“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” —John Meynard Keynes
Inflation is one of those buzzwords that people just throw around to scare you, right?
I was right there with you for a while, but…
Those people are partially right. Inflation can be a scary thing. I mean, who wants to lose their money?
But it doesn’t have to be scary!
When it comes to the game of inflation, there are winners and losers. And with the newly declared inflation rate of 5.4% year over year, now is the time to act.
With this kind of inflation, we are heading into one of the greatest transfers of wealth of our time.
Which side are you going to be on?
You don’t want to be like the ostrich burying their head in the sand and losing out. All it takes is three easy steps to take action!
#1 – Understand Inflation is Already Here!
As of June 2021, the rate of inflation has been reported by the government to be 5.4% year over year.
That number is higher than it has been since August of 2008!
This number consists of a collection of different products, and how their prices have increased since the same time last year.
You may have noticed some of these price spikes. Products such as gas, housing, lumber, and more have all gone up. Many of these products have even exceeded that 5.4% number going up 10-20% in cost!
But the government is telling us that this is only transitory. Meaning that things are changing, and they are promising that this high level of inflation isn’t going to stay.
But the real question is, do you believe that to be the case?
It’s not and here is why.
It starts with what inflation is.
Inflation has two parts. It is both the amount of money being printed and the amount of money that is being spent.
During the 2020 COVID pandemic, the amount of money being spent took a steep decline.
But in contrast, the amount of money printed increased. Since 2020, 35% of the current US dollars in circulation have been printed. That’s insane!
Just look at the graph.
Because of this lower spending and high availability of currency, the value of that currency becomes worth less… inflation.
The next factor to consider as to why this inflation isn’t transitory is the CPI (consumer price index) itself.
In short, the CPI is a lie. This number is calculated based on the changes in price in a predetermined basket of goods.
The problem arises with its calculation and its substitutions of products.
Basically, they can substitute in and out products as they see fit. So even if the prices of goods like housing go up, they can substitute an item that they deem “equivalent.”
For example, let’s say a consumer’s rent increases from $1000 a month to $1200 a month. If that is too steep of an increase and they choose to downsize to a smaller place, the CPI assumes that even though the cost has gone up the lesser housing meets the same criteria.
I don’t know about you, but I don’t see downsizing as equivalent.
The basket of goods in the CPI is also constantly changing. It feels like Houdini doing a magic trick behind closed doors as they substitute goods and calculate these numbers.
It is not transparent.
The other issue is them labeling the current CPI as transitory.
This minimizes the CPI’s impact, and it prevents the market from truly reacting to the changes.
It also gives a sense of false security.
The thing to remember is that all moments of high inflation or hyperinflation start with the government saying that it is transitory.
It happened in post-WWI Germany, and it happened in Zimbabwe.
I’m not saying that this kind of inflation will happen here, but it is important to note that the government has a keen interest in keeping the perceived inflation low.
For example, with higher inflation rates than reported, they can more easily pay off the over $120T in unfunded liabilities (pensions, medicare, etc).
This is because, with lower inflation, there is a lower interest that they have to pay on these liabilities.
It’s like a used car salesman. They have their interests at play, so why would you trust them to self-report their numbers when they stand so much to gain.
That is one of the reasons I really like shadow stats.
Shadow stats is a great site that shows you the USA’s inflation with different, more transparent formulas than the government’s.
Basically, they take the government’s CPI metrics from 1980 and 1990 and show you how high inflation really is. The reason for this is because the government has changed the way they calculate inflation. They did so to project a lower number than reality.
Just look at the numbers!
By the 1980 metric, our current inflation is 14%.
By the 1990 metric, it is 8%
So what is it, 5%, 14%, or 8%?
The hard truth is that we don’t know exactly, but the point is that inflation is higher now than it has been, and that means it is time to act.
#2 – Why Most People Will Get it Wrong
When it comes to playing the inflation game, there will be winners and there will be losers.
Right now is the time to act.
We have not had significant inflation like we are seeing now since 1980!
But there are a few things that make the inflation game a little tricky.
For one, if you are holding onto dollars and there is inflation, then your money is going to be worth less as time goes on.
So hoarding your money away is the worst thing you can do in times of inflation.
However, the way that most people think of protecting themselves from inflation is also flawed.
We have all been taught that paper assets like stocks and bonds are the safest investment. Wall Street firms have spent millions of dollars marketing this idea to us.
But it is a lie!
Stocks have crashed multiple times in the past by 50% in a year! And even with the optimistic 7% gain over time that is advertised, that won’t even cover you if inflation really is at that 14% figure.
Even bonds, the “safest” paper asset, are in trouble. As interest rates go down, so do the returns of bonds, and with it, your inflation hedge once again disappears.
You may think that stocks and bonds are still a decent protector from hyperinflation. But that is also not the case.
In post-WWI Germany, for example, stocks lost ⅔ of their value!
On top of that, there is the counterparty risk. If the bank or organization goes under, then you are out of luck.
But what about the long-term, right? That is what you were always taught. That if you ride out all the dips in the market you will come out on top.
Unfortunately, that is not the case either.
Chris Cole has a great report on this called The Hawk and the Serpent. In it, he finds that if you rode out the traditional stocks and bonds investment strategy from 1929 to 1970, you would have gone bankrupt 3 times.
That doesn’t sound like something that I’d want to be the standard investment.
But this is what most people do, and this is how they lose the inflation game.
However, it doesn’t have to be this way. There is another option!
#3 – How to Win with Inflation!
As I have said, we are heading for one of the greatest transfers of wealth of our generation. The key is to be on the right side of this and use inflation to your advantage.
As Robert Kiyosaki said, “Savers are losers.”
By holding onto your money in times of inflation, you are destroying your wealth. All the money is doing is losing value.
There is a better way!
I recently had a conversation with my friend George Gammon about this topic. He turned me onto the 10-80-10 rule.
Basically, you invest 10% into a physical asset like gold as a reserve.
Then you put 80% of your wealth into cash-flowing assets. Assets that pay you to own them. The one that I most recommend is multi-family syndication.
And finally, the last 10% is for speculative investing. Something like cryptocurrency or gold mining stocks that have a potential for high-end returns.
The key is to have physical assets that hold onto their value, regardless of how currency inflates.
This is a true inflation hedge.
On top of that, there is inflation-induced debt destruction. This is a term coined by my friend Jason Hartman, but the key to this principle is that having debt in today’s currency is easier to pay off in inflated currency.
So if you own a multi-family or single-family home, the debt is easier to pay off as currency becomes worth less.
Now that is using inflation to your advantage!
Another thing you can do is use gold and silver as a way to protect your money. While this isn’t an investment per se, gold and silver are insurance for your money. They hold onto their wealth better than any other form of money.
And finally, my favorite way of using inflation to your advantage is investing in real estate, specifically multi-family real estate.
Not only does it work as a hedge against inflation, but it is also a cash-flowing asset that allows you to continue to grow your wealth over time.
That is how you beat the inflation game. You find investments that allow you to use what many people see as a disadvantage to your benefit.
And a great first step in this is getting started in multi-family investing.
If you want to learn more about how to get started, then I have got you covered!
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.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.