Archives for November 3, 2015

Tending the Hedge Against Inflation

Gold barsI 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