Inflation is here, and it has been a long time coming. For years, the full effect was delayed by deflationary factors such as technological advances and globalization trends that produced cheaper, just-in-time supply chain raw materials and products.
As reported by the government, the Consumer Price Index (CPI) is running at forty-year highs, recently as high as 9.1%, year over year. It should be noted that the measurement of the CPI has been manipulated over the years to reflect a lower number. If we were to measure today’s inflation by the 1980’s CPI metrics, it would track in the mid-to-high teens…not 8.1%.
After decades of globalization and low inflation, we are pivoting back toward deglobalization due to weak supply chains, trade tariffs with China, the conflict between Ukraine and Russia, and other variables.
During the pandemic shutdown, the Federal Reserve and Congress contributed an additional $5+trillion in credit expansion and direct payments to American consumers and businesses. A recent article from TechStartUps.com states that, “since January 2020, the US has printed nearly 80% of all US dollars in existence.”
At a 12% inflation rate, a dollar today will only be worth 50 cents in 6 years. That means a million-dollar retirement nest egg will only be worth $500k in 6 years. In 12 years, $250,000.
Inflation is crushing those in America who already had very little margin to begin with. Low-income renters are falling further behind with escalating rents, and first-time homebuyers are being hit with an average 30-year fixed rate mortgage now hovering above 7%. This is an increase of more than 100% in less than nine months.
It’s not looking good, so the government is forced to play political games. The Federal Reserve has attempted to fight higher inflation by raising interest rates multiple times throughout this year. With inflation, blue collar America suffers as their dollars buy less.
As a strategy to reduce demand, rising interest rates has downsides, including triggering a recession, causing layoffs, reduced business margins, and general economic malaise. This will lead to a cycle of stagnation, an anemic economy accompanied by high inflation and high unemployment. It’s a hard, narrow path for the Fed to navigate.
How will this affect your lifestyle now and in the future?
When stagflation occurred in the seventies, crude oil and energy prices skyrocketed and by 1989, the CPI peaked at 14.8%. How will an overall increase in supplies and labor affect your business margins and net profit?
With consumers’ budgets already stretched thin and significant increases in credit card debt, your ability to raise your fees will be difficult. In addition, insurance companies continue to decrease reimbursements, squeezing your cash flow to minimal levels.
Adding insult to injury, you’ll have to deal with the stress of the stock market if your retirement savings are locked in a traditional 401k until the age of 59.5. Historically, the markets do not perform well during periods of stagnation, and most of today’s young advisors haven’t experienced this type of environment before.
This creates uncertainty in traditional retirement planning models, leaving many practitioners feeling less in control of their destiny.
What Can You Do?
Understand that we’re going to have market cycles with more volatility. You need a strategy that can withstand them.
Stay ahead of the curve at your practice.
- Keep your overhead and operations tight.
Review your costs and negotiate better terms with your suppliers and vendors. Also, pay down any open lines of credit as quickly as possible, as variable interest rates will increase your debt service costs.
- Learn to communicate.
Help your team understand how to navigate the financial stress of a recession and how to communicate with empathy with your patients. Help them portray the value of preventive treatment with payment plan options to allow treatment in phases.
- Provide value.
Review your patients who are more value-oriented and are most likely to remain faithful for maintaining regular appointments and maintenance care. Provide easier access for patients who may only return for “essential” treatment. Be creative. Consider a prepaid membership for patients who don’t have insurance and bundle services to provide a discount.
Re-evaluate your investment portfolio.
We’ve already witnessed Wall Street volatility and market losses in stocks and bonds this year. No doubt, more of the same is ahead. Higher interest rates and inflation don’t bode well for traditional financial investments.
Specifically, Jim Bianco, president and macro strategist at Bianco Research, has been preparing for an “inflation comeback” for years, as per CNBC. He does not believe that the decade ahead will be kind to those who invest in index funds, exchange traded funds (ETFs), or mutual funds. In a recent article in AdvisorPerspectives.com, he states, “inflation is the number-one problem, and portfolio managers are struggling to understand this and are dismissing it. Bonds are selling off to adjust to this reality.”
The good news is that in an economy of low growth and stagnation, you have the ability to choose specific alternative investments outside of Wall Street, such as businesses and real estate.
Warning: This is not going to be in the wheelhouse of your financial advisor. You are going to have to be the advocate for your financial future.
Forbes Magazine states that, “the wealthy are always more likely to win in recessions.”
This is due in part to discipline, patience, and access to investment opportunities not available to the general public. More wealth is transferred in times of economic duress. You want to be on the receiving side of this transfer.
The key is being positioned to prosper. If you prepare for the market cycle disruption, you can take advantage of many opportunities, as those who are over-leveraged will need to sell their best assets to raise cash. This is an opportunity that may well be forming in the next two years.
Don’t do this on your own!
This process takes time and effort, so seek like-minded individuals and guides in a community that have experience to help you make smart decisions.
Stop listening to traditional advisors who are still trading “time for dollars” and selling the investment product of the day. Instead, find people who have taken the steps to gain real freedom and know how to play in market cycles and the mechanics to gain through the inefficiencies of the markets. This way, you’ll avoid mistakes and undue stress.
Instead of being a victim, prepare in advance. Volatility is ahead. Opportunity will abound.
Are you ready to take action to prosper in the months and years ahead?
ABOUT THE AUTHOR
When his young daughter was hospitalized with leukemia, Dr. David Phelps, DDS, was able to turn to his alternative investments, step away from his dental practice, and be by her side. From this experience, he created the Freedom Founders community in 2012 to help dentists and other professionals take control of their retirement investments to produce passive cash flow, security, and live life on their terms.
To contact Dr. Phelps, please visit www.freedomfounders.com.
FEATURED IMAGE CREDIT: moxumbic/shutterstock.com.