“Failing to prepare is preparing to fail.” —John Wooden
This year has been a whirlwind, right? I feel like March of 2020 was last week!
But looking back at the last year, a lot has been going on. For example…
Did you know that over 35% of all US currency that exists was printed in 2020?
That is staggering!
Let me repeat, one in three dollars in existence was printed last year.
Now I know what that makes you think… inflation.
But don’t worry, this doesn’t have to be all doom and gloom. I am here to give you some knowledge and advice to tackle this.
So here you are reading and wondering… what do I do?
But really, it is easier than you think. Look at money and inflation like a game. The only difference is that this is a game where the rules are continually changing.
Imagine if you were playing Settlers of Catan or Monopoly, and new rules got handed down from on high. Whoops, Boardwalk now costs $100K… That’s the money game.
But there is hope! There is a guy that I want to introduce you to that played the money game better than anyone else.
He’s what I call the Inflation King, and his story can teach you how to play the inflation game and come out on top.
Hugo Stinnes – The Inflation King
Hugo Stinnes was a businessman in Germany who was active from the 1890s to the 1920s.
At a young age, Hugo was already invested heavily in coal, steel, and shipping during the peak of industrial growth in Germany.
But then… World War I happened, and the growth halted.
Germany lost the war, and they were made to sign the Treaty of Versailles.
This forced them to pay HUGE reparations to the allied governments.
Now, Germany had all this debt they couldn’t pay, and the government started printing money at an extremely high rate to try and pay off the debt. Then came the hyperinflation that nearly ruined the entire German economy.
But there is an upside to this tale.
Hugo Stinnes saw this inflation coming, and he had a plan to come out on top.
He did so well that Time Magazine dubbed him, “The New Emperor of Germany.”
In a nutshell, when the printing of money started, Stinnes borrowed to the hilt and bought more real assets.
He bought companies, factories, and gold/silver.
He expanded his vast empire of companies to 3000 manufacturing plants and 4500 factories all on the borrowed money.
Then came the hyperinflation, and the genius of his plan becomes apparent.
Inflation reached 100,000x in 1923. By that point, Stinnes was able to pay back his old debts with the extremely devalued currency.
With that kind of hyperinflation, it was almost like paying off your mortgage with the number of dollars it would otherwise cost to buy a loaf of bread.
Now that sounds like a good deal to me!
I jokingly like to call the Inflation King another name… Hugo Boss. Because he sort of is the Boss of the inflation game. There are so many things to learn from his story.
I am not saying that this kind of crazy hyperinflation will happen here in the US, but I am saying that it is possible if we see the printing press as the solution to all our financial problems.
It’s always better to be prepared for this kind of worst-case scenario.
Lesson 1: Dollars are Fiat and Worth Less Over Time
The first major lesson from this is that dollars are fiat. This means that there isn’t a physical asset that is backing the dollar.
Back in the day, our currency was grounded based on how much gold the federal reserve had. There was a strict limit to how much money there could be, as there would be an equivalent amount of gold in reserve.
So for every $20, there was an equivalent weight of gold held by the government.
This was the Gold Standard, but that is no longer the case.
Now, dollars are fiat. Because there is no physical asset backing the money, over time the money will be worth less as more gets printed. Inflation.
Simply put, money printing leads to inflation, and this is only going to continue.
Because of this, you want to plan for this situation.
Whether it be regular inflation or hyperinflation, having a plan to protect yourself from how the value of our currency changes is extremely important.
Lesson 2: Put your money in inflation-protected assets
Whatever your strategy, the most important thing to hedge against inflation.
Doing this will allow you to ride out inflation like our friend, the Inflation King.
There are a few ways that you can do this. But below are my two favorites.
If you look at how rent and housing costs rise over time, they rise with inflation. This means that even as your money becomes worth less, your real estate asset is rising along with it.
This protects you from losing your worth as you will still have value tied to this real asset.
I will have a future blog post and video about this topic coming up.
But like multifamily properties, precious metals are a real asset that are limited in supply. Because of that, as inflation rises, the real asset’s value will continue to rise as well.
Overall, the most important thing to remember about any inflation is that you NEED to be prepared. Again, making money is a game, and to win you have to be prepared.
As the great NCAA basketball coach John Wooden said:
“Failing to prepare is preparing to fail.”
If you are looking to get more prepared for your multifamily real estate investments, then you are in the right place.
Check out our special report about investing. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future.
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