How Inflation Impacts Investments and Actual Property (Podcast)

Inflation, investments and real estate

In the US, inflation is rising. In fact, it hit its highest level since 2008 at the beginning of summer. According to the Bureau of Labor Statistics, inflation is expected to continue to rise until at least January 2022.

Fortunately, there are ways to protect yourself against this loss of purchasing power and protect your wealth from inflation.

And buy real estate? It's one of your best options.

Mortgage advisor Arjun Dhingra discussed inflation and investment in a recent episode of The Mortgage Reports podcast. Here's what you need to know.

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Hear Arjun on The Mortgage Reports Podcast!

What is inflation

In the simplest case, inflation is a decrease in purchasing power. This means that the prices of goods and services have increased and that you will need more of your income to buy the same things than you did before.

"The old saying that $ 100 is no longer what it used to be definitely applies in times of inflation," Dhingra explained on The Mortgage Reports podcast.

“If you look at a bundle of goods and what used to be bought for $ 100, you are now likely to find that the same bundle of goods is more expensive, say $ 110 or $ 112. That's inflation, ”he says.

Inflation Rates in 2021

Inflation rose steadily in 2021.

In January the inflation rate was still 1.7%. By April it had risen to 4.2%. And according to the consumer price index in June, it was 5.4% – the highest level since August 2008.

"If you've been away, you've seen this inflation yourself," said Dhingra.

“When you recently topped up your gas tank, you noticed that it is a lot harder on your wallet. Or if you have checked out in the supermarket, the bill is much more expensive. "

These higher prices make it easy to see the impact inflation has on your daily expenses.

But how does inflation affect your investments? And what can you do to protect yourself from it?

Protection against inflation

Fortunately, there are ways to protect yourself from inflation – known as "hedging".

When you hedge against inflation, you're investing your money in something that either:

Maintaining value during the inflation period (and thus preventing financial losses) or increasing value during the inflation period

According to Dhingra, there are three main tools you can use to hedge against inflation: the stock market, bonds and hard assets (like gold), and real estate.

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How inflation affects stocks and bonds

There are many risks with stocks. As you see your purchases increase in value, you can also lose money – and quite a lot of it.

As Dhingra put it, “The stock market can be volatile. So this may not be the best place to start if you don't have the stomach for the roller coaster. "

Bonds and hard assets tend to be a more stable bet, and as Dhingra calls them, more "conservative".

Still, they can serve as a solid hedge. "You may not be growing as aggressively and can often be described as your grandfather's investments," Dhingra said.

How inflation affects real estate

According to Dhingra, real estate is often the best choice if you want to protect yourself against inflation.

“Historically, real estate as an asset class has always hedged and developed well against inflation,” he said.

"That's because you have three big advantages when you invest money in real estate: appreciation, amortization, and taxes."

Let's take a closer look at these three advantages.


Appreciation occurs when an asset increases in value – which housing construction has done significantly in recent years.

In fact, according to the Federal Housing Finance Agency, real estate prices rose by a whopping 18% between May 2020 and May 2021.

"Appreciation has definitely been one of the biggest perks of owning real estate lately," Dhingra said on the podcast.

“They have annual appreciation rates that double, if not triple, the rate of inflation in most markets. So this asset that you are investing your money in is going to increase in value, ”he said.

Also, the rate at which most homes grow in value far exceeds the interest rates on most home loans.

This means that many homeowners will get a higher return – in the form of equity – than they pay for borrowing.


When you mortgage your property purchase, those costs are amortized – that is, you can spread the costs over time, build your wealth, and lower your costs month after month, year after year.

This is not an advantage that you get with other arrangements (e.g. rent).

As Dhingra explained, "You can now write yourself a check in place of your landlord so that you pay off your own mortgage and balance, not someone else's."


Finally, investing in real estate can also have tax advantages.

Mortgage interest is deductible in many cases. As long as you break down your returns, you should be able to write off the money you spent on interest over the year, as well as any interest on home equity loans or HELOCs (assuming those funds were used on renovations).

If you only applied for your mortgage last year, you can also write off the mortgage interest and points paid on completion.

"The annual amount of interest you pay on this mortgage will be taken in the form of a refund or part of your tax burden," said Dhingra.

Note: This site does not provide tax advice. For more information and advice on your situation, contact a tax advisor or financial advisor.

Are you considering buying a property?

If you decide to hedge against inflation by investing in a house or property, Dhingra says it is important to seek help from an experienced financial or mortgage advisor. They can help you find the best mortgage product for your goals – and your long-term wealth.

You can get started right here.

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