Patrick Grimes is the founder of Invest on Main Street, a private equity firm managing passive multifamily investments in emerging markets.
Everyone is talking about inflation these days. Knowing that products and services you buy are going to cost more can be frightening, especially if you’re locked into an income that doesn’t keep pace with inflation. Paying more for toothpaste may be the least of your worries, as retirement accounts take the biggest hit when the value of the dollar decreases.
If you’re concerned about what inflation can do to your retirement dollars, it may be time to consider inflation-hedging investments. Unlike stocks, bonds and mutual funds, investing in real estate can make inflation actually work for you, increasing your income as inflation rises.
While real estate investing is a proven wealth-building tool, most busy professionals don’t have time to be DIY landlords dealing with tenants, toilets and trash. However, it is possible to achieve the same inflation-hedging advantages without the headaches by investing passively through private-equity-firm-sponsored real estate syndications.
What Is Inflation?
Inflation is a decrease in the purchasing power of a dollar. What a dollar could buy in 1950 now takes $10 to purchase today. Inflation is caused by a number of overlapping factors. For example, during the Covid-19 pandemic, we saw inflation raise the price of goods and services as supply chain issues negatively affected production and delivery. But global pandemics aren’t the only things that cause inflation. Supply and demand, fiscal policy, corporate policy and manufacturing costs can all lead to inflation.
Inflation Can Diminish The Purchasing Power Of Retirement Accounts
Where inflation is truly dangerous to the average person is in retirement savings. It can be the slow silent drain that reduces the purchasing power of retirement dollars.
While the Federal Reserve believes that a 2% inflation rate…
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