How much are you losing every month and how to stop it?

[Eric Fernwood]

Many people are waiting on the sideline, letting their capital ride where it is. The consequences of this inaction depend on where the money is parked. One of the big factors is inflation.

What is the impact if you leave $1M in cash? At 8% inflation, you will lose: $1,000,000 x 8% = $80,000/Yr. or $6,667/Mo. in buying power.

If it is in stocks, YoY the market is down 21%. Your equity decreased by more than $200k, plus you lost $80,000 due to inflation.

CD or Treasury Bills? The best they can do is 4%; you’d lose $1,000,000 x (8% - 4%) = $40,000 when you see your cash again in a year. Then you will have to look for options again.

What if you buy a good property in a good location (such as Las Vegas) for $400,000? You’d have a long-term income stream that increases faster than inflation and appreciates faster than inflation. Below is a simplistic worksheet.

Over a 5-year hold period, IRR is 15%.

Does anybody see a better option to deploy cash in today’s environment?

[Chris Seveney]

@Eric Fernwood

I look at things very differently. I don’t look at high inflation as losing money, it impacts buying power but money is not leaving my account.

The way I look at it is risk free rate of return vs risk adjusted rate of return.

If I can get 4% from fed what risk am I taking to get 8-10%. There are companies out there with dividends that will yield you 8-10%.

As it relates to your real estate investment scenario, I think 8% appreciation next five years is aggressive since we have never had on record five straight years of that type of growth especially when we are headed toward a recession.