Inflation: The Hidden Tax

Picture of by Dr David Phelps

by Dr David Phelps


 e've all heard about compound interest – the eighth wonder of the world 

 – which has been attributed to Albert Einstein.

It means that when you have an investment in some asset, that as it grows the profits from the growth are then turned back into that investment, which creates the compound effect.

With the compound effect, your initial investment in that asset grows and expands geometrically over time, generating larger returns.

That's amazing! That's exactly what we want to do with our investments, right? Well, there's a reverse correlation to compound interest. It’s called inflation.

I call it a reverse compound interest. Inflation works the same way as compound interest except in reverse, against you. The problem with inflation is it’s hidden. It's nefarious. It's unseen. It's a tax that you never write a check for, but, trust me, you're paying the price.

Let’s look back at the period of massive inflation in the ‘70s. The government had been pumping a lot of money into the economy to fund a series of social entitlement programs beginning with the New Deal under FDR and through Lyndon Johnson’s Great Society programs related to the war on poverty.

History doesn't lie. Over time, pumping money into the system creates inflation. Eventually, after all of that stimulus – again, keyword stimulus – our country experienced double digit inflation. Well, what does that mean for your money and investments?

Now most of you were not of age to remember that era, or, if you were, you were too young to feel the effects of those economic conditions personally. I was relatively young back then. I was in college and going to dental school, so I was aware of it. But it wasn't affecting me directly because I was still a student for the most part.

However, when I came out of school in the early ‘80s, I could get nearly a 70% return on my money market account. I thought, this is easy. Of course, over the past forty years, we've seen a decline in interest rates. We have had not deflation, but disinflation, where the cost of living has been going down.

Now we're at a point in time where we haven't been before in history. We have low interest rates yet have massive, unprecedented amounts of stimulation, and we're already seeing the writing on the wall: ramping up, heating up inflation.

So you have to be thinking about how inflation will affect your financial plans. It's new to most of us, and it's new to your advisors as well. They haven't had to deal with inflation in their careers. You need to be thinking about how to protect and hedge against the devaluation of the purchasing power of the dollars you have saved. Wherever your nest egg is, whatever you've been working towards for your retirement days, you better have a game plan. Let me give you some stats.

Buying power of $100 over time, 1913-2021 CPI INFLATION CALCULATOR

An annual inflation rate of 3% is a very nominal rate, which we’ve been riding for some time (though the government will tell you it’s less… remember that government stats are never true. They are rigged. Whatever they say the inflation rate is, personally, I would at least double it.)

At a nominal inflation rate of 3%, $100 in ten years will be worth only $74, a loss of over 25% in purchasing power. In fifteen years, that same $100 is worth only $64, over a 35% loss in purchasing power.

Let's go up to an inflation rate of 5%. The same $100 in ten years is worth $61, almost a 40% decline. In 15 years, it will decrease its value to $48 – over a 50% loss in purchasing power in 15 years!

I'm going to bump it up just a little bit more, to see the effect of a 10% inflation rate (We had inflation rates above 10%, and as high as 14%, into the early ‘80s). 

At an annual inflation rate of 10%, $100 in ten years is worth only $38. That’s almost a two-thirds cut in just 10 years. In fifteen years, that $100 is worth only $24, over a 75% loss in purchasing power. That’s a major tax!

How many years do you want to protect your livelihood going forward? Is it just ten years? No, it’s probably at least thirty.

How do you protect your wealth against inflation? 

You've got to be investing in assets that keep up with inflation. That is the only way to do it. If you're in business, typically your business will keep up with inflation, except for those businesses being marginalized today like healthcare. Historically, another asset class that has always kept up with inflation, which I love, is Real Estate. It’s the best hedge I know, and I’ve been investing in it successfully for over four decades.

How do you get involved investing in the right kind of Real Estate? 

I know it’s challenging to get started. It’s easier to put your money on Wall Street, like everybody else does, but with the volatility of the stock market most people find that they don’t end up with much more than what they contributed initially!

At a low inflation rate, maybe that model works. But if you start ramping up inflation everything's turned upside down

So what are you gonna do? You’re just going to stay the course, keep your fingers crossed, and hope that we don't have inflation? You could put your head in the sand and do nothing… or you could start taking charge of your own future.

Interesting concept, isn't it? But you can do it. We've helped hundreds of dentists, business owners, professional practice owners in the Freedom Founders community take charge of their wealth and their future.

If you want a path, a way out, I invite you to apply to attend our next event. I’d love to talk to you.  

Remember, it's all about your Freedom - so take charge of it!

P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :

1. Schedule a Call with My Team:

If you’d like to replace your active practice income with passive investment income within 2-3 years, and you have at least 1M in available capital (can include residential/practice equity or practice sale), then schedule a call with my team. If it looks like there is a mutual fit, you’ll have the opportunity to attend one of our upcoming member events as a guest.

2. Get Your Free Retirement Scorecard:

Benchmark your retirement and wealth-building against hundreds of other practice professionals, and get personalized feedback on your biggest opportunities and leverage points. Go to to take the 3 minute assessment and get your scorecard.

3. Ready to Step Away?

“How Much is Enough?” This simple question keeps hard-working professionals at the hamster wheel of active income far longer than they need to be. Watch this free training, and discover a proven model for determining how much you really need before hanging up the handpiece!

4. Apply To Visit The Mastermind:

If you’d like to join dozens of dentists, docs, and practice professionals on the fast track to Freedom (3-5 years or less), visit to apply for a guest seat.

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