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Home Ownership – The Ultimate Inflation Hedge

At the time of writing this post, inflation has settled around 7.1% for the US economy. For those who need an inflation 101, inflation is the rate at which prices (in general) have risen over a period of a year. So if we say inflation at the end of 2022 was 7.1%, you’d likely have been paying 7.1% more for a loaf of bread, a car, or anything really, than you did in 2021.

Think about this: If you saved your cash under a mattress throughout 2021, you’d be able to buy around 7% fewer items in 2022, with the same amount of cash. This is because the amount of cash you have is not increasing in value at the same rate as the costs of goods.

That leads us to our next thought about inflation: How do we protect ourselves against it, and better yet, beat it?

The short answer is to invest in assets that yield a better return than the inflation rate. So if inflation is 7.1%, invest in something that yields more than 7.1% over the course of the year.

Although that’s easier said than done, historically there is one safe bet that has stood the test of time.

Real Estate is a notoriously safe hedge against inflation. Here’s a great quote from G Brian Davis at SparkRental.com that illustrates the point well

“Real Estate values and rents not only tend to keep pace with inflation but actually drive inflation itself.

Because real estate is, well, real. It’s a physical asset with intrinsic value.

Regardless of the currency, people need and want it, and adjust their offers to buy or rent it as needed to secure it. That makes it one of the most reliable hedges against inflation.”

– G. Brian Davis, SparkRental.com