Generally, during inflationary times similar to today, hard assets such as real estate will appreciate. Stocks will generally decline because interest rates have increased. Debt service for most corporations as a percentage of income has increased, thereby decreasing net income. When net income goes down, the value of the company goes down, theoretically.

I wrote an article on the Stock Market Reality earlier this year in which showed when adjusted for inflation, the S&P 500 is pretty much flat year over year. Recently, I came across a report from Marcus & Millichap which shows how the stock market compares to real estate investments.

The market has fallen 24% since the beginning of this year, wiping out all of the gains from last year.

Source: Marcus & Millichap Research Services

Source: Marcus & Millichap Research Services

Real estate on the other hand, increased in value. Even the Office asset class increased by 3.8% despite high vacancies and more workers remotely working from home.

Volatility in the stock market is normally much higher than in the real estate market due to the fact that real estate has higher barriers to entry. Anyone with a Robinhood account can buy and sell stocks these days with a minimum investment.

So what to do?

Individual stocks always perform much better than the index if you know how to pick them.  If you are a long-term holder, 8-10 years with less than $25,000 to invest, the S&P 500 index might be a good investment for you. Not because of the returns that you will get, but because stocks are very cheap to get into right now and with any investment, you make your money at the buy, not the sell.

If you have a little more to invest, think about getting into a real estate deal as a passive investor. Most lucrative deals will earn between 12%-15% annualized over a 4-5 year holding period. As inflation increases, the value of hard assets will continue to climb. The stock market, on the other hand, is anyone’s guess!

Junaid Noor 

Albany Park Capital, CEO