As far as investments go, the stock market has a lot of fans. What’s not to like? It easily beats inflation because of healthy 5 to 13 percent annualized investment performance. Indeed, the hype for stock investment reached a fever pitch in the 80s that at least one financial analyst said that selecting stock based on a monkey randomly throwing darts at a stock list had a decent chance of meeting or beating the overall market’s performance. Talk about optimistic.
Sure, the stock market does quite well over long stretches of time-in 30 year averages, its appreciation record is quite impressive. The problem is, people need money in the short and mid-term. This is the reality investors faced in 2008-2009 when much of the value of the Dow Jones was vaporized over several months. Also, inflation is a reality serious investors need to monitor as well. As anyone who suffered through the ‘stagflation’ of post-Oil Embargo America in the mid-70s can attest to inflation was so high that it knocked off many stocks’ gains.
The truth is that while real estate may not be as sexy as stocks, especially after a housing crash, real estate, over the long haul, matches two key features that investors can find a lot of comfort and confidence in. For one, real estate appreciation usually beats inflation. In addition, real estate appreciates at a fairly healthy clip. If you also factor in volatility, or lack of it, as well as relative lack of monitoring, real estate might be your best bet to beat inflation and build long-term investment value. Factor the considerations below to help yourself make an informed investment decision.
Historical Inflation Fighting Powers
When inflation rears its ugly head, everything goes up in price. This means the amount of stuff a dollar used to buy last year isn’t as much as the stuff the same dollar buys this year. Eventually, that dollar can only buy a fraction of what it used to. Real estate’s price goes up as inflation goes up. Moreover, there is a demand premium of 1 or 2% tacked on to the piece of real estate’s price. You don’t get this with a bank certificate of deposit.
The Downsides of Owning Land
Sure, you can beat inflation by owning lots of land. The problem is your land ownership rights are not absolute. The county, city, or state you live in might pass a wide range of environmental regulations which might dramatically impact your ability to make money off your land. Moreover, federal regulations can be introduced and implemented at a future date which can significantly cut into your ability to sell or develop your land at a profit.