Many working professionals think of real estate as an avenue for wealth creation. And they should. It was my primary strategy for wealth creation for the last few years. Especially in this appreciating market environment, those with real estate assets may fare well. However, what many of us fail to consider is that real estate is also a great store of existing wealth.
What do I mean by ”Store of wealth?” Especially in this inflationary environment (as I write this, inflation was reported to be at 7.9%; many estimate much greater), it is important to have a plan for beating the ongoing and precipitating devaluation of the dollar. $10,000 dollars in your bank account in 2019 will not buy the same amount of goods and services in 2022. And the trend continues.
For years we felt richer. Strong economy, government stimulus, strong employment demand, and so on…all are drivers for continued affluence. Well….until all the government printing caught up to us. This year (2022), we are finally seeing prices rise and they it will continue to do so. Those who want to be safe can keep their wealth in dollars or they can invest to beat and pace inflation. So how do they do that?
Stores of Wealth 💰
While it is important to stay liquid, dollars is not the answer for storing wealth. It is a sure way to lose your purchasing power for future goods and services. Instead, investing in inflation-proof assets such as real estate has repeatedly proven to pace and beat inflation. Holding a or passively investing in real estate assets can protect your wealth from inflationary loss. As an example, while the money supply growth from 2019 to 2022 is causing immense inflation, I plan to sell my second rental this year for nearly double what I paid. Am I richer? Possibly, but not as rich in real terms. However, my wealth gain on my rental after just three years will easily beat inflation.
How To Operate In Uncertain Times
Pay attention to the clues in the news. Fed rate hikes, government spending, rising costs, supply chain shortages. Each of these point to uncertain times and questionable faith in the dollar. Couple your wealth creation with wealth preservation. Stay liquid with reasonable cash reserves, but prioritize inflation-proof assets.
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Rodney Robinson II