It’s Time To Talk About Inflation — And How To Beat It
Inflation has been a keyword this year in the investment space. I typically try and avoid talking about topics that are covered so thoroughly in the mainstream media, as I don’t want to regurgitate what’s already been said.
But now that it looks like it’s officially here, it’s time we talk about it.
But instead of recapping the facts, I haven’t read anything that really explains inflation and why it’s something we can’t ignore. Plus, this silent killer is critical to understand if you want to keep — much less build — your wealth.
The Destructive Power Of Inflation
First, here’s what some of the greatest minds of our time have said about inflation:
- Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hitman. — Ronald Reagan
- The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists. — Ernest Hemingway
- Inflation is taxation without legislation. — Milton Friedman
- By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. — John Maynard Keynes
In short, rapid inflation is not good.
Right now, we are in a massive stimulus, money-printing experiment. The printing presses are running hot, as the government continues to print money and hand it out like its candy at a Fourth of July parade.
But here’s what’s going to happen — or is already happening — in my opinion.
All this easy money will make people feel better and richer, temporarily. Their checking and savings accounts will be fatter, and they’ll feel like they’re finally getting ahead.
Unfortunately, they’ll eventually realize that they are in fact, not any wealthier. They’re still broke, just with more money in their account. Why? Because of that dirty thing called inflation.
They’ll realize that they still can’t afford that car they’ve always wanted. Or that house in their favorite part of town. After all, used car prices jumped 10% in April compared to the month prior, the biggest increase ever. Home prices are surging to astronomical levels and there’s still a shortage of homes.
Here’s the sneaky thing about inflation that seems to get neglected in the conversation… inflation picks up faster than anyone thinks, and the Fed usually reacts slower than they need to.
So, if this massive rise in inflation is indeed on its way, here are a few things you can do to curb its devastating effects.
How To Beat Inflation
In every market, there are winners and losers. My Maximum Profit system is fantastic at identifying not only stocks but industries that are winning. But that also means you can’t maintain a death grip on those losers.
Think about it… you hold onto a massive loser, plus inflation, that’s going to be a double whammy. Not only are you sitting on a capital loss, but while you’re hoping for the day it gets back to even your money will be worth even less (even if you do get back to that breakeven point).
I still believe the stock market will be one of the better ways to curb the devastating effects of inflation. The money sitting in your savings accounts, which doesn’t earn anything, is losing value. Granted, I do believe you need to have a good portion of cash for emergencies.
But outside of trading strategies like we employ at Maximum Profit, look for wonderful businesses that are trading at a discount. (This is more along the lines of what we look for over at Top Stock Advisor, my other premium service.) With the cloud of inflation hanging over the market, I’d suspect investors will rotate into value stocks versus growth stocks.
Think consumer staples. The cost of these goods can be passed onto consumers, like Clorox and Hershey.
Don’t be afraid to look beyond our borders and venture into emerging markets.
Of course, every article you’ll likely read will tell you to invest in alternative assets like gold and silver, or bonds, or treasury inflation-protected securities, (“TIPS”). But I personally don’t think TIPS and bonds aren’t a compelling investment right now.
Look to diversify your wealth into real estate, and dare I say it… perhaps some cryptocurrencies.
Outside of investing — and this is where you can truly hedge inflation is diversify your income. Start an online business, look for cash-flowing and low-ownership maintenance businesses like storage units, car washes, parking garages, etc.
The biggest piece of advice I have — and this is regardless of whether we actually see inflation or not — is don’t be complacent. Don’t do nothing. Be proactive, get creative, because the goal is to create wealth and protect it.
By doing this, it provides us with the most valuable asset in our lives and that’s time.
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