduciary advisors,” he added.

First Ascent’s name, investment offering, service model and flat-fee schedule will remain unchanged; however, its advisor clients will now have access to expanded capabilities that include back-office efficiencies and flexible, customizable unified managed account offerings.

Details of the transaction were not disclosed beyond confirmation that it is a cash-and-equity deal.

[More: 10 largest TAMPs by assets in 2023]

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Source: https://www.investmentnews.com/geowealth-investment-platform-expands-down-market-with-deal-for-first-ascent-235447

Why Take-Two Interactive Stock Won the Market’s Heart Today

March 24, 2023March 24, 2023 admin_coinvest

What happened

Investors playing the stock market with Take-Two Interactive Software (TTWO 3.45%) notched a convincing victory on Thursday. The video game company’s share price rose by almost 4%, crushing the generally flat performance of the S&P 500 index. As often happens in the video game world, excitement was generated by the announcement of a new title.

So what

That morning, Take-Two’s wholly owned developer and publisher 2K and storied toymaker Lego unveiled said title. This is Lego 2K Drive, a hybrid toy construction and auto racing game in which user-built cars are driven at hair-raising speeds to win glory and bragging rights. Lego 2K Drive is set in a sprawling open world, allowing players to zoom around and explore a variety of environments.

The Take-Two unit and Lego said that the new game is the first of what will be a series of titles developed by the pair of companies.

In the usual hype employed by video game purveyors, 2K and Lego breathlessly wrote in their press release on their collaboration that “With 2K’s proven expertise in creating high quality and engaging interactive entertainment properties and the Lego Group’s unprecedented cultural impact, the partnership will evolve the iconic Lego games experience fans know and love in exciting new ways.”

The two companies did not provide any details about the upcoming titles, nor did they specify potential release dates.

Now what

Lego is one of the strongest toy brands on the scene and has stayed relevant with its many tie-ups to other hot pieces of intellectual property like Minecraft and the Harry Potterverse. It’s a smart move for Take-Two/2K to hitch its wagon to the Danish toymaker; Lego 2K Drive should enjoy robust sales when it hits the shelves.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Take-Two Interactive Software. The Motley Fool has a disclosure policy.

Source: https://www.fool.com/investing/2023/03/23/why-take-two-interactive-stock-won-the-markets-hea/

This Is My Highest-Conviction Stock to Own in 2023 and Beyond

March 24, 2023March 24, 2023 admin_coinvest

It sometimes feels as though there are as many stocks as there are stars in the sky. But even with a barrage of options, individual investors often gravitate toward specific industries, perhaps because of familiarity, personal preferences, investment goals, or other factors.

One sector I have always found particularly appealing is healthcare, and there is one corporation whose prospects over the next five years seem so secure that I’d be willing to bet the farm on its being able to deliver market-beating returns over this period.

That company is none other than biotech giant Vertex Pharmaceuticals (VRTX 2.31%). Here’s why this drugmaker is my highest-conviction holding for at least the next half-decade.

Vertex’s business never sleeps

There are many quality stocks in the market, some of which I’m invested in right now. E-commerce giant Amazon comes to mind. But even this juggernaut is facing headwinds as its consumers have decreased spending in the midst of a challenging economic environment, leading to lower revenue and earnings. That could continue throughout the rest of the year and perhaps a bit longer.

Intuitive Surgical is another top stock I own, but it’s also dealing with near-term issues. A resurgence of COVID-19 cases in some places recently led to a slowdown in its business. Vertex Pharmaceuticals faces no such problem. The drugs it offers to treat cystic fibrosis (CF), a rare genetic disease that affects patients’ lungs, must be taken regularly to manage this potentially deadly illness.

While one could say the same about many biotech companies, Vertex has an advantage very few of its peers do: For CF patients, it’s the only game in town. Vertex markets the only medicines that target the underlying causes of CF. So the company’s results won’t be substantially affected even in recessions, so long as there are CF patients to treat. In 2022, the company’s revenue of $8.93 billion jumped by 18% year over year.

Vertex’s net income soared by 42% year over year to $3.3 billion. Meanwhile, there are more than 20,000 CF patients, out of 88,000 in key markets who are eligible for the company’s current medicines and have yet to start treatment. Vertex is working on a treatment to address the remaining 5,000 who aren’t eligible for any of its current medicines.

That’s a total of more than 25,000, or more than 28% of its total patient population. Considering Vertex’s first CF drug got approved in 2012, the remaining market still gives it considerable room to grow over the next five years, and the company’s financial results will be largely unaffected by any economic or market downturn.

New products will keep rolling in

Vertex Pharmaceuticals wouldn’t be such an attractive biotech stock if it wasn’t innovating. The company’s pipeline makes it even more of a solid stock to buy. Within its CF business, Vertex is developing a potential, once-daily option that could confer greater clinical benefits to patients. Its current crown jewel, Trikafta, is typically taken in the morning and evening.

But Vertex is also seeking to diversify its lineup. Consider exa-cel, a potential therapy for sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT) — two rare genetic blood-related disorders. Vertex and its partner, CRISPR Therapeutics, have issued regulatory applications in Europe already and are in the process of doing the same in the United States.

Few competitors have earned approval for TDT and SCD therapies, and this market could be worth tens of billions of dollars. Vertex’s VX-548 is a potential pain medication undergoing a phase 3 study. Here, the biotech hopes to address the fact that painkillers typically come with severe side effects — think opioids. The company’s VX-880 targets type 1 diabetes and could help patients produce their own insulin.

Vertex expects to launch five products in the next five years, each with a sizable market opportunity So revenue and earnings growth shouldn’t slow down at all for the biotech, quite the contrary.

Don’t mind the valuation

With near- and mid-term catalysts on the way and massive earnings potential, Vertex Pharmaceuticals’ financial results should be excellent throughout the next five years, driving its stock price higher. But what about the valuation? If the company’s shares are too expensive, the stock’s upside could be limited. It may look that way: Vertex’s forward price-to-earnings ratio of 20.4 is higher than the biotech industry’s average multiple of 15.3.

Still, companies with excellent prospects often command premiums on the market; it’s not a deal-breaker, not by a long shot. In fact, given Vertex’s potential over the next few years, I believe its current price is more than fair. So even at current levels, investors would do well to buy shares of this company and hold them for a while. Vertex Pharmaceuticals has outperformed the market in the past decade; there’s no reason it can’t pull that off again.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Prosper Junior Bakiny has positions in Amazon.com, Intuitive Surgical, and Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Amazon.com, CRISPR Therapeutics, Intuitive Surgical, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

Source: https://www.fool.com/investing/2023/03/23/this-is-my-highest-conviction-stock-to-own-in-2023/

Is This Your Last Chance to Buy Carnival Stock Under $10?

March 23, 2023March 23, 2023 admin_coinvest

Take a look at a Carnival (CCL -1.43%) (CUK -1.82%) stock chart, and it’s bound to make you seasick. Shares of the world’s leading cruise line operator have been lingering in the single digits for nearly two weeks, fetching half of what Carnival was trading at just a year ago.

It doesn’t seem fair. The company is fundamentally in a better place than it was when its stock was coasting in the double digits. The cruising industry is back on track. Analysts see record revenue in 2023, followed by a profitability surge next year. There are naturally concerns with how a highly leveraged business will navigate the icy waters of rising interest rates and economic challenges. Things are a little choppy out there. However, you have to like Carnival stock at this point. Let’s get into why the shares may not stay below $10 for long.

Making waves

Despite the depressed share price, Carnival did something positive recently that it hasn’t done in more than a year. Revenue nearly tripled in its latest quarter, but the adjusted loss of $0.85 per share was better than the $0.87-per-share deficit that analysts were modeling. It’s the first time since early in the pandemic that Carnival didn’t fall short of Wall Street’s bottom-line expectations.

PeriodEPS EstimateEPS ActualSurpriseQ3 2021($1.25)($1.55)(24%)Q4 2021($1.27)($1.52)(20%)Q1 2022($1.26)($1.66)(32%)Q2 2022($1.17)($1.64)(40%)Q3 2022($0.13)($0.58)(287%)Q4 2022($0.87)($0.85)2%

Data source: Yahoo! Finance. EPS = earnings per share

This isn’t the only unfortunate streak that will end soon. No one likes red ink, and Carnival hasn’t posted a quarterly profit since fiscal Q4 2019. Analysts see the cruising giant announcing a healthy quarterly profit this summer. It would end the miserable run of 14 consecutive quarterly losses.

The positive catalysts don’t end there. Wall Street pros are forecasting revenue to soar 73% this year, topping $21 billion. It will be a new record for Carnival, surpassing the $20.8 billion it reported in fiscal 2019 before the pandemic would tear the industry apart.

Two couples playing on shoreline with a cruise ship behind them.

Image source: Getty Images.

The news isn’t as kind on the bottom line. Carnival and its smaller rivals had to do a lot of panhandling to make it through the dry years. They diluted investors by issuing more stock. They took on more debt, increasing their interest expenses. This peak summertime quarter might not be enough to push Carnival back into the black this year. Some analysts see a small profit in fiscal 2023, but others are bracing for a modest loss. However, every Wall Street pro covering the stock sees a healthy profit next year.

The consensus estimate calls for Carnival checking in with adjusted earnings of $0.92 a share next year. Shares are trading for 10 times that multiple, and that may not seem like a bargain given its bloated balance sheet and the economic sensitivity that cruise line stocks face. However, the forecasts get even rosier after that.

Fiscal 2025 EPS: $1.21
Fiscal 2026 EPS: $2.42
Fiscal 2027 EPS: $2.90

Going out four years to arrive at a future multiple of 3 times earnings may seem like an epic sea journey, but keep in mind that things could fare even better along the way. The recovery outlook is being made through the current lens of high interest rates and pandemic concerns. The rebound may happen faster, and that will help Carnival pay down its debt and repurchase shares to boost its investing profile sooner rather than later.

You won’t have to wait long to get fresh news out of Carnival. It reports first-quarter results early next week. The key metrics themselves won’t be special beyond another triple-digit jump on the top line and a narrowing deficit on the other end of the income statement. The real meat to Monday morning’s results will be what the company has to say about booking trends heading into the telltale summer travel season and beyond. If the news is encouraging, it’s a fair bet that the stock will disembark from the port of its current single-digit price point to far kinder waters.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.

Source: https://www.fool.com/investing/2023/03/22/is-this-your-last-chance-to-buy-carnival-stock-und/

Lithium behemoth Albemarle announces $1.3B initial investment in new lithium hydroxide facility

March 23, 2023March 23, 2023 admin_coinvest

Wednesday March 22, 2023 16:20

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(Kitco News) – Lithium producer Albemarle (NYSE: ALB) today announced plans to locate its previously announced lithium hydroxide Mega-Flex facility in Chester County, South Carolina.

The company said that plans for the facility include an initial investment of at least $1.3 billion to help meet the surging demand for domestic and international electric vehicles and lithium-ion batteries.

Albemarle expects the facility to annually produce approximately 50,000 metric tons of battery-grade lithium hydroxide from multiple sources, with the potential to expand up to 100,000 metric tons. Construction is expected to begin late in 2024.

“Production at the facility would support the manufacturing of an estimated 2.4 million electric vehicles annually. The site also supports the Inflation Reduction Act, a federal law enacted in 2022 to incentivize the localization of critical minerals in North America,” the company said in a statement.

“This facility will help increase the production of U.S.-based lithium resources to fuel the clean energy revolution while bringing us closer to our customers as the supply chain is built out in North America,” stated CEO Kent Masters. “This investment supports our long-term commitment to providing innovative products and solutions that enable a more resilient world. We look forward to partnering with the state of South Carolina on this important project.”

Pending permitting approvals, the facility will be located within a nearly 800-acre parcel. Albemarle estimates the facility will create more than 300 new jobs with an average annual wage of approximately $93,000. In addition, the project would create more than 1,500 construction jobs.

Albemarle is a global leader in transforming essential resources such as lithium and bromine into critical ingredients for mobility, energy, connectivity, and health.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

Source: https://www.kitco.com/news/2023-03-22/Lithium-behemoth-Albemarle-announces-1-3B-initial-investment-in-new-lithium-hydroxide-facility.html

Advisors need to review cash options in wake of SVB’s collapse

March 22, 2023March 22, 2023 admin_coinvest

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Drop in housing market has retirees seeking shelter

March 22, 2023March 22, 2023 admin_coinvest

The decline in home values may send some retirees running for shelter.

After peaking last June, U.S. home prices slid 4.4% in the back half of 2022, according to the Case-Shiller 20-City Home Price Index. The housing market was pinned into submission by a steady diet of inflation-fighting Federal Reserve rate hikes that lifted the benchmark 30-year fixed mortgage rate to 6.73% by the end of December, more than double from where it started the year.

Things haven’t improved much since then, with that same 30-year fixed rate recently crossing 7% and the odds of a recession climbing. As a result, many market strategists don’t expect the housing market to turn around in the near future.

For example, Big Four accounting firm KPMG’s most recent report forecasts another 8% drop in the Case-Shiller index in 2023. KPMG also sees existing home sales sinking to 3.9 million in 2023, down 23% from 2022, matching the drop that occurred in 2007. For those who may have forgotten, or suppressed the memory, late 2007 was the start of a significant downturn in the economy.

KPMG expects single-family home sales, where supply is tight and prices still relatively high, to drive those declines. And that’s especially bad news for retirees who are counting on those homes either to help fund their retirement through loans, or as an asset to sell or tap into should economic times get tough.

“While I always strive to help clients implement a plan that doesn’t require the liquidation of their home to succeed, there are many retirees out there who will have no choice but to liquidate their home to accommodate their income or liquidity needs,” said Dan Perrino, principal wealth manager at national RIA Savvy Wealth.

“I always try to set realistic expectations with clients, so if their desired retirement lifestyle will likely lead to their liquid assets being drawn down to zero, then I am very clear about how long their liquid investments are likely to last at their current spend rate and advise how a change in lifestyle or future home sale may be required,” Perrino said.

If retirees are willing to employ a “retire and relocate” strategy, there’s still decent money to be made despite the housing market’s recent cooling.

A report by Vanguard Group revealed that the typical homeowner age 60 or older who sold their home in 2019 and relocated to a cheaper housing market accessed about $99,000 in home equity; those in the top 10th percentile pocketed an average of $347,000 using the strategy. The average homeowner in that age group holds $223,000 of retirement savings in financial accounts, according to Vanguard’s estimation, so the additional funds could prove vital if things get tight in retirement.

Location remains paramount when making real estate decisions. The spread in a retire-and-relocate transaction essentially depends on it. Moving from a high-tax area to a higher-tax area, for instance, defeats the purpose for retirees seeking to stretch their savings.

However, there’s more to a real estate transaction than location, location, location. Timing matters, too.

“The real estate market environment is likely going to be tough over the next year or two, so now is a great time to start speaking with the applicable clients about preparing for the next attractive opportunity to sell their home, so if and when the real estate market environment shifts more to the seller’s favor again, they are prepared and ready to move,” Perrino said.

Despite the recent decline in home prices across the country, most homeowners are still way ahead on their home value compared to their purchase price. While this alone shouldn’t convince homeowners to sell their properties, advisors say it’s a great reminder to pay attention and get to know their situation.

“For retirees who already have plans to relocate, the newly found additional equity in their homes and the potential that their current home’s value may decrease in the future may just be the fuel they need to make it happen,” said Brian Hartmann, partner at Granite Bridge Wealth Management, part of Advisor Group. “That equity may help with a large down payment on their retirement home or provide support to purchase the next home for cash without the need for a mortgage.”

Hartmann added that retirees may also put home equity lines of credit to good use. In many situations, retirees open home equity lines of credit as a safety net without any immediate need to use the money.

“Getting qualified for a HELOC proactively can be beneficial in case lenders implement stricter requirements due to a further housing market downturn,” said Alex Koynoff, financial planner and owner of ATK Financial Prosperity. “Once approved, you don’t need to use it, but it can bring you peace of mind knowing that you have a source of funds should you need it. It can help you cover expenses to avoid selling investments when the stock market is down, as well as fund big purchases or projects.”

Ashley Bete, CEO and founder of Leap Analytic, a fintech real estate investment firm, says individuals 62 and older have approximately $11.5 trillion in untapped housing wealth, yet tend to be more conservative in how they view home equity, often seeing reverse mortgages as their only option. In his view, home equity agreements, which allow an institutional investor to pay a senior a lump sum of cash upfront for a fraction of the home’s equity, might be a better option for seniors seeking liquidity.

“HEAs are much more flexible because seniors don’t have to tap all their equity at once or sell their homes,” he said. “They can tap only the amount of equity needed instead.

“Also, seniors may not want to take on debt in their golden years. Reverse mortgages are debt. HEAs are not,” Bete said, adding that HEAs have no age threshold, so retirees of all ages can participate.

Ultimately, the best an advisor can do is recommend a stronger cash position or some austerity measures if the leveraging or liquidation of the home isn’t enough to support a client in retirement.

“Be prepared to be creative, flexible and understanding,” said Michael Nakanishi, financial advisor at Kingswood US. “Americans have always been told that the path to wealth is through homeownership, and I get that. We are all susceptible to this, but too much long-term investment and not enough short-term cash will not work well for everyone.”

It’s also worth noting that some advisors say a common mistake is for investors to view their personal residence as a store of value and opt to make extra payments on their mortgage. That means if retirees have locked in long-term fixed mortgages at historically low rates from before 2022, they should consider holding on to the extra liquidity versus paying down their mortgage. If it’s their forever home, that extra liquidity may allow them to fulfill other retirement goals, such as travel or gifting money to family.

“There is such a thing as healthy debt, and after paying off a mortgage there are few alternatives to get their cash out of the house other than selling or borrowing against their residence at potentially higher rates than the mortgage they paid off,” said Zach Morris, managing partner at Paces Ferry Wealth Advisors.

Why flexibility remains essential when it comes to retirement spending

Source: https://www.investmentnews.com/drop-in-housing-market-has-retirees-seeking-shelter-235116