Inflation Is Not Transitory: So is it a Bug or a Feature?

Fees, taxes, and inflation—nothing robs your investment account more than this evil threesome.
With fees, if you’re not getting value, you can move your money wherever you like, but there’s diminishing returns the further you go. Once you hit zero then you realise, you’ve been the product the entire time. 
With taxes, there are ways to legally reduce this obligation, and you should. Why, not paying your fair share doesn’t sound right. In my view even the most incompetent private citizen allocates money better than a politician can – even a good one.
On to inflation.
Consider the 45-year-olds investing to retire at age 56. Inflation is a persistent threat that can either undermine your savings or be leveraged strategically, depending on your approach. Why can’t you just save in term deposits? Try it and you’ll see –  the rate of inflate we’re fed, isn’t the same loss of purchasing power we feel.

Inflation Reduces Future Purchasing Power


Imagine your 45 with $200,000 invested, earning 7% after fees and taxes. Let’s say you manage to invest $20,000 yearly. At age 65 you’d have $1.6 million. You could withdraw about $1,500 per week in a conservative fund from 65 to 95 before running out of money. Fees…taxes…what about inflation? US data suggests the CPI (consumer price index: measures the general rise in a selected basket of goods and services over time) was at least 3.4% since 1971. That $1.6 million is worth just $800,000 today. that $1,500 a week now only buys $750 worth of stuff.
As a bug, inflation cuts your purchasing power in half in just over 21 years. Implication: We ought to aim higher, if we can.

Official Measures Hide Inflation’s Reality


The Consumer Price Index (CPI) underreports inflation’s impact through hedonic adjustments and substitution effects, among other things. CPI might account for a smartphone’s improved features, but not the soaring price of healthcare in your old age.
Inflation’s a feature when you can borrow to buy assets, though. (This is why property investment works so well!)

Inflation Demands a Strategic Approach


Like playing ‘Jack in the box’, you can either make higher-risk bets to get higher returns, or you can pause to consider how the system works.
Strategic investing involves a traditional allocation for the majority of your wealth, and an allocation towards alternative forms of money. 
If you want to efficiency preserve your wealth, used a strategy of smart diversification across all traditional asset classes.
If you want to outperform real inflation, you should also consider the following:
– Short the dollar (borrow as much as you can to purchase assets that rise from people like you borrowing as much they can).
– Save a portion of your money in physical precious metals. Alternative stores of wealth may perform well during a currency reset, which is the ultimate destination of any fiat-based financial system).
– Hold Bitcoin (digital gold). Again, as a form of savings, outside of a system which has a finite shelf-life.
Inflation becomes a feature for those who adapt, turning a systemic challenge into an opportunity to secure your retirement.

Inflation is Not Transitory

Check out my recent conversation with Lawrence Lepard, the author of ‘The Big Print.