How the Top 1% Beat Inflation (and How You Can Too)

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Inflation is a silent thief that erodes your wealth, reducing what your money can buy over time. For high-income earners and small business owners, it’s more than just a rising grocery bill—it’s the risk of watching your hard-earned wealth shrink, even when it’s “safely” invested in traditional vehicles like bonds, money markets, or CDs.

But here’s the good news: Real estate offers a powerful strategy to not only protect your buying power but grow your wealth. Here, we’ll break down why real estate is one of the most effective inflation hedges and how you can leverage it today.

What is Inflation, and Why Does It Matter?

Inflation is the gradual rise in prices over time, meaning your money loses purchasing power. A dollar today doesn’t go as far as it did five years ago, and that trend isn’t slowing. 

Consider these U.S. inflation rates from recent years:

• 2023: 4.1%
• 2022: 8% (the highest in over 40 years)
• 2021: 4.7%
• 2020: 1.2%

If your portfolio isn’t growing faster than inflation, your wealth is effectively shrinking. While traditional investments like bonds and CDs are designed to be “safe,” their low returns often fail to keep up with inflation—leaving your purchasing power in the dust.

Case Study: Two Investors, Two Very Different Outcomes

So why should you care? 

Let’s take a look at two investors who started with the same amount of capital in 2019 but took very different approaches to managing their wealth. Their results over five years tell a powerful story about the impact of inflation on investment choices.

Investor A: The traditional portfolio approach

Investor A followed the standard playbook: a diversified portfolio of 60% stocks (S&P 500) and 40% bonds. On the surface, this strategy seemed solid—historically, stocks have provided strong returns, while bonds offer stability. But inflation had other plans.

Over five years:

• The stock portion of the portfolio grew at an average annual return of 11.6%.
• The bond portion, however, lagged significantly, returning only 0.6% per year as rising interest rates hurt bond prices.

Adjusting for an average inflation rate of 4.5%, the real returns tell a different story:

• Stocks: 11.6% – 4.5% inflation = 7.1% real return
• Bonds: 0.6% – 4.5% inflation = -3.9% real return

By 2023, Investor A’s $1 million portfolio had grown nominally to $1,121,000, but inflation had eroded its real value. Adjusted for purchasing power, it was now worth only $912,000—an 8.8% loss in real wealth.

Investor B: The inflation-resistant real estate portfolio

Investor B took a different approach, allocating 50% to equity real estate (multifamily and commercial properties) and 50% to real estate debt (notes and lending opportunities). This strategy leveraged both appreciation and predictable income streams.

Over five years:

• The equity real estate investments averaged a 12% annual return, benefiting from appreciation and rental income growth.
• The real estate notes provided stable, fixed returns of 8% annually.

After adjusting for inflation:

• Equity real estate: 12% – 4.5% inflation = 7.5% real return
• Real estate notes: 8% – 4.5% inflation = 3.5% real return

By 2023, Investor B’s $1 million portfolio had grown to $1,276,000 nominally, but more importantly, it held $1,038,000 in inflation-adjusted value, preserving purchasing power and generating a real wealth gain of 3.8%.

The bottom line

Investor A followed the conventional wisdom of balancing stocks and bonds—but in an inflationary environment, bonds underperformed, dragging down total returns. Meanwhile, Investor B leveraged real estate to create both appreciation and inflation-adjusted income, ensuring their wealth not only kept up with inflation but continued to grow.

How Real Estate Protects and Grows Wealth During Inflation

So why is real estate such an inflation-resistant investment? There are three main reasons.

1. Real assets appreciate over time

Real estate has a historical track record of appreciating faster than inflation. Whether you’re buying rental properties, managing commercial assets, or investing passively, real estate assets have consistently outpaced inflation over time.

2. Rents rise with inflation

Unlike fixed-income investments like bonds, rental income tends to grow alongside inflation. For example, a $1,500/month rental in 2013 could now rent for ~$2,200/month—an average annual increase of ~4%.

3. Tax advantages amplify returns

Real estate offers unique tax benefits, like depreciation, that shelter income from taxes. This allows investors to reinvest more of their earnings, compounding their wealth faster.

How to Beat Inflation with Real Estate

These four steps will help your real estate investment rise above inflation.

Step 1: Diversify with inflation-resistant assets

Focus on asset classes that perform well in inflationary environments, such as:

• Multifamily properties: High demand and steady rental income growth make these properties a reliable hedge against inflation.
• Residential rentals: Single-family homes and small multifamily properties not only appreciate over time but offer increasing rental income potential. 
• Self-storage facilities: These assets thrive in various economic conditions, with flexible pricing models that adjust quickly to inflation. 
• Real estate notes: Offering fixed, predictable income, real estate debt investments provide stability even in volatile markets.

Step 2: Prioritize cash flow and equity growth

• Cash flow: Properties with strong rental income ensure consistent returns that grow with inflation. 
• Equity growth: Real estate appreciates over time, providing compounding returns that far outpace inflation.

Step 3: Partner with experienced operators or build your own deals

Success in real estate often means working with the right team. Whether you’re an active investor managing your own deals or a passive investor seeking strong operators, look for:

• A proven track record of navigating economic cycles.
• Transparency in communication and fee structures.
• Investments in markets with strong job and population growth.

Step 4: Leverage tax benefits

Accelerated depreciation allows you to offset taxable income, increasing cash flow. For example, a $500,000 syndication investment could generate ~$150,000+ in year-one depreciation, significantly reducing your tax liability.

Take the Next Step Toward Inflation-Resistant Wealth

Inflation isn’t going anywhere—but with the right strategy, you can protect and grow your wealth. Real estate offers a proven solution through consistent cash flow, long-term appreciation, and unique tax benefits.

• Want to dive deeper into wealth-building strategies? Check out my book, Money For Tomorrow, where I break down exactly how to build and protect generational wealth through smart investing.
• Follow me here on BiggerPockets and DM me the code INFLATIONPROOF—I’ll send you my free lead magnet to help you take action now.