In economics, inflation is ‘a sustained increase in the price level of goods and services in an economy over a period of time’. In simple terms, it means prices are going up and the value of your money is going down. Things like the supply of money, a country’s national debt and increase in demand all play a part in rising prices. In the European Union, the average inflation rate is currently 2.2%.
The key to beat inflation, however, is to gain more money with the capital growth of assets over long-term periods, and earn more money from higher prices over short-term periods. By investing in real estate with Reinvest24 you become part of a value chain, adding more value to real estate assets and hence, increasing profits. In other words, the higher the inflation, the higher the prices, which means earning more from rent or development.
Things keep increasing in price
Every year your money is losing its value. Once upon a time 100 euros was considered a substantial amount of money when the price of a coffee was below 1 euro. These days, 100 euros won’t get you as far, considering the price for an average coffee is 2.6 euros. The positive side to inflation includes people buying more now rather than paying more later, as well as keeping demand stable, avoiding the problems caused by deflation. Nevertheless, your money is losing its purchasing power every year, and for you, this is a problem.
Central banks try to boost the economy
Quantitative easing is ‘an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply’. This promotes increased lending and liquidity to ‘boost the economy’. However, when short-term interest rates are around 0% and lending reaches a peak, the demand-pull inflation occurs; when the demand for goods and services increase faster than the economy’s production capacity.
More and more money is printed every day
Furthermore, countries like the United States print as many banknotes as they need to create a greater supply of money, and with a fixed amount of goods, this again causes inflation. This is deliberately done to get inflation between 2-3%. Central banks believe that an inflation rate around 2-3% is healthy for the economy and stimulates markets to operate more efficiently. On the other hand, one of the major side effects of continuous rising inflation includes higher loan rates in the long run, which translates into higher living expenses with lower capital value.
Inflation is higher than salary growth
Salaries tend to increase over time, but not nearly as much as inflation. Wage growth in the European Union averaged 1.91% from 2009 until 2018, with a significantly higher inflation rate at 2.46% from 1997 until 2018. Overall, your salary may increase slightly, but prices increase even more. And when the price of raw materials such as oil go up, so do the prices of the majority of services. Consequently, the overall prices of products and services in a given market will rise in response. Hence, your money constantly buys you less than it did before.
Your bank account’s interest rate isn’t enough to cover your losses
If you keep your money in your bank account you can get between 0.1-0.5% interest on your deposits, which unfortunately doesn’t even cover the current inflation rate. In other words, you’re losing more than you’re gaining. So, despite the fact that you are ‘saving money’ and getting an interest on your deposit, you are actually losing money. Understanding and reacting on these principles is the difference between financially fit people who become wealthier over time, and those who lose the value of their money, becoming poor.
Investing in real este can help you fight against inflation
Depending on the market, the average real estate market growth can be higher than the inflation rate. For example, the current inflation rate in Estonia is 3.7%. However, the current market growth is 6%. Therefore, by buying real estate and investing your money in property, you are actually beating inflation and covering your losses with long-term capital growth. Furthermore, when you invest in rental properties you also get monthly rental yield as passive income.
Reinvest24 takes all these matters into consideration when choosing the right investment properties, constantly benchmarking our potential real estate against the market, previous investment projects, and the current inflation rate. By investing in real estate with Reinvest24, you will beat inflation and secure yourself a healthy long-term investment portfolio, which will grant you wealth from passive income (monthly rental yield) and capital growth, with a total combined return of 14.6%.
Become a real estate investor today and forget about inflation
In conclusion, if you’ve got money sitting on a bank account and you want to increase it, your main and only goal should be to increase your capital faster than the current inflation rate. It’s also important to control your investment risks and make sure you place your money in assets that appreciate over time. Reinvest24 provides investors like you with the perfect opportunity to beat inflation and increase the value of your capital.
Real estate provides the lowest risks compared with other investments like loans and stocks. Our carefully selected investment properties provide you with the best returns available on the market. Start today, invest in real estate starting from 100€.