Inflation is becoming a familiar concept to most Americans of late. News outlets, financial experts, and even your neighbors are talking about it. If you need more dollars to purchase goods, you need to earn returns at the same rate or higher; otherwise, your capital's worth will quickly dwindle.
Real estate has long been a solid investment, but it is especially attractive in times of inflation. So, the question becomes: How do you preserve your savings in an inflationary market? Find out why investing in real estate is a good idea when the inflation rate is high so that you can protect your savings -- no matter what the economy does.
Inflation in the U.S.
Over the past 100 years, the U.S. has experienced 19 distinct recessions. Opinions vary on how to handle this and get the economy back on track. A deflationary environment can be fostered, or an inflationary approach can be taken. The government has chosen an inflationary response to the COVID-19 recession our country is currently experiencing.
In the last year, the Fed has printed money in the hopes of stimulating spending and, ultimately, supporting the economy. Since March of 2020, the Fed has put an additional $342 billion into circulation. And while there is some talk of slowing, the Fed increased the 2021 print order by 30% to 65% of the amount requested at the end of 2020.
Protecting the value of your money
When more dollars compete for the same number of goods, those goods are priced higher, affecting everything from the cost of a bar of soap to the price of fuel. In many cases, the cost of living increases across the board, causing groceries, housing, utilities, and other goods to become more expensive than they were.
If your savings or investment account does not grow at the same rate as or faster than the cost of goods, your savings is actually dwindling, which can be disastrous for those who are retiring or depending on that money.
So far, in 2021, the current reported rate of inflation is around 5%, while the average interest rate on a savings account is around 0.6%. So, what investments can generate a 5% return on investment (ROI)?