Year 2020: New Goals, New Predictions. What Lies Ahead?

Being the start of the new year, it only makes sense to hop on that New Year resolution bandwagon! Alright, not really. I have always made goals throughout each year and have always tracked my progress. 2020 will be no different. This blog had its one year anniversary 3 weeks ago and I have been very pleased with the reception it has received so far. I do not plan on stopping or slowing down the amount of blog posts or topics discussed on the blog and I am looking forward to celebrating the 2nd year anniversary this time next year.
In 2019, I released 47 blog posts with topics spanning different industries. This year, my goal will be to release at least 45 blog posts with an increased focus on the Real Estate markets. I will be releasing a blog post soon on Crowdstreet, a commercial real estate investing platform that gives investors direct access to individual commercial real estate investment opportunities, allowing them to review, compare, and personally choose the deals that meet their own investment criteria. I have yet to use Crowdstreet but I will be deploying funds to some deals on the platform by March 2020. Crowdstreet has managed to raise $919 million so far from accredited investors through 367+ investment offerings. Although I am yet to try out Crowdstreet, I have investments in a multitude of deals through NextseedFundriseGroundfloorWorthy Bonds, and StreitWise. These platforms have offered debt, equity, and revenue sharing agreements as well as opportunities to invest in a Pre-IPO on two of the entities.
2020 Investment Allocation
This year, as far as my allocation strategy goes, the story will be a significant increase in private deals. As seen on the chart below, the inner orange color represents my current allocation to private deals and the outer orange colors represents my projected allocation by the end of 2020. I expect to double my investments in private deals while decreasing my holdings in CDs by 1.6x since two are set to mature in 2020. Private deals are typically illiquid (about 5-10 years) and relatively immune to market fluctuations. The percentage allocation towards public equities will slightly decrease but go up in absolute value assuming the global market holds steady since I plan to max out both HSA and Roth 401k contributions. If the market does decline in value, however, that would not be a cause for concern since I mostly carry ETFs with low expense ratios and companies with strong balance sheets in those funds with zero plans to sell in the coming years. By the end of 2020, I anticipate the allocation being 39% public equities, 30% private deals (debt and equity), 10% bonds and CDs, 20% home value, and 1% cash. Although, the cash allocation might seem low, it was allocated that way on purpose because the CDs within the 10% allocation will mature yearly within the next 5 years. Also, the bonds are comprised of AAA rated municipal bonds and liquid collateral backed bonds with the assets far greater than the loan amount paying about a 5% return. Overall, I expect this allocation strategy to boost my overall portfolio annualized returns from 7% to 8-9% depending on the private deals chosen in 2020. 1-2% gain in annualized return might not seem like a lot but on an absolute basis and with compounding in mind, it is extremely significant. I also expect a decrease in risk with a more diversified portfolio and increased alternative investments non-correlated to the global stock market.
2020 Predictions
In 2019, I made predictions at the start of the year and I graded those predictions. Below are my predictions for year 2020:

GDP Growth Rate
I expect another year of slow down in GDP growth rate. In fact, I expect the GDP growth rate to be between 1.8-2% in 2020. This prediction range is based on an ARIMA time series model I built based on the historical GDP growth rates. The model was built in July 2019 and the model did well with its prediction in the 2nd half of 2019 but a really good test will be the predictions for 2020 and how that compares to real data.
Recession Probability
This for one is a hot topic, but I took a stab using my machine learning skills to predict what to expect in 2020. The machine learning models created were a Naive Bayes classification model and a logistic regression model which takes into account the GDP growth rate, leading index, retail sales, capital spend, yield curve, unemployment rate, temporary help services, job vacancies, and imported goods with the response being recession probabilities. Below are plots of actual data with the economic indicators. You will notice that:
If the GDP Growth Rate is below -2.5% then we are 100% certain that there will be a recession. If GDP Rate is above 5% then there is a 0% chance of a recession. If GDP Rate is between -2.5% and 5% then there is some chance of a Recession.
Also, there is a strong tie to the leading index. The leading index for each state predicts the six-month growth rate of the state’s coincident index. In addition to the coincident index, the models include other variables that lead the economy: state-level housing permits (1 to 4 units), state initial unemployment insurance claims, delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill.
The built models predict a 20-40% chance of a recession in year 2020. The threat of a trade war with China is a large risk that could lead to a possible slow down with the Fed not having enough tools to counteract the impact of a global downturn.
Artificial Intelligence
AI as most people call it will see a rise in its usage. With the US elections around the corner, I anticipate the rise in deepfakes. Simply put, deepfakes are videos that harness artificial intelligence to create a convincing likeness of a real person. Many experts fear that deepfakes are going to do serious damage, manipulating public opinion on both sides of the political spectrum. Unlike fake news, which often comes with obvious visual cues to help determine authenticity, even deepfakes created using free online tools are extremely convincing. If predictions come true, the lead-up to the U.S. election could be a wild ride. I also expect an increased use of machine learning by corporations and government entities to simplify and make tasks much more efficient.

All in all, 2020 is sure due to be a great, interesting ride and we all look forward to another great year!


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