Dear Reader,
Good morning! Happy Tuesday.
Today I want to address a question I’ve gotten from a bunch of readers and viewers who ask:
“If you believe inflation is going to be such a problem, where do you put your money?”
Of course, it’s against the law for me to give you personalized investment advice, so I’ll just answer generally here, and speak to what I’m doing with my own money.
Ever since our government went off the rails, both parties spending money like drunken sailors, I’ve been putting my money in two things:
The first is short-term U.S. Treasury money market mutual funds. I buy these from Schwab, but you can get them anywhere.
Anything under a year is my sweet-spot, and these invest in short-term U.S. backed instruments, T-bills, that are 30, 90 days, etc.
The reason to avoid long-term treasuries is that we know the government is running out-of-control budget deficits.
There is no “conservative” party when it comes to fiscal restraint anymore.
That doesn’t exist.
They’re spending their way into bankruptcy.
And it doesn’t look like you might think.
The value of the currency gets degraded, so you need to own assets.
So a big chunk of my money goes into short-term treasuries, because those are quicker to have their yields adjusted to current risk and inflation.
Again, I avoid anything long-term. Personally, I won’t go out beyond two or three years.
I know the government’s basically running us into bankruptcy.
How does a government like ours go bankrupt?
It just prints money.
Hard assets are better to own than long-term treasuries.
Imagine you own a house you rent out.
And imagine long-term treasuries are paying 5%.
You lend the government a million dollars and get 5% a year for the next 30 years.
That’s $50,000 a year in income no matter what.
Sounds great...
But if you put a million dollars into a hard asset like a house, as inflation comes up, you can raise your rent from $50,000 a year to $60,000 a year, to $70,000 a year and so on.
So for your long-term investments, you want to invest in hard assets that can rise with inflation, not a fixed payment.
I suggest owning things that have “pricing power” - the ability to raise prices above the inflation rate.
That includes houses. That’s why so much money has gone into real estate.
My personal preference is the stock market.
I’m not a big real estate guy.
I find the transactions cumbersome - you have to negotiate it, you write a deal, they try to change the terms…
I like the stock market, because I can buy any company on the market within three minutes. And I can be out just as fast.
There’s no nonsense.
I know a lot of people make a lot of money with real estate.
But for me, the stock market is like owning a house where you can raise your prices with inflation. You can pass inflation costs on to your customers.
Now, there are companies that can pass inflation costs to customers…
And then there are special companies…
Companies that can actually raise their prices above the inflation rate.
Companies like Hershey - they can see 3% inflation and raise their prices 5%. You’re still going to buy your favorite chocolate bar. I know I am.
So they can actually boost their profits, even during inflationary periods.
All the brands you know have pricing power - Coca-Cola, Starbucks - they have super pricing power.
Inflation is good for merchant processors because they do bigger volume dollar transactions.
There’s a whole bunch of things that happen during inflation.
But the last place I would put my money is a treasury that pays 5%.
Because again, on $1 million, you’d get that flat $50,000 a year, whereas with a house, you can keep up with inflation no matter if you have to raise the rent to $60, $70, $80,000, $100,00 - whatever it is.
And of course in the stock market, the companies you buy do just that.
So, think about that as you consider what to do with any excess funds…
The absolute worst place is to keep it in a savings account doing nothing.
The second worst place, in my humble opinion, is in long-term treasuries.
The best place for “cash” is money market mutual funds on short-term treasuries, and the best place in the market is stocks with “pricing power.”
My absolute favorite retirement stock offers an 8% yield right now, along with 1,000% gains potential.
It’s the lifeblood of AI and basically pays a “royalty” every time someone uses a Nvidia chip.
I consider it the easiest possible windfall from the AI revolution and my #1 retirement stock.
Warren Buffett plunked down $40 billion before retiring…
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