A while back, I linked to a zerohedge post that described the inflationary sweet spot for stocks which turned out to be in the 4% range. That is, as an inflation hedge, your stock returns were best when inflation was between 2 and 6%. I didn't like that analysis as inflation hitting 6% is going to be a way station to much, much bigger problems. Tiny increases in interest rates are going to obliterate the Federal budget through mammoth increases in debt servicing costs.
So stocks are not my favorite investment. How about gold? Well, I understand the arguments made by several of the SLOBs, but I'm not a big fan for anything other than small amounts of it. It's a rock. It just sits there. It's subject to manipulation. It only pays off when you sell it.
Where does that leave us? For me, it's rental property. Middle to low-end housing that you can rent out for a reasonable rate and hopefully keep occupied most of the time. The rent would have to cover at least the mortgage and repairs for starters so it would be cash flow neutral. It has the advantage of being a source of income and in inflationary times, the income would go up while the mortgage would stay the same.
This is where Dave Ramsey comes in. Buy with cash or almost all cash. If you need anything more than a small, fixed-rate mortgage, you are courting disaster. A rental property with an unemployed tenant can turn into a real money sink if you've got a mortgage. Here in California, it takes 6 months to evict someone, so that would be 6 months of mortgage paid with no rent to back it up.
Another issue with California property is Proposition 13. Way back when, the state government was endlessly raising taxes on property. Proposition 13 put an end to that. With the state facing a fiscal crisis and the Democrats having a super majority, there's no telling what will happen. If they can even partially rescind Prop 13, California property values will get whacked.
To me, that seems to suggest buying rental property in another state. Perhaps a retirement house you can rent out in the meantime. Paying cash for it, too. Sound good?
Actually, there are three other things you could invest in as well.