How to navigate inflation with your savings and investments:
Inflation is and always has been the silent killer of savings, and for that matter wealth in general.
Last month we spoke about the silent damage inflation does to ruin your savings accounts, and that it’s all about purchasing power. Central bank issued money will always loose its value over time. In the western world, the near term future looks and feels like we’re in for higher inflation and more importantly a greater annual loss in purchasing power going forward.
We all work hard to create our money, let’s keep as much of it as we can going forward.
Working hard to create wealth is important, but it doesn’t stop there, many of us underestimate the work it takes to hold on to your wealth and it’s purchasing power once you have even a little bit, don’t think this only affects “rich people” this affects the “poor” and the “middle class” probably more so than the rich!
so what can we do about this inflation or purchasing power thing?
In a nut shell;
The most important thing is for your savings to grow at a rate that is equal to or greater than the rate of inflation at any given time.
That means your money has to continuously make more money in order to retain its purchasing power into the future.
For those of us that live in the so called “developed world” savings accounts at the bank won’t do the job and are mostly pointless. Their rates of interest are simply far to low, you loose money by storing it in a savings account.
Stuffing your mattress doesn’t work either!
Using the dollar as an example, (CPI = consumer price inflation) its easy enough to see above why holding cash for the long term makes no sense at all!
Fortunately there are many ways we can store our money other than in cash,
Cash is the problem here, it looses its purchasing power over time,
but lots of other tangible things don’t, or at least not like cash does.
Generational wealth is not so much about being cash rich, it’s more about being asset rich.
Assets can generally be sold for cash at any given time, the difference between the two being that assets typically appreciate with inflation, whereas cash depreciates.
You may need to change the way in which you view your savings, and
you’ll need to consider dividing your savings cash into a minimum of two categories.
1- the I might need to have access to it at short notice pot.
2- the I won’t be touching this money until I retire pot.
For both pots of cash you’ll want to consider trading most of it out of cash and into something else that holds its value better than cash does, this will help you beat inflation and keep your purchasing power going forward.
But before we get to that, we need to briefly talk about how you figure out what to buy and when to buy it.
The basics of this is to understand that everything that can be bought or sold is a market and that all markets are cyclical.
Markets go up and down over time, meaning that most of the time any given asset is either overvalued or undervalued and only touches on actual value (the line in the middle of the graph) for a small portion of time, twice in each cycle, once on the way up and once on the way down. This is called “reversion to the mean” market cycles vary in length and breadth, but that doesn’t necessarily matter as much as your timing.
What does matter for the purposes of beating inflation and for the purposes of investments, or divesting out of cash is the
entrance and exit time of your cash in the market cycle.
This is important in achieving maximum results.
If the market for a particular sector is high, don’t buy it, find a market sector that’s low in its cycle.
Above all else be patient!
The time to buy anything is when it’s on sale at a steep discount and not when it’s in short supply and trading at a premium.
This is as true for real estate as it is for gold and silver, the latest fancy tech stock, or even the goods at the local grocery store, to get the most value for your money you want to buy when things are cheap and on sale as it were, and then be patient and wait it out for as long as it takes for the market to become expensive, at which point you sell and buy something else thats cheap.
We will continue with part two shortly
For the money that you want to have quick access to you need to buy into things that are highly liquid and easy to sell again.
gold, silver and other precious metals are a reasonable choice, they can be held physically at home or through a trusted third party. (our paid subscribers have access to the options we’ve chosen personally for this)
Gold, silver and most precious metals are highly liquid, and can be sold almost instantly for cash when you need it. This allows you to trade out of cash for as long as you need to and then back into cash as needed, the gold and precious metals market is currently in the early innings of its bullMarket meaning that it’s not a bad time to buy and hold.
other options for instantly accessible savings include traded equities (shares in public companies held through your brokerage account) and even better are dividend paying equities.
However your capital is also at risk of loosing value should your equities loose value, in our opinion less safe than gold and precious metals at the moment.
We also include gold/silver and other precious metals in our long term holdings along with,
income generating real estate,
hardwood tree plantations, commodities,
Other natural resources including water rights.
As a general rule, the tangible physical things that all people need will always have value even if it does go up and down a bit.