The money you have today won’t buy you as much as the same amount ten years ago. This isn’t because goods have become more expensive per se; it’s because your dollar has depreciated.
Unfortunately, there’s no escape from inflation due to how our economic systems function. But you can safeguard yourself by hedging against it.
What is hedging?
An inflation hedge is usually an investment that protects you from the depreciating value of money. This asset is expected to increase in value—or at least maintain its value—over a specified period.
Assets are typically split into two categories—hard and soft. Hard assets include land, commodities, and precious metals. These assets, unlike soft assets, have intrinsic value, which gives them the ability to be a hedge against inflation.
Intrinsic value comes from the asset being limited in supply, and the fact that it can be used to barter for goods and services. Gold, property, oil, and precious metals can all be sold or exchanged for goods, qualifying them as hard assets.
Hedging with real estate
Property is one of the most popular hard assets that serve as hedges against inflation. Property prices and rental rates rise in line with inflation, making it a foolproof instrument against decreasing purchasing power.
Here’s why this happens:
Inflation boosts asset prices
Trends indicate that property prices rise with inflation. There might be fluctuations in the short-term, but on the whole, real estate retains or increases its value over time. Other assets like gold, oil, and silver also follow similar patterns. But since these assets are more volatile than property, they are not as effective when it comes to being a hedge against inflation.
If you have a property that you can rent out, you’re all set to earn a steady flow of regular income through rent. Rental income is also positively impacted by inflation; that is to say that it increases every year, and the amount is usually preset in the lease, ensuring your income won’t devalue over time.
To increase your wealth, your yearly savings need to grow at a higher rate than the inflation rate. With a rental property in your hands, not only will the property’s value increase, but your rental income will as well, ensuring that your savings won’t shrink as a result of inflation and devaluation of money.
If you’re looking for a reliable broker, connect with Phillip Fehler, a Broker of Fathom Realty. Phillip helps people find the right properties to invest in with his exceptional real estate services in Fayetteville, NC.