TAMING THE INFLATION MONSTER
And Keep Growing Your Nest Egg
Inflation seems to be everywhere.
Have you seen it at the gas pumps? Have you observed higher prices at the grocery store? Small and large businesses are having to pay higher wages to get new employees. Inflation has picked up significantly.
Congress has authorized over $5 Trillion in stimulus spending since the coronavirus pandemic began.
Have you seen the competition among buyers trying to purchase a new home? Rents are also going up.
Inflation can be a monster. And a threat to your nest egg.
We haven’t felt it much in recent history. Inflation has been low, around 1 to 3 percent for most of the last 20 years. Over the last 50 years it has averaged about 4 percent per year.
Some may remember when inflation was much higher.
It’s picking up again.
For the last three months reported, May, June and July 2021, inflation was reported at an annualized rate of 5% and above.
You know how much more you pay for gas. How much higher is your restaurant tab? How much more are you paying for groceries?
THE THREAT OF INFLATION
Inflation is like a hidden threat. Your dollars don’t buy as much as they did before.
What will happen to your retirement dreams? They will certainly cost more.
One of the keys to having a financially free retirement is ensuring your investments grow faster than inflation. But that is not enough. They also need to provide cash flow to live on.
In his book “Retire Inspired”, Ben Carson talks about three different groups of retirees. Let’s take a look at the top group.
The top group has invested enough for retirement so that they will not be a burden on their kids. Not only that, but their nest egg continues to grow throughout their retirement years. And they have the financial ability to do the things that they enjoy.
Ben Carson’s top group is where we want to be, wouldn’t you agree?
We certainly don’t want to be a burden on our kids.
And I really don’t want to switch to a beans and rice diet just to save money.
So how do you tame the inflation monster?
HOW TO TAME THE INFLATION MONSTER
There’s good news and bad news.
First, the bad news, we cannot control inflation.
Now, the good news. We can choose investments that take advantage of it.
How can we take advantage of inflation?
My favorite way is to buy cash flowing assets that increase in value along with inflation. Like real estate. For example, if I own an apartment complex, when inflation rears its head the rents also go up. It’s a simple solution.
The solution gets better when you purchase a property using a mortgage. Because as the rents go up and increase income, the mortgage payment remains constant. So the cash flow can increase at a faster rate than the rental increases.
Inflation can also be used to increase the value of your nest egg. By using leverage, it is possible to buy three or four properties instead of one. Then, when the properties increase in value, additional equity has been accumulated in several properties instead of one.
It doesn’t have to be complicated.
YOU CAN BE AN ACTIVE INVESTOR OR A PASSIVE INVESTOR AND BEAT INFLATION
You can choose to be an active investor. Hunt for the best deals, manage rental properties, and deal with the tenants and toilets. There are rewards if you are willing to spend the time and effort.
Or you can choose to be a passive investor. Let someone else do the hard work and put your money to use.
Either way, you have the ability to take on the inflation monster and make it work for you.
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Mike is a retired aerospace engineer with a passion for real estate investing and teaching financial literacy. He lives with his wife in Daytona Beach, Florida.