One topic on economists, advisors and investors’ minds of late is how to invest in a way that benefits from inflation. To answer this question we first have to make an assumption – that we will in fact experience an inflationary cycle. That is not something I can answer with certainty, but my personal belief is that we’ve had inflation for a very long time and all the reports about little or no inflation or even deflation is nonsense. That said, should president-elect Donald Trump be successful implementing some of his policy pledges, we could have a period of greater than normal inflation. I am sure you have heard that Mr. Trump wants to reduce the tax rates on both businesses and individuals while simultaneously embarking on an infrastructure spending package upward of one trillion dollars. If these pledges turn into reality wages and prices could rise. So where do you put your money to take advantage of this potential reality?
One innvestmet avenue is real estate. If you have the means, the knowledge and the desire, you could purchase investment property. This investment could be something such as a one bedroom condominium that you rent out. Or if you have more money and experience perhaps an apartment complex, office building, or industrial property. Investment real estate can make excellent investments. If done right, you will collect rents that increase with inflation together with a property value that will also increase with inflation. At the same time, you can get very nice tax advantages from real property investments.
What if you don’t have the money or the desire to become a landlord? You can take advantage by investing in Real Estate Investment Trusts, or REITs. A REIT is an investment vehicle that trades shares much like a stock. You buy and sell shares on the open market through your broker whenever you desire. This strategy allows for much more flexibility than owning an actual piece of property and you have no maintenance to deal with or tenant vacancies to fill. REITs are also required to pay out at least 90% of their annual income to shareholders so they are generally good vehicles for income investing.
Before you invest a dime, however, do you homework and understand the risks and the possible rewards.