How Much Has Inflation Eroded Your Wealth in 2021?

Inflation is eroding your wealth. Bet on real estate stocks like Killam Apartment REIT (TSX:KMP.UN) to beat it.

Economic Turbulence

Image source: Getty Images

The rate of annual inflation in the U.S. hit 6.8% recently. That’s the highest rate since 1982. In Canada, inflation is running just as hot. The official figure is at 4.4% — the highest level in 18 years. 

This is an invisible tax on your wealth and income. If the prices for all your essentials, from rent to groceries, are rising, your actual buying power is declining. So, how much has inflation eroded your wealth in 2021? Here’s a closer look. 

Wealth erosion

Put simply, a 4.4% inflation rate reduces the value of $10,000 at the start of the year down to $9,560. However, that’s the headline figure which is based on a basket of goods that the government picks to represent cost of living. In other words, it’s an imperfect measure of how expensive your life is really getting. 

Focusing on the essential items you buy every day is a better measure. Fuel costs, for instance, are rising far quicker than the headline inflation number. The price of a barrel of crude oil is up 54% year to date. You’ve experienced that sharp rise at the gas station. 

Rent and house prices are also outpacing headline inflation. The average house is worth 38% more this year than the previous year. Average rent, meanwhile, is up 7% from April 2021 and could surge much faster as people head back to cities and move closer to offices in 2022. 

Based on real-world expenses, the average Canadian family is less wealthy today than they were in 2020. However, not everyone is losing money in this crisis. Those who invested capital instead of saving it are outpacing inflation. 

Inflation hedges

Asset prices have outpaced inflation. You could have invested $10,000 in iShares S&P/TSX 60 Index Fund and gained 25.9% year to date. Real estate has performed even better. Residential landlords like Killam Apartment REIT have delivered 34.6% in capital gains this year. Add in another 3% in dividend yield on top of that. 

Passive income is up, too. Canada’s six largest banks have all raised their dividends by 10-20% in the past month as regulatory restrictions were lowered. 

These assets have helped investors retain or even expand wealth during this inflationary cycle. If you’re worried about the cost of living accelerating in 2022, betting on miners, banks, energy stocks, and real estate investment trusts seems to be the best strategy. 

Bottom line

The cost of living in Canada is rising. All your essentials cost more today than they did in 2020. That’s an invisible drag on your family’s wealth. 

To preserve wealth, betting on inflation hedges is a good strategy. Tangible assets like land and houses hold their value much better in these economic cycles. Energy, commodity, and banking stocks also outperform. Adding more exposure to these sectors could help you stay rich in 2022. Good luck!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool owns and recommends Killam Apartment REIT.

More on Investing

Dividend Stocks

Enbridge Stock: This Dividend Aristocrat Looks Like a Steal in 2023

Here are some key factors that make ENB a great Canadian dividend stock to buy on the dip in 2023.

Read more »

Stocks for Beginners

Invest in These Stocks to Make the Most of Your TFSA

If you are unable to find fundamentally strong stocks for your TFSA in 2023, here are two great stock picks…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

U.S. Debt Ceiling: Is It Safe to Invest Right Now?

The U.S. debt ceiling is in the headlines again. You can play it safe by investing long term in wonderful…

Read more »

Stocks for Beginners

2 TSX Stocks to Smooth Over the Market’s Bumps

Here are two of the safest TSX stocks you can buy in June 2023 without worrying about high stock market…

Read more »

Dice engraved with the words buy and sell
Bank Stocks

1 Bank Stock I’d Buy Today (and 1 I’d Sell)

Bank earnings season is upon us, and I’d look to buy Bank of Nova Scotia (TSX:BNS) while avoiding another top…

Read more »

Credit card, online shopping, retail
Tech Stocks

Should You Buy Lightspeed Stock After Its Q4 Earnings?

Despite its volatility, I expect Lightspeed to outperform in the long run due to its healthy growth prospects and cheaper…

Read more »

oil and natural gas
Energy Stocks

These Canadian Energy Stocks Are Bargain Buys for 2023

Here are two of the best Canadian energy stocks you can buy on the dip in 2023 to hold for…

Read more »

A worker drinks out of a mug in an office.
Bank Stocks

Royal Bank Stock Pays a 4.37% Dividend Yield, But Another Stock Looks Even Better Today

Royal Bank of Canada (TSX:RY) may be the top dog on the TSX, but I prefer another dividend stock for…

Read more »