Inflation is here. How are you protecting your money, and investing to stay ahead of it?
Some economists believe we are already in a state of hyperinflation. Others are forecasting that it is at least right on the horizon.
What is Hyperinflation?
While official measurements may vary, true hyperinflation is often acknowledged when prices are rising by 50% or more per month.
That’s not the type of inflation we are seeing in the United States as of Q1 2021. It is more like what has been seen in Venezuela, South Sudan and Zimbabwe.
Although, whether you have personally felt it or not, the US is experiencing a convergence of inflation activity. You may not notice if a $1 carton of eggs goes up by 30%. Or if the same happens to a gallon of milk. It becomes a bit more pronounced when it is a single plank of wood for common home renovation projects, or at the gas pump, or for water.
A dollar or two here or there may not seem like much. Until you consider that all of your monthly expenses could rise by 30% pretty quickly. That’s great if your monthly income is up by 60%. Not so great if your income isn’t rising.
Compounding Factors Forcing Inflation
There are now a variety of factors intensifying the impact of current inflation on your money.
Taxes are a huge one. A whole menu of new taxes are hitting some states, including double digit increases in some types of taxes. This is a type of inflation, as it is increasing the cost of living in the same home, buying the same school supplies for your kids, etc.
Many companies also seem to be going back to the charging more, for giving less value approach of 2008 too. Banks are giving less service, while hiking service fees. Streaming video channels aren’t giving new content, but are raising prices, and so on.
At the same time more money is being printed, devaluing the money you have and earn. Recent stimulus packages have meant minimum wage workers and the unemployed making more than what were middle class wages a year ago. For one group who is getting free money, it is disposable spending money, which causes sellers to hike prices due to increased demand. While the other group ends up paying more, without earning more.
It is also worth pointing out that these price hikes and inflation isn’t being based on fundamentals. If the real cost of labor, gas, and raw material like lumber isn’t actually going up (which it isn’t), then it is really a matter of price gouging, and raising prices to fatten profit margins.
Inflation & Your Money
The bottom line is that inflation means your money is worth less each day. If you have $100 in your hand today, and inflation goes up by 30% next month, your $100, only becomes worth $70. If inflation rises 30% next year, that money is now only really worth $49.
You can’t afford to keep your money in a low yield savings account, or as cash under your mattress during times of inflation. At least if you just burned the money your heat bill might be lower, and you wouldn’t be paying the bank fees for holding onto it.
So, what’s the solution? It is not making wild bets on speculative investments that promise the potential of high returns, but little surety of the return of your original investment.
Instead, we need to be looking for investments and assets to park our money in that go up in line with inflation, or better. Real estate is the most obvious. During periods of inflation house prices typically go up just as fast, or faster. Like we’ve seen over the last year, many living costs have gone up significantly, but many real estate values are up over 20% too. Even rents are now going up again. So, instead of your $100 going down in value, it is now worth $120, plus the monthly income you got for investing it.
What will you invest in?
Find out more about investing in secured debt and real estate, go to NNG Capital Fund