How Real Estate Can Serve As A Hedge Against Inflation

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Inflation has become a major buzzword over the past two years—and for good reason. Ongoing supply chain issues and increased consumer demand have driven the prices of goods and services to record highs. According to a report by the U.S. Bureau of Labor Statistics, inflation increased by 7.7% during the 12-month period ending in October 2022.

The challenges inflation poses are widely felt. Despite these challenges, investing thoughtfully can help you minimize the effects of rising prices and add some stability to your portfolio. One way to do this is through real estate.

The Economic Impact of Inflation

Before we dive into how you can use real estate to hedge against inflation, it’s important to have a clear understanding of how inflation affects the economy and why it can complicate your current investment strategy. 

Although inflation is an ongoing reality, it’s also one of the biggest drivers of change in our society. The reason is simple: When there is more money flowing into the economy, prices go up—sometimes significantly. Major market events, such as the recession caused by the COVID-19 pandemic, can further amplify the impact of inflation and affect the value of investment vehicles such as stocks and bonds. 

Why Real Estate Prices Rise Along With Inflation

While many asset classes are negatively affected by inflation, real estate doesn’t generally face the same challenges. This is because real estate is considered to be a hard asset. Also known as tangible or real assets, these types of assets have intrinsic value beyond their monetary value. As a result, they have only a low correlation with soft assets like stocks and they tend to outperform other investments during economic downturns. 

Another reason real estate investments typically perform well during periods of inflation is that property prices rise alongside the prices of other goods and services. This can significantly increase rental income, making real estate an attractive option for all types of investors. 

How Hard Assets Can Help Preserve Savings

If you’re considering investing in real estate, it’s important to choose the right investment platform. With historically resilient, institutional-quality assets, Fundrise allows investors to maximize their returns while keeping fees to a minimum.

Built to withstand periods of economic hardship, Fundrise portfolios are designed with diversification in mind. Whether you’re investing $1,000 or $10,000, you can select an investment plan that works for you. You can also get started with as little as $10 and grow your account over time. 

As we look to the year ahead, inflation will likely remain a challenge for months to come. Investing in illiquid assets like real estate could help you offset some of the effects of these trends. By weighing your options carefully and looking for an investment platform that allows you to access the types of investments you want, you can help to safeguard your portfolio and achieve your long-term goals.

Article Sources
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  1. U.S. Bureau of Labor Statistics, “Consumer Price Index Summary, November 2022, https://www.bls.gov/news.release/cpi.nr0.htm.”