Investors holding assets for long-term results recognize the risk of inflation because high inflation erodes the real returns accruable to them in the future. On this account, assets that are inflation hedges appear to be more attractive than those that are not. Historically there have been two types of investments preferred as hedges against inflation: gold and real estate.
Purveyors of gold will tell you that it holds its value over time. However, while inflation has raised an average of 3.1% per year since 1925, the value of gold has only increased from about $800 per ounce in the late seventies and early eighties to about $1,000 an ounce in today's market.
Real estate is also an efficient hedge against inflation that can help diversify your portfolio, and it also provides tax advantages as well as producing income. There may be risks involved in real estate, but you will never sustain a complete loss of value. Unlike any other investment, your investment is insured for its true value. If there is fire, storm, flood or hurricane demolishes your investment property, you get no less than your initial investment back if insured adequately. This is in stark contrast to the stock market; If the stock market crashes, you lose everything. Real estate is a tangible asset that always has value.
Tax laws allow write-offs for expenses incurred by the owner in acquiring and maintaining the property as well as depreciation. The current tax structure shields any income received from investment property from FICA taxes and allows the owner to defer capital gain taxes.
Many would be investors have traditionally thought of investment real estate to be limited to vacation condos or single-family rentals. There are tremendous opportunities available in multi-family dwellings including apartments, office buildings, self-storage facilities and other commercial properties. The level of involvement in management is something that can be set by the individual. Some owners choose to manage their properties themselves while others pay a management company to take care of the day-to-day details.