Lee Shielka Talks About Why Inflation Is Harmful

In this video, Senior Financial Security advisor Lee Shielka talks about why inflation is harmful, in addition to discussing some options for protecting your portfolio from inflation and some other interesting investment advice.

Who remembers the time period when there was super high inflation and super high interest rates between 1965 and 1985?

For some of you, this term may be elementary to you; “The time value of money.” The time value of money basically states that $1 today is worth more than $1 next week, and this is solely because of inflation. Recently, it came out that the consumer price index, which is how much you and I as consumers are paying for products was up 5% between May 2020 and May 2021. This increase is going up at the fastest pace since 2008. And we all know what the financial markets looked like in 2008.

What can we do to protect against inflation? Some of you might say gold. I read a lot of articles that point to gold as the best thing for inflation. Some of those can be a little bit biased as they’re trying to sell you gold. Gold did have a price increase of about 30% annually in the 1970s. If any of you have any asset that you can show me that’s going to do that in the next 10 years, I would really appreciate it. There is no guarantee currently that gold is going to be following inflation like it did in the 1970s. In 1973, the gold standard was erased by the US Government, so they were no longer paying a set price for gold. The market basically set the price, which is why it gained so much during the 1970s.

So now you’re probably thinking if not gold, then where can we put our money? Well, there are many answers to that question, and there was only one certainty that I found while doing my research.

That bottom line is going to be cash; cash that is either under your mattress or in a checking account earning little to no interest like they all are today. That cash between 1965 and 1985 lost about 75% of its value. For example, if you had a million dollars in 1965 and you put it under your mattress, in 1985 when you go to take it out, assuming your kids have not found it, you will be pulling out a million dollars in cash money, but with that money, you are only going to be able to purchase about 25% of the items that you would have been able to purchase in 1965.

If instead of placing that million dollars under your mattress and you placed it in the S&P 500, you would have had in 1985 $1.6 million in purchasing power instead of that $260,000 that you would have had if it was in your mattress. You would have had cash worth $5.5 million.

Now I know that the S&P is not suitable for most of our clients, but it is suitable for some. And for those that it is not suitable for, of course, there are other asset classes that have worked as a hedge against inflation historically that we can talk about. With my many hours of research that one certainty that I found was that when it comes to inflation, anything beats cash.

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