Property, as well as the housing market more broadly, has long been a lucrative, yet stable investment strategy. Similarly, gold is another traditional investment asset that allows for wealth protection, creation, and security during times of high inflation.

However, these two investments aren’t what they once were. We have seen the dream of homeownership become increasingly less attainable for younger generations; in the US, a report by Urban Institute found that those aged 18-24 were spending almost a third of their income on rent, while median house prices soared in 2021.

This is a signifier of a much broader shift currently playing out in the property market. In the first half of 2021, 15% of US homes were purchased by corporate investors - rather than individuals or families - leaving the average American citizen with a very slim chance of beating an investment firm to a home.

The ever-evolving landscape

Both property and gold have been termed as “safe-haven” investments, but it is time to reassess this term in light of the ever-evolving financial market. 

During times of economic downturn, haven investments have the capacity to maintain or even increase in value. Their valuation trajectory is not necessarily correlated with ongoing stock market activity or geopolitical events, hence they are deemed to be safe. While there is yet to be an investment entirely free of risk, the aim is to take advantage of growth over time while ensuring sufficient stability. 

In the case of property, the financial crash of 2007-8 was enough to remind investors that in certain, extreme market conditions, even property, previously thought to be the safe-haven asset, can experience a bear market. Now, the Evergrande situation in China threatens to create a domino effect similar to the repercussions seen after the ‘08 crash, or ones of an even higher magnitude. 

The consistency of gold

As for gold, the metal recently saw a remarkable 3-month-high, an expected win for the asset that has time and time again proven to be a safe haven for investors during times of heightened market turmoil.  As geopolitical tensions and US inflation data are priced in, gold continues to push forward after a long stretch of quantitative easing policies seen during the pandemic.

It seems that the precious metal still provides investors with a unique safe haven, long after former US President Nixon saw an end to the gold standard in 1973, and gold was no longer pegged to the value of the dollar.

Gold has increased in value by over 500% in the years since the gold standard was abolished, with central banks making sure that their reserves remain abundant. Now, with the digitalisation of gold, it has become an asset infinitely more accessible to the everyday investor, making it even easier to buy gold in fractional amounts, trade it, and spend it, just like any other currency. 

Protection from inflation

In October 2021, the official annual inflation rate in the US was released, with the figure at 6.2%. More recently, inflation has now reached 7%, for the first since 1982, which marks the highest level of inflation seen in the US for almost 40 years. 

In response to inflation sustaining its remarkably high rate, investors are seeking investment assets that store wealth and hedge against its damaging effects.

Danielle Di Martino notes that gold, historically, is the least correlated asset class in existence with inflation. Gold has performed well in times of high volatility, in bear markets, and even outperformed the stock markets at times. More than simply offsetting its effects, gold has maintained a positive correlation with rising inflation rates, achieving an average yearly performance of +10.6%, over the last 50 years.

Similarly, rental property can also act as an effective inflation hedge in some respects. Property investors can generate a positive cash flow through letting out the property to tenants and earning on the rental income each month. Homeowners can adjust their rental income to overcome inflation rate spikes, however, this requires extensive negotiations with tenants.

Property is a highly involved investment at times, often deemed safe but carries the very tangible human risk of handling tenants. There are, however, more passive investments that can also present competitive returns. 

An inexpensive asset

It is not financially feasible to simply "break-even" when investing in property or gold. The outcome should be a sustained positive cash flow for the investor, to ensure the investment is worthwhile. Essentially, the cost of owning or controlling the asset, must not be higher than the financial output. 

With property investment, for instance, there are high gains to be made. However, the property must be sold in order to fully realise these capital gains. Notably, in December 2021, UK housing prices were on the up, with the average UK asking price for property standing at £340,167 - representing a 6.3% (YTD) increase over the past 12 months. 

However, as existing homeowners will note, the sale-minus-buy price does not account for the numerous unrecoverable costs consistent with property investing: estate agent fees, mortgage, valuation, stamp duty, as well as maintenance costs for the property. Even for savvy investors, property investment can represent a double sting, with the potential to become a liability taking money out, rather than adding to your pocket. 

Similarly, gold historically featured costly fees for storage and insurance, in addition to being awkward and impractical for daily monetary use - despite its capacity to store value.

However, due to the introduction of digital gold, investment in gold has recently become more accessible to the everyday investor. Investors are given the ability to store their physical gold, free of charge, in their global vaulting network as well as to secure legal title ownership of physically allocated gold.

Is it time to rethink your investment? 

Simply put, in the current economic environment, it's becoming harder and harder to find growth as well as protection and liquidity. Clem Chambers comments that this is the real danger of inflation, making economies less stable and more fragile to economic shocks.

Previously gold was not a yielding asset, so many investors neglected to consider its stabilising effect on a portfolio, despite its positive performance in inflationary environments and historical appreciation. 

Only more recently has gold become more attractive since its recent digitalisation, with innovation allowing investors, for the first time in industry history, to earn a usage-based yield on their gold bullion. 

Paying no extra charge on storing their precious metals, insurance costs or account fees, investors are able to secure a positive return and realise the extent of their financial gains. The same cannot be said for property investment, with all the legislative hurdles that investors face, and their complexity set to increase tenfold in the years to come.  

Gold has proven its ability to maintain an overall positive performance despite geopolitical burns and the stock market crashes.

So, with the impending economic repercussions of the pandemic, inflation rate hikes, and geopolitical turmoil coming to light, could now be the time to rethink your investment strategy?