Beat inflation by investing in real estate
One of the often forgotten benefits of investing in real estate is that it’s fairly easy to borrow money for the investment. No bank will lend you money to buy stocks or gold but banks will lend you money to buy real estate. Why? Because real estate is a tangible asset that is generally considered a very safe investment. Also, if you can’t pay back the loan, the bank can reclaim the house which is not possible for most other assets.
The benefit of getting a loan to buy a house is that as the value of your real estate increases, you realize gains on the entire amount even though you only have a small percentage of your own cash invested. For instance, if you put a 20,000 dollar down payment on a 100,000 dollar house and it goes up 5% in a year, your actual gain is 25% since you only have 20,000 dollars in the house. Of course, there are other expenses and the numbers are rarely as neat and clean as that but the principle is the same. The practice of borrowing money and investing it is called leverage.
The byproduct of this is that buying real estate using a loan is a great way to beat inflation. If you get a 30 year loan, the bank loans you money today (before inflation makes those dollars worth less) and you have to pay the loan back with dollars that are less valuable. Historically home values have appreciated at a little more than inflation rates (and often times quite a bit more) so that buying houses is an excellent way to beat inflation.
Edit:
As of December 4th, I think that it’s more important that ever to reinvest your savings in a way that will not be eroded by inflation. The Federal Reserve has printed unbelievably large amounts of money to get us out of this recession and the obvious result is that in the next year there will be high levels of inflation.