Case Study 5
Diversifying Assets to Guard Against Inflation and Taxes

A client came to FMG with a very large stock and bond portfolio and no other assets other than their personal residential properties. FMG was concerned their assets were not diversified and there was no real guard against inflation. In addition, none of their income was being sheltered from income taxes. We discussed the situation with the client and showed them how owning real estate is not only a guard against inflation due to the asset appreciation one expects over the years, but it can also shelter a portion of their cash flow due to depreciation and thereby increasing their overall yield from the investment property.

Additionally, if the property is throwing off enough depreciation to create a loss (although not a real cash loss), that loss can be written off against their passive gains from their stock and bond portfolio, thereby increasing their return on those assets. Another benefit is that the real estate market can be a hedge against economic downturns in the stock market. To help this client balance their investment portfolio, FMG made real estate investments with properties leased to national investment-grade tenants.

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