As a child of the ’70s, I was very aware of inflation, even if it didn’t seem to affect me directly.
I don’t remember the price of a pack of baseball cards or a Marathon bar soaring. I had more important things to worry about – like hoping to see some Yankees in my newest pack of cards.
But it was in the news all the time. People seemed to be upset by it.
Today, inflation is at the highest point it’s been in my adult life, which spans 30 years.
Prior to last year, starting in 1992, per the consumer price index, U.S. inflation rose above the annual historical average of 3.2% only three times, reaching a high of 3.8% in 2008. Each time it eclipsed the average, it fell the following year.
Today, inflation stands at 8.5%.
Now, I foresaw this massive spike in inflation in September 2020.
We have had a perfect storm of events and policies that have been shooting prices significantly upward, including…
- Government spending. The government plans on spending trillions more in the next few years. Regardless of what budget or bills get passed, newly printed dollars will be sloshing around the economy. All that money chasing limited goods and services will drive prices higher.
- Low interest rates. The yearslong accommodative policy of the Fed made borrowing money dirt cheap. Despite the recent rate hikes, borrowing costs are still quite low, which adds to the spending frenzy going on right now.
- The pandemic. The lockdown created pent-up demand for goods and services. And while things were closed, Americans saved cash and paid down debt. Now, like their elected officials, they’re going back to spending money like a spoiled teenager with rich parents.
- Supply chain constraints. Due to labor shortages and other issues, there are not enough raw materials, finished products and available services – limiting the supply of those goods and services as demand surges. That is inflationary.
Here are three actions you can take to protect your buying power against the wealth-eroding effects of inflation…
No. 1: Own Perpetual Dividend Raisers. These are stocks that raise their dividends every year.
If you’re receiving more income from your dividend stocks each year, you should be able to maintain and hopefully increase your buying power instead of seeing it decay due to inflation.
It’s precisely why I’m giving away my Ultimate Dividend Package FOR FREE – including my “No. 1 dividend stock” and the “safest 8% dividend in the world.”
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No. 2: Keep fixed income maturities short term. You don’t want to be locked into a fixed income product for years.
If you’re earning 4% today while inflation sits above 8%, you’re losing buying power. If your maturities are short, you’ll be able to reinvest the cash as it matures at higher rates.
No. 3: Look for variable-rate products. There are some bonds whose rates are variable depending on inflation or other factors. Those will help you maintain your buying power as inflation rises.
Perhaps the best thing I could have done to beat inflation was hang on to those baseball cards.
But since Reggie Jackson can’t help me, I’m taking the steps mentioned above to make sure rising prices don’t destroy my buying power.
P.S. Seriously, it’s free. Claim your Ultimate Dividend Package here.