If you’ve seen the news, you’ve heard that our economy is heading into a period of inflation. What is inflation? Essentially, this means that the price of EVERYTHING goes up. So, this begs the question – should you invest in land or the stock market during inflation?
Let’s take a look.
What is Inflation?
Inflation is what happens when the cost of all the goods and services economy increase. Not just one item (like gas during the summer, or toilet paper during a pandemic), but the cost of everything.
Generally, this happens when people have money that they want to spend. Why do people need to spend money? Well, if interest rates are really low (my money market account is returning 0.25 percent), people have more money to spend (from, let’s say, a stimulus or 3), and the federal reserve pumps money into the economy which they have been doing.
What Does This Mean for Your Investments?
It means that you want your investments to beat the rise in inflation. If they don’t, you are losing purchasing power. If inflation is 5% per year, and I have a money market account returning 0.25% per year, then I am losing 4.75% on the value of that money. It would make more sense for me to spend it now, or invest in something that returns more than 5%.
What Are Good Investments During Inflation?
So what are some good investments? Typically, experts recommend investing in commodities, or the things that people buy, during inflation. This makes sense. If prices are going up for certain things, then making an investment in those things will bring a good return.
Some commodities that people recommend investing in during periods of inflation include gold, oil (gas), and real estate.
Let’s talk about Real Estate… Because, you know, I like that one 🙂
Why Should You Invest in Real Estate During Inflation?
Real estate is generally considered a good investment because the value tends to appreciate over time. If you buy a house today, then chances are that the value will rise over the long haul. Even when the real estate market crashed in 2008, people who bought their home at the height of that market in 2006 or 2007 would still be able to sell it for more money today if they held onto it.
For investors with rental properties, you can also increase the rent when market demand and prices increase.
What About Land?
I like land because it is not correlated to the stock market. This is a “thing” that people will buy when they are want to find alternative investments outside of the stock market, like gold or oil.
While land investments may not increase or decrease as much over time as houses or condos, the expenses are WAY lower for a raw piece of land. You don’t have to worry about termites, 2 am phone calls for toilets backing up, or the roof blowing off in a storm. Taxes are usually less than $10 a month, and there are no property insurance costs.
What Should You Invest in?
This brings me back to the original question. Should you invest in land or the stock market? Ultimately, this is a personal choice, and it depends on your investment preferences, risk tolerance, what you are using your investments for, and others.
I can tell you that my wife and I invest in both land and the stock market because we believe that we shouldn’t put all our eggs in one basket.