Inflation Is Taking Hold... Here's What to Do
Editor's note: Inflation could ruin your retirement...
You've probably noticed that prices have taken off recently – forcing consumers to pay more for gas... food... and nearly everything in between. And while many investors are busy wondering where to invest whenever the "Melt Up" ends, Income Intelligence editor Dr. David "Doc" Eifrig says they shouldn't ignore the immediate threat posed by rising prices. In fact, if you're living on a fixed income, you could be more vulnerable to inflation's impact than you realize...
In short, Doc says inflation could knock years off your retirement... potentially causing you to outlive your money. And even if you believe rising prices are a short-term blip and not a long-term problem, it's important to invest in assets that can withstand this market environment...
In today's Masters Series – adapted from the May 26 issue of Doc's free Health & Wealth Bulletin e-letter and the September 24 issue of DailyWealth – he explains how inflation can threaten your nest egg... why it will likely remain a concern for the foreseeable future... and how to shield your investments from what's happening today...
Inflation Is Taking Hold... Here's What to Do
Despite a recovering economy and a bull market, many of you are worried.
I don't blame you. It takes years to build up a nest egg that will last you through retirement. And it can take just a few weeks to watch it get cut in half.
We're in a market boom right now. That means a bust is sure to be right around the corner. Plenty of folks have written to me recently asking how retirees should handle the coming "Melt Down."
But surprisingly, that wasn't their No. 1 concern...
When it comes to retirement, it turns out that folks are more worried about the looming threat of inflation.
Inflation reduces purchasing power. For retirees, your health care becomes more expensive... as well as your housing costs... and even your groceries. Simply put, a dollar won't buy as much as it used to before a surge in inflation. And that means you run the risk of outliving your money.
It's scary to think of. No one wants to be forced back to work when they should be on a beach sipping Mai Tais.
As an example of how inflation can crush retirees, take a couple with $1 million saved for retirement. They expect to spend $50,000 per year on expenses and trips to see their children and grandchildren. Let's assume they earn 3% on their money in safe bonds.
Now, if there is 3% annual inflation, that $1 million would last for 20 years. But if inflation rose to, say, 12% per year... that $1 million would run out in 11 years and nine months. In this scenario, returning to work becomes a real possibility.
Now, 12% inflation is unlikely. But you get the point. Even an inflation rate of 4% or 5% can reduce the amount of time you can live on your nest egg.
And Stansberry Research subscribers aren't the only people worried about inflation...
Given the trillions in spending that our government has been pumping out lately, "inflation" is the latest buzzword. Flooding the economy with all that cash will definitely lead to more dollars chasing the same goods... and that means rising prices.
We track inflation each month in my income-focused newsletter Income Intelligence. To do this, we look at a number of inflation indicators – from commodity prices to real-world prices, like the price of a bike at Walmart.
We're showing that 14 of our indicators are flashing "inflation," and that's one of the highest readings we've ever had.
As of September, a few prices have started to cool – like those of gold, silver, and bread. But many are still soaring. Oil has nearly doubled on the year... corn is up 43%... and gasoline has risen nearly 50%. Most striking, though, is that unemployment continues to decline. That will eventually lead to wage pressures.
(You can follow inflation threats with our live Inflation Monitor at StansberryInvestor.com.)
It's obvious there's still an underlying rise in inflation. So whether you like it or not, inflation is going to be an issue. Retirees should be concerned by it.
I experienced this myself recently, when inflation almost sent me biking across California wine country...
Last month, I turned up at Avis in Santa Rosa to rent a car for the weekend. I'm a regular customer there, so I'm familiar with the typical rental costs.
Of course, this year has been anything but typical. Normally, it would cost me $800 to rent a car for an entire month. This time, I was quoted $800 just for the weekend.
I ended up paying much less, thanks to my status as a longtime customer. But if I hadn't been... well, lucky thing I can still ride a bicycle, because I wasn't about to pay that price.
Then it was time to fly home. Two years ago, a business-class flight from California back to the East Coast would have cost me anywhere from $500 to $600. But it's different now. These prices were just around $2,000. I even saw one for $3,200. It's insane.
Once again, I was fortunate... I was able to push my flight to another day and pay a lot less. But some people have no choice but to pay these absurd prices.
This isn't just a story of wacky things I saw on my vacation. Prices are rising everywhere...
Home prices are up 17% over the past year. Used-car prices have increased 32%. And as we said, gas prices are up roughly 50%.
You've seen headlines about these increases, I know. But take another look at the table... Did you know the price of electricity is 5% higher than it was a year ago? And have you heard that a gallon of milk costs nearly 5% more than it did last year?
These are real price increases that affect real people... And they will hit you especially hard if you are retired and living on a fixed income.
Take a look at the chart below of the Core Consumer Price Index ("CPI"). Core CPI takes out volatile food and energy prices. You can see the dramatic spike in inflation...
Some folks are terrified of these rising prices... They think we're on the brink of 1970s-style inflation – a significant, long-term problem that will severely devalue Americans' savings.
Others, including Fed Chair Jerome Powell, see today's inflation as "transitory." In other words, it's a temporary price recovery from a wonky 2020.
But whichever camp you fall into, one thing is clear...
Thanks to record government stimulus and a recovering economy, inflation is here today. And while the Fed has made noises about raising rates down the road, it still isn't in a hurry to cool it. That means we could be looking at higher prices for the foreseeable future.
And folks increasingly believe this inflation could be significant. Take a look at the New York Fed's national consumer survey. While people do expect unusually sharp inflation this year, they're also expecting a higher rate over the next three years...
So what should investors do in today's environment?
When inflation strikes, you want to own hard assets like gold or real estate. Some stocks can also do well during inflation...
A good business can raise prices to offset inflation. If you have highly demanded products and happy customers, you can charge a bit more to cover rising costs like wages or raw materials.
Most stocks like this are considered value stocks. A value stock typically makes a lot of money today relative to its market value. As my colleague Steve Sjuggerud explained yesterday, these kinds of companies don't have expectations of high double-digit revenue growth in the future, and that's often why they're priced cheaply.
Growth stocks, on the other hand, are priced expensively relative to what they earn today. That's because the market expects them to earn a lot more money in the future.
When inflation strikes, a growth stock's future revenue isn't so valuable anymore... That's the entire point of inflation: $1 in 10 years looks a lot less attractive than $1 today.
So with the inflation we're seeing today, look for quality businesses that can raise prices... and be wary of stocks counting on future growth.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: Doc says inflation is one of the biggest threats facing retirees today. And if you're worried about protecting the value of your savings, you're not alone...
That's why Doc recently sat down with his colleagues Steve Sjuggerud and Dan Ferris for an unfiltered discussion about what to do with your money in the weeks ahead. In short, you must have a plan... and they can help. And during the event, one expert revealed what he believes is "the most dangerous stock in the world today." Watch the free replay right now.