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An Inflation Hedge

With growing federal debt levels and widening deficits around the world, concerns about future inflation are growing, especially due to the potentially damaging effects on a long-term investment portfolio. However, real estate income over the last 20 years (see Figure A below) has increased at nearly the same average annual rate as inflation (2.76% vs. 2.35%). In contrast, bonds are a “fixed income” investment, which means the income they generate does not increase with inflation, exposing the investor to the risk that inflation will erode the value of future interest payments. Similarly, principal payments do not grow at maturity, whereas real estate may appreciate over time, especially during periods of high inflation. An investment in bonds differs significantly from an investment in NAV REITs and bonds are considered to be a less risky investment than commercial real estate.

Real Estate Income Keeps Pace with Inflation
Figure A