The Inflation Conundrum
nless you've been living under a rock, you are very aware
of the inflation that is ravaging our economy today.
(I’m doing a live webclass on Inflation and the Great Retirement Lie next Tuesday, and if you’d like to join me you can save your seat here.)
This is something new – in fact, we haven't seen any serious inflation for about 40 years. In 1982 we were at a peak after around seventeen years of what was called “stagflation”. At that time we had the resolve in our country for a Federal Reserve chairman, Paul Volcker, to come in and raise interest rates all the way up to 21%, which caused a major recession in our country. But it did bring down inflation.
Today, we have different reasons why we're seeing the fueling of inflation, and I won't go into those details. Some may be transitory (such as the supply chain problems), but I think the big issue is that once we have a trend like inflation – it is hard to pull it back. And I don't think we have the same political resolve today that we had back in the early ‘80s to do what Paul Volcker did by raising interest rates as high as he did.
With the national debt that this country carries today, we couldn't take rates going up much more than a couple of points. If it does, we're in real trouble.
So what does that mean? I believe that even though there could be a correction, with a little pull back of inflation on a temporary basis, the long game for the decade / decades ahead is inflation. It's the only viable way that a country can deal with high levels of debt like we have. There's no other way.
You can't tax enough billionaires and trillionaires to pay the debt, and the government certainly is not going to default on the debt. That would be the worst case, and it's not politically viable. So what can they do? They inflate or devalue the currency. That’s what is happening right now.
So how do you protect yourself? How do you protect your freedom and the security of your family in this new inflationary environment, which most people have never experienced before? Unless you're my age or older, you probably don’t know what it feels like to have high (or even relatively high) inflation like we are starting to see. The annual inflation rate in October was 6.2%, the highest rate in 31 years. It's not going to get better.
So how do you deal with it?
You've got to be invested in equities – ownership of real assets. As you probably know, I'm not a big fan of the stock market. I'm not saying you can't make some plays in the stock market and potentially have equities that will go up, but it's trickier to do.
I like tangible assets, such as real businesses or real estate. Real businesses can be a hedge against inflation by giving you the ability to pass on the higher costs of doing business to your buyers, clients, customers, or patients.
Now, if you're in an industry where you're having margin compression and can’t raise your prices because of outside forces, such as insurance or consolidation, you're not in a good place. You're going to get beat up by the increased costs of doing business. But a real business that can pass on the increased costs to their customers can keep up with inflation.
I love real estate because real estate has always had the advantage of being an asset class that keeps pace with inflation, both on the valuation and equity side, and the cashflow side. That's really what I want, and what we all should want – the cash flow.
So looking down the road when we have inflation running at 5-6%, in ten years at a 6% inflation rate the purchasing power of your dollars will decrease by 45%. But if I invest in assets that keep up with inflation, then at least I keep on par. (If you’d like to read more on the coming “Inflation Tsunami”, you can download my free Special Report).
The big problem for those people who are thinking about getting out of business or retiring and taking their nest egg, is that they have several fronts against them. They have higher taxes coming at them right now, in addition to inflation across the board. Then they also have a volatile economy in which, depending on where they have their assets invested (like the stock market), they can take hits three different ways.
They could get hit from the stock market taking a big drop of 30-50%, like we see about every six to eight years – we're long in the tooth for that on this bull run cycle. They could see taxation chipping away more and more at their invested assets, and finally, increasing inflation also diminishes true returns.
So investing in real assets like real estate, or a business that you want to continue to run and operate, can be offsets to inflation. I love the real estate side, and that's what we do in Freedom Founders. We are able to procure and curate a high degree of very professional returns for our investors.
If you're not in that game, it would behoove you to learn something about orchestrating your financial future with alternative investments, instead of just putting everything in the market with a money manager – who probably doesn't have any more experience than you do in an inflationary environment. It's up to you to orchestrate it, but you can shortcut time by connecting with people who’ve already gone down that path.
I’ll be doing a live webclass next Tuesday on inflation, the Great Retirement Lie, and why real estate is the lifeboat. I’d love to have you join me – you can save your seat for the webclass here.
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. www.freedomfounders.com/schedule
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 www.FreedomFounders.com/Scorecard 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! www.freedomfounders.com/training