In the last four decades, we had low inflation and decreasing interest rates, that is, up until two years ago. Now that we’re past COVID, inflation is rearing its ugly head more than we've seen in the last 40 years. This has dire consequences on the best laid plans of those who have been diligently saving money and aggregating it in different types of retirement accounts.

Why should you want an inflation hedge?

If you don't have a strong inflation hedge with your nest egg (your investments), then inflation, the devaluation of the dollar, is going to eat into the purchasing power of that hard earned and hard saved money. This will happen regardless of how hard you’ve worked to save.

In fact, at a 12% nominal inflation rate, every six years the purchasing power of the dollar decreases by half. So a $2 million nest egg will be worth only $1 million in six years time. If you don't have an inflation hedge to keep it growing and to offset the devaluation of the dollar, the purchasing power of your 401k or savings will literally be cut in half.

If you take another six years, that $2 million is now down to $500,000. If you plan on going through many cycles of six years, in this example, you're going to find that your nest egg quickly becomes inadequate. You will find scarcity amongst those final years of your life, which is never a good thing and certainly not what you had been planning for all these years.

So where do you find those assets that are hedged against inflation? I don't believe that the stock market is where you want to be. We've had a long bull run in the last 10 years, and if you've been a part of that with your 401k, etc., kudos to you. That's great. But now we’re turning a corner, and if you're not willing and able to figure out what to do amongst the unavoidable changes in the environment, you could be hit hard.

It's scary to make changes, but you cannot stay the course. Whatever got you to where you are today is not going to take you to that finish line in the future.

Why should you want cash flow?

It's one thing to stockpile a huge sum of money like the traditional retirement model calls for. But turning that aggregation into cash flow is the part that most financial advisors never get to. They hardly ever help their clients in this regard.

They say, “Well, just build it up and take out maybe 4% per year of the principal.” You’ll then receive a minuscule return because they’ll put you in a “safe” environment like bonds or T-bills. Today, the return rates are going up a bit, but it’s not even close to inflation. You're losing ground when you're not at least getting a return that’s equal to the inflation rate.

And today, that publicly shown inflation rate (what the government tells you in the CPI index) is not the actual inflation rate. It's probably around twice that. (Here’s a recent article from The Epoch Times that describes just this.) Just bear in mind that the government is always trying to manipulate the numbers to their advantage, to look better for their constituents.

That’s why you need cash flow. If you don't have cash-flowing assets, you're going to be eating down on your principle in two ways: One, you'll be taken down 4% per year, and second, inflation will take it down by another 12-15%. Combined, you're going to run out of money sooner than you thought. 

In fact, one of our Freedom Founders members recently stated that before he joined our group he asked his financial advisor if he and his wife had enough to retire out. Their financial adviser correctly answered, “Yes, as long as we don't have some kind of a market or economic correction in the first few years after your retirement”, because that puts a big dent in your principal balance.

Well, that doesn’t sound very secure or instill a feeling of confidence, does it? That's why it needs to be up to you to be diligent and prudent about how you look at your financial future. You can't rely on people who, even with their best guesstimate and the best history of what they’ve done, don't know what the markets will look like going forward.

Most financial advisors have never experienced inflation and high interest rates that keep going up. It’s a new cycle, and most people have not navigated a full market cycle. That’s why you have to stay on the forefront. That’s what we do in Freedom Founders, and it's how we help our people navigate through what I've been doing over the last 42 years.

I've done it successfully and helped hundreds of other dentists do the same thing, getting off of Wall Street and getting their money into Main Street, where we can have more security and control.

If you want to learn more about how to become a successful full-cycle investor, through both up and down markets, click here to read my free report on Becoming A Full-Cycle Investor.

To your freedom!

– David