I recently attended an event that very aptly illustrated the point that most investments do not keep pace with inflation. The average return that stocks will yield over a 20+ year period is around 9% – now depending on who you believe the real rate of inflation is around 7-8%. I know what some of you are thinking – there is no way it’s that high! So, let’s say for the sake of argument that the rate is only 3% per year – if you subtract 9%-3% you get 6%/year is what most investments will get you over the long haul. This event in particular was about gold – and taught you that the same brick of gold today has the same buying power today that a brick of gold had 2000 years ago – thus a hedge against inflation. Now, in so far as commodities such as gold, silver, diamonds will always be a hedge against inflation compared to paper currency I would agree – I in fact have invested in precious metals at times where the prices were artificially low with the intent to sell high at a future date: sounds a lot like what you are supposed to do in real estate yes? I feel that the true way to get ahead and become successful is to have investments that track with/far surpass the rate of inflation – like real estate!! The value of real estate compared to paper currency is always just about the same: normally doubling in value every 10 years, for example a 100K house today will be worth around 200K 10 years down the road which would be a 100% return on investment compared to securities style investments (IE stocks). That said inflation devalues your money over that same 10 year span, so real estate is just as good a hedge as commodities to hide from the monster of inflation trying to eat your wealth! I don’t know if I am crazy for thinking along these lines…but here goes: I would rather have cash flowing assets that out pace inflation by over 1000% than having a large percentage of my wealth in gold, silver, diamonds (pick one) sitting in a safe that I can’t spend in a store/service provider to obtain the things in life that I want. Call me crazy for not wanting a hedge to hide behind and would rather have an income/net worth that is constantly growing so fast that inflation is only a distant spec in my rear view mirror while hurtling toward success.
Tim R
