I started writing this post about four months ago then forgot about it as I typically do. Since then, inflation has gotten much worse which is really no surprise if you understand the basics of economics. Inflation is at the highest rate since WWII and has risen at its fastest pace in 40 years. Why is that so?
It’s not “transitory” and it’s not because of that Russian guy. There are many reasons why inflation is reaching historic levels but there’s really just one big one you should understand: 80% of the money in circulation today was printed in the last two years. That’s wild when you think about it. The government can’t just print trillions of dollars out of thin air and expect there to be no consequences. Actions always have consequences and this one is now rearing its head.
LOTS of smart people have been warning us about the growing deficit for decades. Politicians punt the issue every time because reducing spending isn’t popular. Now the consequences are finally here… and will only get worse in years to come. Currency devaluation is nothing new and has happened countless times throughout history. History is repeating itself now and I highly recommend that you take 40 minutes to watch this video: Principles for Dealing with the Changing World Order.
Now that I’ve scared the crap out of you, take a deep breath because there are some things that are in your control.
1. Increase your savings rate
This is a kind of a duhhh one but there’s never been a better time to increase your savings and cut out expenses. As the dollar has less buying power, you’ll need to save more. I find that the little things can make a big difference. Cook more at home. Walk instead of drive when possible. Switch from bacon to sausage since bacon seems to have had one of the biggest price increases etc.
2. Keep investing
While you should save more, you shouldn’t necessarily keep it all in your savings account. If you have a ton of money sitting in your bank account, it’s losing like 8% of spending power a year due to inflation. Please still keep an emergency fund in cash (I recommend at least 6 months worth of living expenses) then invest the rest. I’m still investing in index funds (VTI is my favorite) but also diversifying more than in the past because I think we’re overdue for a recession.
3. Diversify out of the U.S.
This one makes me sad but if the U.S. is in decline then I think it’s important to invest more in global stock markets. I’ll be putting more money into global ETFs going forward. I like iShares MSCI ACWI ETF.
4. Buy in bulk
I’m no doomsday prepper at all but I have been stocking up and buying in bulk whenever possible. Buying things in bulk is 1. usually cheaper and 2. saves you from future price increases. You might as well buy more at a lower price now since prices are only going up. I’m not saying you should start buying tons of shit. But for things that you use often and are non-perishable, go for it. Pasta, oatmeal, deodorant, chicken broth are some things I’ve bought in surplus recently.
Big box stores are less effected by inflation. I’m not saying to stop supporting small businesses, but I’ve seen some of the lowest prices on essentials from store brands like Target. For example, Target sells organic pasta sauces for only $2 and they’re really good. They have lots of organic groceries on the cheap that you can get delivered for free (just spend $35 for free shipping). That saves you gas money and a trip to the store.
5. Buy crypto
Another strategy for diversification. I watched a video where this guy said that crypto is a hedge against inflation because of its scarcity (limited amount). I found it super interesting (wish I saved the video oops). Unlike dollars that can be endlessly printed, there’s only a certain amount of Bitcoin available. Kinda like digital gold. But not all Crypto is scarce so do your research before buying. Personally, I believe that crypto will go up in value over the long-term and as inflation increases. That being said, it is extremely volatile in the short-term so don’t invest money there if you need it in the near future.
6. Invest in real estate
As inflation rises, so do rents. Rents pretty much go up every year regardless but especially now. Average rents rose 14% last year! As rents increase, your mortgage stays the same which is why buying a rental property now is a good long-term hedge against inflation. You probably want to scream at all the realtors on Instagram constantly posting about how interest rates and home prices are going up so the time to buy is now. But honestly it’s true.
Even if there’s a recession, it’s highly unlikely that there will be another housing crash. Maybe there will be a market correction when it comes to high-end luxury properties and vacation rentals. People can’t afford to go on vacation during a recession. So don’t buy a 2 million dollar condo. But people will always need a place to live and we’re increasingly moving towards a nation of renters, not homeowners. “You’ll own nothing and you’ll like it,” as they say. Beat the system. Demand is outpacing supply and that’s not changing anytime soon. Big institutional investors like Blackrock are buying up rental properties in record numbers. That means that you should follow suit.
The real estate market sucks right now and that means you’ll have to work harder to find good investments. Probably way harder. But there are always opportunities for smart people to make the most out of bad situations. You’re already ahead of the curve just by understanding what’s at play. I’m very curious to see what you agree or disagree with here so please leave a comment.
