How to Make Inflation Work for You
by Alan Rosenthal
Inflation is an ever-present issue, but what if you could find a way to make the depreciation of the dollar a benefit rather than a loss?
We all know that the value of currency changes and that a dollar in 1907 is not the same as a dollar in 2007. If you look at the Bureau of Labor Statistics website, you’ll find that, aside from 1955, inflation has increased every year for the last 60 years. Knowing this, how are we able to keep our money working for us and not have it lose value with inflation?
The answer is fairly simple — real estate property investment. It’s easy to do, increases in value over the years, and has great tax benefits. Plus, it’s safer than the stock market and will keep your money working for you.
Let’s go into more detail with some simple number crunching. Because of inflation the depreciation of the dollar over the last 25 years has been 53.5%. This means that a dollar in 1982 has the buying power of 46.5¢ today. Therefore, it does not make good economic sense to leave your money in a low-yield savings account or other low-yield investments with such a high rate of decline. So instead of letting that money stagnate, let’s buy a house.
If you purchase a house in today’s market and in the right location, the value will increase in a few short years. Real estate has appreciated at an average of 6.1% over the last 30 years, whereas inflation is usually between 2-3%. Furthermore, real estate investments often exceed the rate of inflation. Assuming that these trends persist, in less than 12 years the house would be worth more than double the original cost.
Another benefit to purchasing an investment property is that you can rent it. This is one more way to make your investment work for you and accelerate your mortgage payoff. Receiving rent money is a great way to safeguard your investment and use inflation to your advantage.
Real estate investments are certainly a viable way to reap monetary benefits. Think of it as credit but instead of “buy now, pay later” it’s “buy now and it’ll pay off later”.
