Did you know that inflation makes your stock portfolio worth LESS every year? Read on to find out why multifamily is a great hedge against inflation!
We invest to grow our wealth. Problem is, there are forces working to devalue our returns.
Inflation is one of them. We know that the price of goods and services tends to go up every year. Which means the value of a dollar goes down.
What does that mean for your stock portfolio? And how does inflation impact multifamily?
In this week’s video blog, we take a look at how inflation shrinks stock market returns—and what you can do about it!
We discuss the Federal Reserve’s target inflation rate and how it affects your stock portfolio.
You’ll understand how inflation actually benefits multifamily and why apartment investing is a great inflation hedge.
Watch the video below (or keep reading).
What the Inflation Rate Means
The average inflation rate over the last 10 years was 1.6%. And the Federal Reserve target is a 2% annual inflation rate. It says so on their website! So, what does that mean for you?
It means that the Fed aims to devalue your savings and reduce your purchasing power by 2% every year.
If you invest in the stock market, that means the 7% average annual return you thought you were getting over the last 15 years is really only about 5%. Yikes!
How Inflation Helps Multifamily
What does inflation mean for multifamily? Well, for most people, housing is their largest expense. And when inflation rises, the cost of housing goes up too.
This is a very good thing for us as multifamily investors because our revenue stream is increasing. At the same time, our biggest expense—the mortgage payment—is fixed!
The result? Inflation allows us to charge more for rent, while our debt decreases in value.
The Multifamily Math on Inflation
As a result, multifamily is a great hedge against inflation. If you do the math, a 2% inflation rate (the Fed target) translates to a 10% return on equity!
There is no other investment that benefits from inflation like this. While your stock portfolio and your savings are worth less and less every year, multifamily returns continue to grow.
No question, multifamily is a better investment than stocks when it comes to inflation:
· Inflation decreases the value of stock returns
· Multifamily returns grow with the inflation rate
Want to know more about investing in the stock market vs. multifamily? Download our Special Report: What’s the Best Investment? Stocks or Real Estate!
The idea that a 2% inflation rate results in a 10% equity was an AHA moment for me … you?
Let me hear from you in the comments below!