How To Tame Inflation

How To Tame Inflation

Inflation is one of those things that seems to be out of our control. But there are opportunities to ride the wave of inflation and get your investments on the winning side.

When explaining inflation, the clearest example is going to the grocery store and being aware that the prices may stay the same while the packaging gets smaller.

Inflation eats away at our buying power.

An interesting game to play is to ask everyone around you what the lowest price of gas was that they can remember. When I was growing up, it hovered around $0.88/gallon. Good luck finding a gallon of gas under $3 today.

When the Fed increases interest rates, we are incentivized to save money and investors move into more liquid investments like bank Certificates of Deposit (CDs) and money market funds. These investment decisions actually help to create a stronger dollar which improves our buying power, at least temporarily. However, the long-term trend is that our money keeps getting devalued by the amount of debt our country issues. We are now issuing $1 trillion of debt every 100 days.

Truly unprecedented.

So, is there any way to benefit from rising inflation?

We certainly cannot control the prices at the grocery store and many people tend to cut back on unnecessary luxury goods and people get the sense that it is time to flee to safety with their investments.

But there are things that we can control and expect during inflationary times.

If input prices (the largest is usually wages and labor costs) are increasing for companies, then to remain profitable they must also find ways to cut costs or create efficiencies. But if companies have exhausted those options, they will ultimately have to raise prices. If you invest in an index fund or stocks, then increasing prices can mean more profitable companies and the price of a stock goes up.

This is why advisors say to hang in there for the long run and usually cite a chart like this over the last 30 years.

Your investment time horizon will depend on your age and the use of those investment dollars. But if stock prices are going up (because of inflation) then you want to be invested so that you can ride the gains. However, you have to understand that the stock market is volatile, and you can expect many large declines over typical market cycles. Most people find this to be a painful experience.

Besides fleeing to a store of value, like gold which does not pay a dividend, a wise solution is to move into hard assets and alternatives like real estate and other cash flowing investments. Real estate also benefits from inflation as the costs to build also increase with labor and other input costs like lumber.

The rate of inflation, the pace at which inflation is rising, has steadied a bit lately. But don’t be mistaken! Inflation will rear its head again and prices will skyrocket. There are not many other viable options for the government when carrying this kind of debt burden. Companies that cannot remain profitable will shut down and be insolvent.

We find that the best strategy over time is investing in real estate and lending to cash flowing partners. This allows for consistent dividends to be paid out on your investments. It has served us well over all the business cycles, peaks, and valleys.

Click below to find out how we can guide you to consistent income, even during inflationary times ahead. Take control of your investment future and don’t let inflation eat away at your buying power and earning potential.


Alternative Investing Unleashed!

Get equipped to deal with inflation and its impacts by joining us for this month’s Alternative Investing Unleashed! webinar. It’s happening this Thursday, March 28, 2024 at 4:30 Pacific. Use the button below to register ↓ ↓ ↓

 


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