Written by Raymond Day, Certified Financial Advisor
Periods of inflation – when prices of goods rise faster than wages – are generally considered unfavorable economic times.
Hyperinflation is even worse, because of the extreme rise in prices that accompanies it. Hyperinflation is an economic condition resulting in the increase in prices at an extremely high rate.
The most notorious time of hyperinflation was in Germany right after World War II, when it took a literal wheelbarrow full of paper money to buy a loaf of bread. In a hyperinflation situation, prices can increase 50 percent or more per month. This situation is often caused by a near total collapse in a country's economic system causing its currency to become nearly worthless (witness Venezuela circa 2016).
It is often caused by excessive deficit spending by a government, which then results in the government printing more money to fund its spending, significantly decreasing the value of that money.
Hyperinflation causes prices to rise dramatically. Although it is often followed by rising wages, wages usually do not rise as quickly as prices. This results in consumers being unable to make ends meet. People with cash in savings accounts or certificates of deposit will see that cash devalued quickly. Companies experience financial problems and go out of business.
HERE'S THE POINT – Real Estate as a Protection Against Hyperinflation
Real estate is traditionally a good investment in times of high inflation, particularly if you have a fixed-rate mortgage. This is because you are paying the mortgage with money that is reduced in value because of inflation. Stocks can also work well in a hyper-inflationary economy, but generally only if your portfolio is well diversified with many stocks, and you hold the investments over the longer term.
Gold and Silver are also good hedges but terribly hard to manage unless you buy small denominations of the metals and hold them personally. That is a whole other conversation. If you want to discuss the value of real estate for yourself, I work closely with Team C and D, and they have my highest recommendation!! Give me a call and I will set up a meeting for you after we discuss your overall financial plan. Pro bono (no charge) of course.
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