You are the only one responsible for your financial future. No one is coming to save you.
Not your government, not the federal reserve, and God knows, not your political party. That is why you must make good decisions and use good strategies for your money - especially in difficult market times of disruption or recession.
Today, we're dealing with record setting inflation and market factors we haven't seen in decades or ever in the history of the United States. In the last 24 months, the FED has printed over 80% of dollars ever made. I’ll say it again… In the total history of the US, over 80% has been printed in the last 24 months by the Federal Reserve. Now we're dealing with inflation that is affecting all classes - top to bottom - of American society.
For those that don't know me, I am Nic DeAngelo of Saint Investment Group. We currently have over 150 million assets under management and we are currently raising another 100 million. The reason I write these blogs is because I am positive, and the very living proof that investing is the number one way to personal freedom and I wanna share this information with anyone and everyone that I can help through my experience.
Today, we're gonna talk about inflation, the different investment options that people recommend during times of inflation. I'll end each section with my own opinion on that particular investment style during this time.
Before we jump in -
A quick reminder for you: I am not a lawyer. I am not an accountant. I'm not a certified financial planner. Everything we're gonna go over in this video is my own opinion and some strategies that we use to be effective in markets like today's. Before making major financial decisions. I highly recommend talking with those professionals I previously mentioned and making sure it's the right fit for you.
Now that’s said, let's get started..
What is inflation?
Simply put, inflation is taking a group of assets or a basket of goods of an economy and measuring that over time. The rise of prices and the cost of those goods is inflation in its simplest definition. This is typically measured over a specific period of time.
Simply put, because of inflation, what you buy today is going to be much more expensive tomorrow, five years, 10 years down the line.
As a general rule, inflation is going to fluctuate. Things fluctuate in any economy, drastically, and sometimes things halfway across the world, like a war in Ukraine or supply chain disruption or manufacturing changes, can affect inflation as well. Some are very predictable, AKA like the United States Federal Reserve printing such a ridiculously huge amount of money in the last 24 months. Other factors are more difficult to predict such as COVID 19 or huge surprise disruption in global markets. Overall, in any economy, there's gonna be some degree of inflationary pressures and deflationary pressures. These are natural and actually healthy that they even and flow within realistic normal ranges.
As a matter of fact, there are actually positive benefits to inflation.
This is something that no one talks about.
For one, it actually motivates people to buy more goods and services today, because if you are confident things are going to be more expensive for that exact thing you're gonna buy or considering buying, you’ll want to buy it today.
One reason why the Federal Reserve and the US actually like inflation is because it stimulates an economy in a weird way - as long as it doesn't get out of control.
On a geopolitics and a global finance scale, having more inflation in the US actually allows the government to slowly inflate its way out of debts. Because if the US borrows, let's say, a trillion dollars from another country, what happens if you're actually inflating your way out of that debt is, because you borrow that 1 trillion and the dollar gets weaker on that with its inflation, the dollars that you pay back to that country are weaker dollars.
Now it's also a benefit for investors in the very same way.
If you borrow say $100,000 from the bank and inflation over a period of time is 10%, let's say it's 2% a year for five years. That 10% you actually had that a hundred thousand dollars debt that you borrowed you now pay back 100,000$ at a 10% reduced value of the dollar - so, it can be actually beneficial to investors, particularly for real estate.
The big takeaway here is that inflation is normal within markets and very healthy if done correctly in the correct range.
What we are experiencing today for inflation is essentially runaway inflation.
It's crazy inflation, much more above the levels that are acceptable or healthy. Today's inflation is a huge issue. So, what do you do about today's inflation? Let's go through some of the strategies that people have used historically, and that people are using today to combat inflation and hedge against the effects that inflation can bring when it's up too high.
Again, you are the number one person responsible for your financial future and your family's financial future. The most important task is to evaluate the economy as you see it - the facts and the trends in front of you - and make your decisions to make sure you are hedging against whatever inflationary factors are up ahead.
Let's start with the classic standard issue.
The number one hedge against inflation, that people said for many years, is gold.
Now, basically, gold is a precious metal. We know this. For thousands of years, for all of human history, people have attributed a high value to gold and it has often been used for currency. Up until about 1971, the dollar that we used today was gold backed, meaning you could actually trade that in and get physical gold. The theory was that it actually produced a more stable dollar.
The overall pro of gold is that it's a physical asset. You can touch it - It's tangible. You can't just print more of it and you can't exponentially grow it at crazy rates. There is some degree of supply constraints, which is good because it keeps supply and demand - theoretically - in a good balance.
Because of that, gold has actually been a decent hedge against inflation in many different inflationary environments. That said, just because something was great in the past doesn't mean that it's automatically great in the future. We need to verify and analyze different methods and see if they're effective today.
Here are some of the downsides of gold - First, it's a physical asset, which is a double edged sword. Though it’s nice to be able to touch something and see something and have an idea just from that physicalness of the product or asset, It also has a downside. Could you imagine bringing a bunch of gold bricks in a big bag and lugging that around to protect yourself from the dollar? I would imagine, no. Having to lug around that big bag of gold just doesn't seem really efficient. So what do you do? You can shove it in a safe, but just like anything that's physical, people can walk in and pick it up (aka steal it) and walk back out. So that doesn't really have any protection other than the four walls of the safe that you put around it. The number one assumption of gold is that, because the supply is relatively limited, the demand is gonna be in check - and that when the dollar goes crazy, gold is going to offset it.
That 's called appreciation betting.
Now in the last several decades, we haven't seen gold appreciate like everybody has talked about, and that offers a huge risk to gold buyers.
The appreciation that gold has shown in previous downturns, it doesn't look like that now. Gold does not have that hedge against inflation that it previously used too. In my opinion, the number one issue with gold is that it doesn't pay any type of income.
There are assets that we will continue to go through that throw off dividends - they throw off set fixed income or they throw off variable income that rises directly lock step with inflation or greater than inflation. Gold is a really top sell for somebody, in my opinion, who invests full time, because there's no cash flow – there's no income on it. It's a physical product, but it has no upside of appreciation in the last several decades in any significant amount. Aside from that, it has no cash flow.
So, if you were asking me my opinion on gold – it's a non-buy for me
.Next step on our list is equities.
This is a major debate.
Equities on one hand, over a long period of time, produce some stable gains, if you look at the charting. On the other hand, equities dip during recessions. Companies have huge issues when there's not a lot of liquidity in the market. When things are going crazy and there's a lot of turbulence, people tend to pull their money out of the market.
Just like gold has an appreciation issue during inflationary times, my research has shown that equities are also not very stable and have an appreciation issue during turbulent and inflationary times. Now, while I would rank equities above gold still, I personally have many equities that I still hold today. I don't believe equities are the number one cure at all for an inflationary environment.
Just a side note of today's environment… It's one thing if the FED was still doing quantitative easing and pumping, essentially, trillions into the market and buying up assets, offering a lot of cheap liquidity and keeping interest rates low. That's not what we're seeing today. We're seeing interest rates rise rapidly. We are seeing quantitative tightening, which is the opposite of quantitative easing. There's an old saying that many investors use, which is “don't fight the FED”. That's why the dip strategies and equities work for so long, people are like, “I'm a bazillionaire. I'm beating the market. I'm doing all these great things because I'm buying the dip every time these idiots sell off their stock, I'm buying the dip. My chart keeps going up”. The issue that many of these guys didn't even understand is they were betting on the FED. They were working with the FED. The FED was in the middle of quantitative easing and buying into the market and raising all these prices.
There's cheap liquidity plentiful in the market, but today that's changed by the dip, and is actually - in my opinion - betting against the FED because they've pulled out their quantitative tightening. They are selling off different assets, not buying them. Interest rates are going up, so all around things are tightening. Buying into the market today, if you want to look at it as “don't fight the FED”, you are doing the opposite. You are ‘fighting the FED’ by buying into equities today.
I am not buying equities at this time. I'm waiting to see. I bought a little bit at certain intervals that I thought the pricing was worth it versus the risk. At this point, with things still sliding - even snowballing into even worse territory, I am not buying equities personally. There is, however, an option that is traded publicly that is not fully equities, but also has its feet in a different asset class…
Those are REITs - aka Real Estate Investment Trusts.
REITs are typically full of real estate assets that are owned by the REIT. And these assets generate income from owning them and from the income associated from leasing, or buying and selling at higher prices, et cetera. The REITs then pay out dividends to the investors.
Long story short, all of a sudden we wake up and there's a little bit of income there.
Just like gold had zero income REITs, they typically throw off a dividend to give the investor some income. REITs also have the benefit of an appreciation, if they're doing well.
I think that's fantastic, but the issue with REITs is they still have some of the issues of regular equities so they are also subject to the issues of supply and demand.
RETIs are nice because they have some real estate involved, and some of the real estate fundamentals, but I don't personally invest in many REITs – and I'm definitely not doing anymore today because of the fact that it's still ‘betting against the FED’. All the same issues of equities are in there.
REITs typically also have a very high tax burden internally because they're often buying and selling different assets. This is something that much of wall street has to do as they have quarter to quarter updates. They have regular updates where they must show investors all the amazing things they're doing. Most REITs similarly operate quarter to quarter or much quicker. The opposite of that strategy would be a Warren buffet style - he's looking at decades and generations of investment strategy. Most REITs have to operate on a short term basis because they're publicly traded and they must show their investors. They're doing all these great things, but that often can create tax drag that's much higher.
For me personally, I have invested in REITs in the past. I don't hate them. I've made some decent money, and some okay money. It's good to diversify with a little bit of REITs for a portfolio like mine. However, I personally am not buying anymore right now, and I don't plan to anytime soon because of some of the other opportunities that we have coming up.
Commodities are up next. Let's talk about commodities.
Commodities are essentially a broad category of goods. That includes everything from grain to precious metals, oil, beef, orange juice, natural gas, et cetera. Commodities typically can be a very good hedge against inflation because people need these things. They're items that are stable, are required in global markets, local markets, et cetera, and because of that, commodities can often rise in price along with inflation – meaning, they're a pretty good hedge.
If you think about it from that perspective, some will perform better than others; some won't perform as well, but that's just due to supply and demand and market issues, but that's just due to market fundamentals.
There's one big drawback to commodities.
It’s the storage of the physical assets.
If you buy, let's say a hundred barrels of oil, what are you gonna do with those barrels? Do you have storage for a hundred barrels of oil? Or what about grain? If you wanna buy grain, do you have a warehouse you can just throw a bunch of grain into? The average commodity interested investor probably does not - and it's probably even more difficult to invest in a large amount of different commodities if you wanted to do so. Oil wheat, natural gas, beef - what are you gonna do with all this storage?
A huge drawback of commodities is just figuring out how to manage the physical assets you're buying. There are, however, good solutions for this – certain ETFs specialize specifically in commodities. Luckily, commodities have options like electronically traded funds, AKA ETFs. This solves the problem of storage. Most of these you can own for a pretty low cost basis with all things considered.
There are some good options out there for commodities trading funds. There's the standard like iShares, GSCI, Commodity Index Trust, along with so many more. I definitely would recommend, like anything else, doing the research. There is so much information regarding this topic, I recommend looking into it if you think commodities are a good fit for your portfolio. That said there are also big drawbacks to commodities other than just the storage of the assets.
Commodities are by definition, highly volatile because there are market factors, worldwide, that affect each and every commodity and the individual investor that's just looking to hedge against inflation and make a reasonable return. Typically those storms of what's going on in the greater global economy are way beyond what that individual investor is able to plan against or even foresee - especially when not even any major government is not able to see most of these issues coming.
For the everyday investor, there can be major volatility that that individual might not be accustomed to, ready for, or able to withstand with their current portfolio - so there's some risks there.
All in all, what I do like about commodities is they just offer a pretty strong hedge against inflation as long as they're well chosen. So choose wisely.
Make sure to look into what you're doing before you do it. Personally, I sit in the middle of the road on ETFs related to commodities. So do your own research and make an educated decision, no matter what direction you decide to take.
Alright! Now, we're jumping into the stuff that I really like - my favorite and final two that we're going to go over today.
Now let’s jump into fixed income investments.
These are one of my personal favorite investments - and here’s why - I think if you understand the strategy behind them, they're one of the most impactful strategies you can use depending on your financial situation.
For me, I used fixed income investments very effectively and very aggressively during the phase in my business where we had somewhere around six different companies functioning at once. We were up to our eyeballs in management via in daily operations. It was really insane.
We were successful and making a lot of money - the business was doing very well - but it was very lumpy. It was seasonal. We had many ups and downs, from everything - even like regulation, for example. Because of this, it created a lot of stress because I was having to pre-plan everything from one side of the business, and honestly it began affecting me personally, even so far as my health, as well as the overall health of the business.Not only with me, it also affected the stress levels of staff at the end of the day.
One of the solutions I found was in investing in fixed income assets. For me it evened out the pros and the cons – and when we were doing well financially, I would put even more into fixed income investments. What happened was, when things were going bad, a bigger percentage of my income was coming from the fixed income investments - so it secured and stabilized my income overall giving me immensely more peace. I knew exactly how much I was getting every month.
For all business owners going through a growth phase - eventiably, with lots of ups and downs, I cannot recommend diversifying your income into avenues that are going to give you back income and create more stability in your finances, enough. This benefits your business and yourself.
So why is this asset class so effective during inflationary times?
Well, the FED actually literally releases its inflation numbers on a regular basis. If you're looking at these inflation numbers and you're seeing what the FED is pegging their inflation rate at during that given period of time and you are multiplying that and extrapolating that over a year, – all you have to do is run some very basic math on the numbers that the Fed's giving you and look at fixed income opportunities on the other side. If the Fed's pegging 7% for inflation during a period of time, then all you need to do is find an investment at 8% or greater, and you have effectively hedged against the inflation. It’s simple enough, right? Then you confidently know that you have some income that's going to come in, whether your other investments are up and down.
That confidence in your cash flow is insanely valuable in inflationary times.
What are fixed income investments, specifically? There are some bonds that you can find, many bonds are paying a lower rate right now, but there are still some that are even tax free, municipal bonds. For instance, there are things like annuities and different types of income funds based on different types of asset classes between these main fixed income investments. You have an opportunity to have some stabilized income by adding another revenue stream.
You're basically buying another stream of income and adding that to your portfolio as a really important balancing factor.
A caveat to these, and a main reason why I don't think fixed income is the only route you should be going, is there is no appreciation here - typically if you're getting a good rate of return. So you can't bet on the future of appreciation and today's fixed income.
Usually, if it's a competitive fixed income rate, you're not going to get appreciation on the backside. So my advice would be to look for something else. Commonly what I'd see is a trade off of if you're not getting appreciation, you get a lot more flexibility - so different structures such as getting your money back in a handful of months versus a five or seven or 10 year fund model. For all those reasons and balancing factors, I personally do like fixed income opportunities.
I believe there's a huge piece in the portfolio for them, if you can take risks. You can do more stabilized, more appreciation-based investing, in other areas – and that fixed income side is going to really balance out your portfolio in a big way. It's pretty dang conservative.
Often the model of most of these funds and bonds, etcetera, are a very conservative asset base. So in times of inflation, you can bet on that income while everything else is going crazy in the market. It's typically backed up by very secure assets and you, as an investor, can have a lot of confidence in where your income is also coming from and you're not going to wake up one day and your money well is dry. Overall, I definitely recommend checking it out.
Now, for my absolute favorite investment option of all time. For me, it is - No question - the best and where I spend 80, 90% of my time, every single day of every single week, is real estate investing.
Now I can sell you on real estate in general and I can tell you all the amazing things about it, but we are going to focus in today only on the benefits as it relates to inflation.
Now, real estate during an inflationary period has the opportunity for both sides of the fence. It has the opportunity for appreciation and it has the opportunity to maintain your income.
On one hand, you have the opportunity to benefit from appreciation of a property, and on the other hand, you have the opportunity to benefit from income growth on the property or asset and there's even pressure in many markets, with many asset types, for both to happen.
That's interesting, isn't it? Inflation actually benefits real estate in many ways.
Let me explain.
Let's talk about appreciation in real estate during inflation.
As inflation grows, what ends up happening, very commonly is - let's say it's a 10% inflation (a crazy number but just to make it simple) and it's a million dollar property with 10% inflation in the market. One year later, what happens very commonly (not a hundred percent of the time and never on the penny and It varies in market to market) is that that million dollar property will rise and absorb that 10% inflation - meaning it will now be 1.1 million. So very commonly, the asset's worth has already absorbed the inflation, so then it goes lockstep or greater in many markets than inflation because it's an asset and a rarer supply. Real estate can be developed and there can usually be more added except many markets such as dense markets, infill markets, or in big city markets… you can't just add buildings because there's only a limited amount of square feet available in downtown or certain suburban markets or even denser populated markets.
For that reason, I think the appreciation of real estate against inflation is a very strong tool that investors can have to hedge against inflation.
The other side of the fence is real estate income increasing during inflationary times - this is a little more dependent on which asset class you're investing into. Generally speaking, similarly to the appreciation going up in lockstep with inflation, what can end up happening with the real estate income of assets is it can go in lockstep with inflation or much higher. Let's talk about some examples like self storage, what you'll see is, during tough recessionary times, though they are very sad for the country and a very difficult time for most people, there are still assets that perform and self storage is the perfect example.
What happens when people are having a harder time, inflation's more difficult, job issues are throughout the country. You see people move in good times and go bigger. In bad recessionary, high inflationary, turbulent times - you'll typically see people downsize their living situation. Self storage makes the most money during times of big recessions where people are moving because they need to put other stuff because if people go from a medium house or a big house to the next level down and smaller and smaller in where they're living conditions are, they have all that stuff from the bigger living situation that they need to find a place for.
All that extra stuff typically ends up in self storage and they pay that fee to the self storage facility over and over - more people begin doing that nationwide, so it drives up rents of self storage.
That's an example where income growth or other recession resistant real estate. Those are times where you can see income growth consistently. Now what's an example of appreciation growth during real estate.
In inflationary times, there is no better example than industrial real estate right now, which is going insane. What you've seen during COVID and what you've seen during the recent inflationary and recessionary environments is more people at home and more people ordering goods and services, from home, online.
If less people are going to retail locations and they're ordering things from home, how does it get to the home? That means more deliveries, and more deliveries means more distribution hubs, and more distribution hubs means more and larger buildings needed to warehouse the goods that are being shipped to the American public.
With that said, demand for industrial has gone through the roof for warehousing, that means everyone from Amazon to the Chinese distributor, and that's on both shores to move their products from Chinese manufacturing to US soil to distribute from there. There are companies, top to bottom, that need warehousing space in order to adjust to the market conditions happening. This has driven industrial pricing, especially in denser markets where people need warehousing to get to those dense populations. Especially in those markets, the industrial price per foot has grown immensely.
We are seeing old rundown buildings going for even $400 a foot in certain markets. This is absolutely insane. It's mind blowing to say the least of what the industry's doing right now, price wise. And while that's just one example and the income side and the appreciation side, there are countless.
The caveat is real estate, as a whole, is not seeing those numbers typically.
Typically, its individual markets, local, individual investments, physically that are doing big returns. So you actually need to pick very carefully where in real estate, if you're gonna buy a property now.
Real estate has all kinds of other benefits, but from an inflationary hedge perspective, these are the biggest reasons it has good appreciation and it is good income growth, typically lockstep or even better than inflation in many markets.
So I obviously recommend real estate. I spend every day doing it. I love it with my entire heart and soul. So yeah, you could say that I'm a big fan. I think it's a good option during this time.
Let's end with some really important closing thoughts and some final strategies that I love most in this environment.
The first is this: you alone are responsible for your financial future.
Only you. Nobody is coming to help you - not your government, not your political party and not the federal government.
Everybody's just trying to do the best they can. In this current state, we have major issues on the horizon so you must be prudent with your finances. You must be evaluating your situation and investing accordingly. If you're not ahead of inflation, you can lose money without even realizing it and it can be devastating; it can happen to everybody, at all rungs of the economic ladder.
Keeping a close pulse on your money and how it's working for you is the ultimate strategy.
In times like this, it's the best guide to protecting yourself, your family, and you are the responsible party for all of these investments.
If you couldn't tell from my analysis of the different assets, my personal opinion is that the strongest strategies right now are real estate and fixed income.
Because fixed income is very stable. You know what it's gonna pay out.
It's typically investing in stabilized assets. It's not taking the risks that many other parts of the market are, in real estate, because it actually has the opportunity to appreciate and produce income during this time – sometimes greater than inflation itself, for me and for the Saint team. This is literally why we put together an entire fund for this type of environment.
Saint literally created an income fund based on this. It is with 100% real estate assets and pays out a set fixed rate on a monthly basis. That means you have money coming into your account every month from real estate assets. Also, what I said earlier about flexibility being incredibly important in this market, I cannot say with any more conviction than I do right now…
You need flexibility in your investments in an inflationary time.
Whether it's the same income fund, which can return money in as little as 90 days, or another fund with that flexibility and that stability that you need in market environments like today, you need to find options with those traits in this market because there's so much turbulence with quantitative tightening from the fed that getting away from those things deeply affected by that is something that I find absolutely essential.
I am literally one of the biggest investors in our own fund for these reasons.
The money that I make on a regular basis typically gets piled in there before anything else, because that's how much conviction I have about what we're doing in this environment.
Simply - I just don't see anything better than how we're managing this right now. For me, it's the only true clear path through inflation that I see today.
There are many great opportunities out there so let me know in the comments below, if there's something else we should be looking at, or there's something we missed. if you agree or disagree or have any thoughts overall, and what's going on, we want to hear you and learn your insights as well.
If you want more information and you want to continue learning about this topic and others, look at our other blog posts or go to the Saint website which has an entire resource panel for education. We have everything from free eBooks to more videos, to tools that teach you about financial analysis of real estate and other investments.
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.