Inflation is running rampant in America, and everyone’s money is worth less and less every single day. At 8.6%, many people haven’t seen this kind of inflation in their lifetimes (Millennials, Gen Z). With the cost of everyday goods rising such as groceries, cleaning products, regular household items, gas (for different reasons as well), and just about everything else is making life pretty much unaffordable for Middle America. While many people want to combat this high inflation with a minimum wage hike, this in my opinion will just put a band-aid on the problem. In a capitalistic society, the most successful people in times like this turn to appreciating assets. When others fear investing, that is when there is the most opportunity for one to make money and become wealthy even during economically difficult times for the country as a whole. So, how do you really make and grow money during times like this?
Assets that ride the tide instead of drowning
To simply describe what is going on in the economy right now, picture an ocean. Now picture your wallet full of all your hard-earned money floating on top of the water drifting along. The water level rises (inflation), beginning to engulf your wallet as it sinks slowly. That analogy is representative of what happens to your money during high inflationary periods and how rising inflation sinks the value of the dollar. It’s a simple law, when money is being printed in exurbanite amounts, the less money will be worth. Investing money in appreciating assets like real estate, stocks, etc. is like putting your wallet on a floatation device. As the tide rises, so does your money never being submerged by the rising tide of inflation.
Why holding cash during high inflation makes you poorer
Having a high cash position during periods of dramatic inflation such as the one we are in right now will undoubtedly cause you to hurt financially especially over the long run. As the value of money decreases, your spending power does as well, and by having too much cash, you put yourself in a position where you will begin to struggle both long and short term off a middle class salary. In a period like this, it is important to roughly estimate your costs of living for the next 6-12 months and have it in reserves such in a savings account depending on your risk tolerance and life circumstances. The rest of your money beyond that would probably be better suited to be invested into appreciating assets. Through analysis of the market and through my unique and somewhat biased perspective, I think real estate is the most sound investment to make right now at least for me personally. The values have been climbing tremendously over the past few years and rents around the country have been increasing at a stable pace for decades. We hear a lot about “the housing bubble” and the like coming from sources like cable news pretty much daily, however as a highly active member of this industry, I feel this misses the mark for a few reasons. The main reason is that in most areas of the country that people are flocking to (Florida, Texas. Tennessee, etc.), are still seeing a high demand for housing with a low supply on the market. Thus far, rising interest rates have not shifted the market completely yet, and the value of housing continues to climb although the pace of that has decreased. I strongly believe we will have a market correction, but nothing close to what we saw in 2008. Your opinion may differ from mine, and I don’t have a crystal ball to predict the future so invest in what makes sense for you. However, by sharing my perspective, you may better be able to gain insight into a particular inflation hedge I like to invest in and be able to formulate your own opinion.
From the gold standard to government promises
Before 1971, the USD was backed and secured by a tangible asset, gold. Each USD was accounted for and backed by a certain amount of gold which is a finite and valuable asset therefore giving paper money value as well. When Nixon took money off the gold standard, it became backed by nothing and allowed The Fed and the government to print money at will to fund whatever they need to fund increasing our debt to the high trillions. Over the decades since this huge decision, the government has printed trillions of dollars, none more than the period of 2020-the present in which we are seeing record high inflation. Because of this lack of backing by something like gold and the seemingly limitless printing of money by our government, it has become more necessary than ever before that everyone becomes financially educated enough to make sound investing decisions with their money if they so choose. Thankfully, our capitalistic society allows the layman to invest into assets, start businesses, and launch companies that grow at rates that outpace inflation. Don’t get caught and sucked under the tide of inflation! Jump on a float and enjoy the ride as inflation remains underneath you as it continues to rise over those who don’t take action!