Chris’ note: Inflation is the biggest threat to your wealth on our radar right now. So this week, we’re spotlighting assets that can help you beat it.
Today, you’ll hear from Palm Beach Research Group analyst Nilus Mattive. He shares why inflation is set to keep climbing… and why you should have commodities in your portfolio to fight it.
Imagine a group of hackers gains access to your bank account – without your knowledge.
But instead of withdrawing all the money in one fell swoop, they drain it in dribs and drabs.
One month, they take 0.5% of your account’s balance…
Two months later, they take another 0.8%…
And it keeps going like that – in small, irregular amounts at random times. But over time, it adds up to a sizable portion of your savings.
How much of your money could they steal before you noticed or tried to stop them?
This isn’t a hypothetical question.
In fact, you’ve been getting robbed exactly as I’ve just described.
Not by hackers, but by the systematic devaluation of your dollars – also known as inflation.
Over the last decade alone, your money has lost 18.5% of its purchasing power. That’s absolutely outrageous.
It means you’re now paying around $122 for the same item that cost you $100 back in 2011.
Yet that is the damage relatively tame inflation – roughly 1.9% a year – does.
And we’re now seeing an annual inflation rate of 6.8% – 3.5x as much as what we experienced over the last decade.
Here’s what that will do to your buying power over the next 10 years…
It’s shocking, I know. But at the current rate of inflation – as measured by the U.S. government’s own gauge – you stand to lose a staggering 51% of every single dollar’s purchasing power over the next decade.
Think about that…
If you have a nest egg of $100,000 you’ve been scrimping and saving to build… 10 years from now, it’ll be worth only $49,000.
If that isn’t highway robbery, I don’t know what is.
The good news is you can take simple steps to protect your wealth right now and keep yourself far ahead of inflation.
In fact, if you pick the right investments, you can make a fortune should prices start to spiral out of control.
Today, I’ll share one of our favorite inflation-beating ideas at Palm Beach Research Group. And no, it’s not bitcoin (BTC). (Though you can catch up on that in yesterday’s dispatch.)
But first, let me show you why the recent high inflation figures could be just the beginning…
As you probably already know, inflation is tied to the amount of money in circulation. Every time the Federal Reserve prints more money, it reduces the value of the dollars already in circulation.
And because the Fed has to constantly print more and more dollars to keep up with the government’s spending, the value of your money is constantly eroding.
The COVID-19 pandemic forced the government to kick its money-printing into overdrive. Since the start of the pandemic in March 2020, the U.S. government has spent an estimated $13.4 trillion to kickstart the economy.
But that could be just the start.
Last month, President Biden signed a $1.2 trillion bipartisan infrastructure bill.
The bill includes $550 billion in new spending that’s set to flood multiple industries and sectors of the market.
Roads, bridges, public transit, electric vehicles, broadband access, and the power grid are all set to receive upgrades from this legislation and influx of capital.
Congress is also working on a separate bill that proposes another $3.5 trillion for initiatives such as education, healthcare, and housing.
If that bill passes as is, that adds up to nearly $5 trillion in additional spending. And that’s on top of the $4.8 trillion already budgeted for this year. So the Fed will have to accelerate its money-printing even further – which will send inflation soaring.
That’s why we’ve been giving you inflation-fighting ideas for years now…
Bitcoin and other cryptos are the most powerful example of how you can protect your wealth.
But there’s another investment category that has majorly outperformed during past bouts of inflation…
A recent Vanguard study found that for every 1% rise in inflation, commodities rise anywhere from 7% to 9%.
In contrast, Treasury inflation-protected securities (TIPS) – which are expressly designed to combat inflation – rise by just the same amount as inflation.
Even the broad stock market fails to provide an adequate return in periods of rising inflation.
Asset management firm SummerHaven sifted through 50 years’ worth of data on different asset classes in varying environments.
It found that during periods of rising inflation, the prices of commodity futures rose over 5x more than those of U.S. stocks.
Take January 2002 through July 2008. Tensions in the Middle East, soaring demand from China, and a falling U.S. dollar caused oil prices to skyrocket.
Crude oil rose from $18 per barrel in 2002 to over $145 per barrel in 2008 – a 700% gain.
Various metals also rose in price during that period. From 2002 to 2008, iron ore shot up from $29.31 to $197.12 a ton. That’s a 572% jump.
And when commodity prices rise, companies with revenue tied to those prices tend to do even better.
This is why I recommend increasing your exposure to commodities-related companies. Specifically, firms that directly benefit from rising prices for things the world can’t function without, like food or oil.
If you want broad exposure to the commodities sector, consider the Invesco DB Commodity Index Tracking Fund (DBC). It tracks a wide range of commodity prices.
Remember, always do your homework before making any investment. And never bet the farm on one idea.
Best wishes,
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Nilus Mattive
Analyst, Palm Beach Daily