How do you hedge against inflation?




Inflation in the U.S. hits a 40 year high of 7.9% according to the U.S. Bureau of Labor Statistics. So what are you doing with your dollar - are you waiting on the sidelines for the market to correct?


When I see prices at the pump or prices for material goods go up, it makes me think of how the value of a dollar is decreasing. Even my favorite store, the Dollar Tree is now charging a lot more than just a dollar.


When I think about inflation, there are some options like owning crypto, commodities like gold or silver, or inflation stable funds, but there are sizable fees associated with those assets. Crypto hasn't been proven yet, and placing money in a savings account isn't ideal either because interest rates are nowhere close to that of inflation.


For me, my strategy against inflation is investing in real estate. A real asset - because I can make money with real estate even though inflation rates surge.


Here's how: As inflation goes up, so do rents. If you think about it, the rent you paid in college a few years ago, isn't the same rent as it is today. In fact, renting the same room is probably a lot more today. For example, my 2 bedroom apartment that I rented over a decade ago for my MBA in Evanston was 2/3rds the price it is renting for now. The leases for multifamily units in particular typically renew annually, so there is plenty of opportunity to ensure rents are at market prices.


Rental prices can adjust up in line with inflation while the mortgage against my property typically will remain the same, so there is opportunity for rental income to keep pace with and likely exceed inflation. On the equity side, when inflation surges, property values also increase, we can win against inflation in two ways: income from rents and equity from increased property value.


So although inflation may be the highest it's been for a long time and although I can't control inflation, what I can control is where I invest my dollars and how I protect my hard earned money from the impact of inflation.