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Morgan Bernardis Aug 20, 2019 11:12:53 AM 2 min read

Recession Warning: Time to Diversify Your Portfolio


With the current political climate and the market ups and downs, anxiety has been instilled in investors, and for good reason. The news of the ten-year bond’s interest rates dropping below the two-year bonds, signals that a recession is in tow with an average lag time of 17 months. If the way that the market has been swinging has you feeling uncomfortable, then it means that your current portfolio has too much risk and it’s time to diversify.

Many investors have been holding out on selling as they have watched the stock market climb quarter-over-quarter, trying to get the highest return on their investments and also avoiding dealing with the capital gains tax. This has especially been the case for employees at many tech firms. Employees of tech firms are coming into large amounts of equity for the first time and are in a “nouveau riche” stage of their investing career. They don’t have experience diversifying their portfolios, so that they can ride the waves of the market. Having equity in one or two tech companies creates a lot of risk, and if not diversified properly could leave you high and dry.

Waves Diversification

Image: Cover of the latest Economist

Since stocks and bonds have become so volatile, investors are betting on alternative investments that will zig when traditional investments zag. Many individuals in the tech industry have found that investing in Opportunity Zone Funds is a triple threat for diversifying their portfolio. First, your capital gains tax from the execution of any sale of stock options is automatically deferred for seven years and then reduced by 15%. Second, with Opportunity Zone Fund investing, you get your feet wet in the commercial real estate space, which is a critical element to any robust portfolio. And third, any future capital gains taxes from returns will be tax-free from a federal standpoint.

All Opportunity Zones aren’t created equal though. The Google effect is a force to be reckoned with, that’s why we are seeing so many investors from the tech industry investing into Opportunity Zones in their own backyard, Silicon Valley. With a shortage of office space in Silicon Valley, the tech sector continues to expand south. They are grabbing up prime real estate in transit-oriented areas like San Jose. The Mercury News stated “The Silicon Valley research and development market during 2018 boasted a 6.7 percent vacancy rate, the lowest since at least 2008.” Also impressive is the amount of office already pre-leased by tech firms.


Source: Joint Venture Silicon Valley

The timing of the Opportunity Zone program is impeccable with the current state of the market. An Opportunity Zone fund investment may help diversify portfolios while simultaneously deferring capital gains tax. Time is of the essence for individuals to make an investment to take advantage of potential tax incentives associated with Opportunity Funds. Any investment made into an Opportunity Zone after 2019 will automatically lose 5% of the tax incentives. Take note that the anxiety that you are feeling from the market is a sign that it is time to act. Whichever way you decide to diversify, just remember, complacency will be the enemy of your success.

Want to learn more about investing in Silicon Valley Opportunity Zones? Contact Us today.

*Consult with your attorney and note tax regulations are subject to change
*Diversification does not assure a profit or protect against losses