In spite of the cost of living, it's still popular. Kathleen Morris

Most of us have lived through many brief periods of deflation, however usually economic progress is accompanied with inflationary pressures. Inflation can occur when there is too much money in the system, which leads to an escalation in the price of goods.

I think with all the government bailouts and the Federal Reserve paying for it all with low interest and the wholesale printing of US Dollars, we can all agree there is too much money in the system. If the two primary sources of wealth creation - asset and income appreciation - go up in value at a rate equal to or greater than inflation, the negative effects of inflation are nil. Yet as we've seen time and time again, that usually is not the case. The prime indicator of this effect is that while average wages have increased, the overall price of goods has outpaced the average salary increases recent years.

So it's important for a household and investors to understand how to invest and plan in a way to ensure that your assets maintain purchasing power. Here are ways that all individuals should consider to protect their hard earned wealth from the ravages of inflation.

Invest in the Market

Owning several equities can be a way to combat inflation. But you may be thinking: a business is similar to a household; if a company cannot properly invest its money in projects that will deliver a return above its cost, then it too will fall victim to inflation. The basic premise is that corporations will sell their goods at increasing prices, which will lead to increased revenues, earnings, and without doubt, stock prices.

The best companies to own during inflation would be those that can increase their prices naturally during inflationary periods. Commodity companies are one such area. Products like oil, grains and metals enjoy pricing power during periods of inflation. The prices of these items will likely go up in periods of inflation versus the price of a television for example which is subject to manufacturer and distributer policy adjustments.

Price increases aren't enough. Inflation leads to price increases across a most business operations. If a company experiences increase in its expenses in tandem with inflation, increases alone are not enough to justify equity appreciation. That's why retail stores, which may benefit from increased prices, may also suffer from an increase in their cost of goods sold.

We should attempt to find the lowest cost producer. Look for stock in businesses like commodity companies or healthcare names that possess the strongest profit margins. In conclusion, never underestimate the importance of dividends during periods of inflation. Dividends increase the total return to a portfolio and in the lost decade of 2000-2009, when the S&P 500 went nowhere, dividends made a significant difference. (Find out which futures, options, or funds will be your perfect commodity portfolio fit.

Invest in Real Estate
especially rare and remarkable with a good rental ROI potential - such as is most of the Texas coast.

If you see a bandwagon, it's too late. James Goldsmith

Real estate is a great investment when done for the right reasons. The problem in real estate occurs when one's goal to flip a home versus buying a home to live in. Although many experienced real estate investors are able to find hidden values in properties, most individuals should focus on purchasing a home with the intent of holding it, even if for only several years. Real estate investments usually do not come to fruition over several months or weeks, but normally involve a longer waiting period in order for values to increase.

Mortgages for homes come in all varieties, although the general premise is essentially the same. Each month, you pay off a little of the principle and, within 15-30 years; you will have paid off the entire amount, leaving you with ownership of a debt-free asset that should continue to appreciate in value over time.

And when you borrow at a fixed rate, any future increases in interest rates means that you are paying off future debt with cheaper currency. Think of it like a bond: if you buy a house today at a fixed interest rate of 5% and five years later rates are 8%, your cost of debt is a lot cheaper than it is for the present day borrower.

Like land, home prices tend to increase in value on an average year-over-year basis. Real estate bubbles are usually followed by correctional periods, sometimes causing homes to lose over half of their value. But on average, housing prices tend to increase, counteracting the effects of inflation. Rather than holding money in a saving account, which will cause a major loss in purchasing power by retirement, real estate investments have the opposite effect. (Owning property isn't always easy, but there are plenty of perks.

Real Estate Prices are at reasonable levels.
Opportunities in foreclosed properties exist with more on the way.
Mortgage rates are at an all-time low.
Contact us and inquire about foreclosures or bank owned property.

Invest in Education

The absolute best investment you can use to deal with an uncertain future that may include higher prices is to invest in yourself. Nothing is more effective in combating inflation than investing in yourself in order to increase your earnings.

Obtain a quality education and then endeavor to learn new skills that will match those in demand. Generally the higher ones level of education, the higher the pay and the greater chance for employment exists. Lifelong education allows one to not only inflation-proof his/her salary, but also recession-proof his/her career.

More than stocks, bonds or houses, investing in education is the easiest and most effective way to combat inflation and any form of economic turmoil is to increase your future potential earnings power by investing in knowledge today.

The Hidden Tax

Inflation is often referred to as the hidden tax because its effects go unnoticed to most people. Hypothetically, earning 3% in a savings account while inflation grows at 8% makes many feel 3% richer, when in fact they are 5% poorer. Learn to understand the causes and effects of inflation and how you can protect your assets from its hidden damage. Real estate in a depressed market may just be your ticket to freedom from inflation worries.

Also read "Is the Texas Coast an Inflation Hedge"

Comments

By bloomberg @ Wednesday, May 12, 2010 12:28 PM

Paper Money ‘Debased’

“All we can do is to put our money into real assets, because paper money everywhere is being debased,” Jim Rogers, the chairman of Rogers Holdings in Singapore, told Bloomberg Television today.

Gold will be at $1,300 in a month, up from a previous forecast of $1,200, and silver will be at $18.50, up from $16, UBS AG analyst Edel Tully said today in a report. She increased her three-month price forecasts for gold to $1,200 and silver to $17.25.

Gold may reach $1,500 by the end of the year as concern spreads that other nations will struggle with their debt, said James Dailey, who manages $145 million at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania.

“Every major government in the world has been reckless stewards of their currencies,” said Dailey, who recommends owning mining stocks over physical gold because of the potential for higher returns. “There’s a shift in investor psychology that gold is not a barbaric relic. It’s back to being a monetary asset.”

The Philadelphia Stock Exchange Gold & Silver Index, which includes gold and silver miners, is up 10 percent this year. The index gained 36 percent last year and fell 29 percent in 2008.

By Sham Gad @ Friday, May 14, 2010 1:00 AM

Timeless Ways To Protect Yourself From Inflation

In addition to death and taxes, inflation is another phenomenon that we can expect with near certainty over a period of time.

Indeed, the U.S. has gone through many brief periods of deflation, but in general, economic progress is accompanied with inflationary pressures.

Basically, inflation may occur when there is too much money in the system, which leads to an escalation in the price of goods. Of course, if a household's two primary sources of wealth creation - asset and income appreciation - go up in value at a rate equal to or greater than inflation, the negative effects of inflation are removed. Yet as we've seen time and time again, that usually is not the case. The prime indicator of this effect is that while minimum wages have increased, the overall price of goods has outpaced the average salary increases recent years.

So it's important for a household and investors to understand how to invest and plan in a way to ensure that your assets maintain purchasing power. Here are three ways that all individuals should seriously consider to protect their hard earned wealth from the savages of inflation.
• Invest in Stocks
• Invest in a Home
• Invest in Yourself

The Worst Tax
Inflation is often referred to as the worst tax because its effects go unnoticed to most people. Hypothetically, earning 4% in a savings account while inflation grows at 7% makes many feel 4% richer, when in fact they are 3% poorer. Learn to understand the causes and effects of inflation and how you can protect your assets from its hidden tentacles.

By Trent Hamm @ Friday, May 14, 2010 1:10 AM

The US may be headed for long decline.
• You don't have to follow.
• Americans can avoid income decline by spending less and earning more.

My belief is that, for the most part, the standards of living everywhere else in the world will rise rapidly to meet the standard of living in the United States. However, I also feel that our standard of living here will probably never grow at the same rate as it did in the twentieth century. In short, I think our growth rate will be much lower than that of the rest of the world and may in fact be a slow reduction over a long period of time.

I don’t really think it’s anything to panic about, though. This decline has been happening already for a long time, starting in roughly 1970. Real wages – meaning the amount that people get paid when you get rid of inflation – have essentially remained unchanged since then.
The real change in our financial lives has been the big increase in costs. There are countless services we have today that many of us consider essential – and that we pay for every month like clockwork – that simply didn’t exist thirty five years ago. Cell phones. Home computers. VCRs and DVD players. The energy required to run all of these devices. Internet access.

Non-extortionary long distance telephone access. The vast majority of Americans consider these expenses a requirement – and they didn’t exist in 1970.

My prediction for the future is that these trends continue. Real wages won’t go up, but our expenses will go up.

So what do we do? As always, there are two key solutions for this – and they’re solutions anyone can follow. Plus, they’ll benefit everyone regardless of whether they believe such change is happening or not. And these two key solutions are summed up in one phrase: spend less and/or earn more.

We can spend less by recognizing that we don’t need every service or tool that comes down the pipe.

On a regular basis, step back from your life and look at how you spend your money. Keep track of all of your spending for a month. Then, sit down and honestly evaluate it. Where are you spending money on things that really don’t add value to your life? Then, cut them hard.
Five years ago, I was a cell phone addict. I never went anywhere without it. I was constantly calling and texting people. Over the last two years, I have essentially weaned myself from cell phone usage. Now, I rarely pick it up and, when my contract expires, I’m going to simply cancel the phone and get a pay-by-the-minute el cheapo phone. Why? I realized I didn’t actually need what it provided. What I wanted was connection to the important people in my life – and cell phones didn’t really provide that. The only actual need it fulfilled in my life was additional security while traveling and, on rare occasion, contacting a friend to make sure we were meeting up at the correct time and place. I can do that for a lot cheaper with a prepaid cell phone, so I’m going to make that switch in the very near future.
On the flip side of that coin, we can earn more by improving our soft skills.

What do I mean by that? Think about it this way. There are two very competent mechanics in your town that charge roughly the same price for the same quality of work. One of them is very gruff with customers, doesn’t explain repairs well, and doesn’t provide documentation or assistance. The other one is very friendly with customers, explains the repairs in common terms, and gives documentation to his customers. Which mechanic will eventually have most of the business?

This is true in any field. Everyone has hard skills that they can provide to the world. We’re all good at something – and some of us are good at several different things. When you have your choice among people who are good at a particular task, you don’t choose because of the hard skills. You choose because of the soft skills. Do they communicate well? Do they listen well? Are they organized? Are they responsive? Do they spend their time improving themselves or improving the community?

Those soft skills and attributes pay off regardless of what the economy is doing – if anything, they pay off better in a down economy. That directly means employment for you. That means raises. That means job opportunities.
If you really focus on these two things regardless of where the economy is right now, you can handle almost anything that the future economic situation will throw at you. You’re prepared for it.
We can all have a brighter future no matter what happens if we spend some time today preparing for it. The future is an opportunity, not a place of fear.

By Don Trump @ Friday, May 14, 2010 1:27 AM

In three words I can sum up everything I've learned about life: it goes on. - Robert Frost

Survive the down, the upside takes care of itself. – Don Trump

By VisualEconomics @ Friday, May 14, 2010 9:35 PM

Inflation Rate Behavior
While there has not been a spike in the inflation rate, even when there was talk of the U.S. economy being in a recession, the inflation rate has been moderately increasing. The increase seemed to pick up a bit in the first few months of 2010, which is why when it was announced that the inflation rate for February was a big fat zero, everyone sighed a great sigh of relief. The biggest factor in keeping prices at their existing levels is thought to be the decline in the energy sector. In a close second place, flat-lining prices are also attributed to the decrease in the prices for petroleum products such as gas and oil.

By Fed Chief Bernake @ Sunday, May 30, 2010 10:31 PM

Despite increases in inflation a few years ago and now declines of inflation to very low levels, inflation expectations in the United States are very stable," Bernanke said in Tokyo on Wednesday in a question-and-answer session at a seminar hosted by the Bank of Japan.

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