Dave Friedman is Co-Founder and CEO of Knox Financial, the smart and frictionless way to turn a home into an investment property.
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The conflicting opinions on how much to worry about inflation make it all the more challenging to decide how to best invest your money.
On the one hand, you see columnists arguing that the price increases we’re currently experiencing are temporary and inflation over the next few years will be modest at most. On the other hand, you see numerous signals that rapid inflation could very well occur: The Federal government injected $4 trillion in stimulus into the economy over the last year; there have been reports of supply shortages on a variety of goods; and the Labor Department recently reported that the Consumer Price Index, an average measure of a number of goods we all buy as well as costs associated with energy and housing, rose 5% from a year earlier. On top of this, there have been significant price increases on items that make up large percentages of our budgets. For instance, childcare costs were up 47% due to the Covid-19 pandemic, and the cost of college has gone up 1,200% since 1980.
No one has a crystal ball for how bad inflation will be over the next five to 10 years. Still, when thinking about how to invest, it’s safe to assume that in a best-case scenario we’ll see modest inflation over the next decade, and in a worst-case scenario we’ll see significant inflation that effectively diminishes people’s savings. Given this reality, the question for people with money to invest becomes: Where’s the best place to put your money with moderate to significant inflation on the horizon?
In beginning to answer this question, imagine you could buy something today, at today’s pre-inflation prices, and pay for it later. That’s how mortgages work. You buy a property now, lock in the price and pay for it over time. Banks, in return, collect interest on the loan and offer buyers fixed interest rates at the start of the mortgage for its duration.
This is not a get-rich-quick scheme. It’s a patience game. Buy property and set it up so that your investment experience is passive. Then, just hold it.
Holding is the magic move. People often get advice from financial experts around making smart moves and shrewd decisions. What is less talked about is just holding and letting both inflation and real growth occur while you live your life. Many of the world’s best investors know how holding wins — just take a look at the returns Warren Buffet has seen from holding on to Coca-Cola shares for more than 30 years!
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My biggest advice is not to worry about inflation, but instead base your investment decisions on the assumption that inflation will occur to some degree. The institutional buyers know that with inflation, we’ll see a rise in home prices and a rise in rents, too. That’s why they’re deciding to buy residential properties now, finance them at mortgage rates that are still near all-time lows and generate cash flow by renting them out. (For more on that topic, see my past article on how to avoid rental property pitfalls.) If you’re looking for an investment that’s largely inflation-proof, you should consider doing the same.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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