I think it’s already safe to say the buzzword of 2022 in both the markets and the economy will be “inflation.”
Last week’s hotter-than-expected Consumer Price Index kept the Federal Reserve in aggressive inflation-fighting mode, and after Wednesday’s latest rate increase, investors are now concerned (again) that the Fed’s fight could send the economy into a recession.
It was a tough week for stocks as a result, so I’m not trying to rub salt in the wound here, but the fact of the matter is inflation is worse than what we’re hearing. The government tells us inflation is running just under 8.5%, but that’s ridiculous.
Even this burger meal even proves it…
Everything on that plate is up way more than the “official” inflation rate.
You’ve experienced it as well… at the gas pump, the grocery store, and many other places.
The question for investors is: How in the heck are we supposed to beat the soaring cost of living when we can’t even correct information about how fast real prices go up?
There is an answer…
The Distorted Truth
A lot of Americans have done exactly what they’re supposed to. They’ve worked hard. They’ve saved up. They bought index funds. They’ve paid down their mortgages.
Even at the official rate of 8.5% inflation, someone who retired tomorrow with a half-million in their account would lose it all in six years, according to my calculations.
But this “Big Money Illusion” – that inflation is less than it really is – has them fooled. It’s made them think they’re a lot safer than they really are.
A good way to illustrate this is with home values, which have moved sharply higher in recent years. Or have they?
That is a chart of the rising Case-Shiller Home Price Index. It sure looks like homes have added hundreds of thousands of dollars to people’s net worth in recent years.
Before you make a final conclusion, let’s look at the chart again with the addition of what’s called M2 money supply, which is basically cash, checking accounts, and the like.
It’s almost an exact match. So, it’s not so much the value of things going up, it’s that the dollars you use buy them have gone down. Remember, the government has printed trillions of dollars in cash in recent years. That’s where this inflation is coming from.
This same situation happens over and over again, any time you’re trying to measure market performance against the backdrop of this “Big Money Illusion.” Because inflation – whether it’s the “official” rate of 8% (or even just 3%) or the unofficial real rate of rising prices – is always going to cut into your returns.
And because the “Big Money Illusion” distorts the truth about how much you’re actually at risk of falling behind, it’s not enough for you to just beat rising costs. You have to beat them by a LOT. That’s the only way you can ensure enough margin to keep you safe.
Fortunately, there is a way to do that.
Coming Out Ahead In Good Times and In Bad
I’m not talking about some of the traditional inflation investments you’re probably familiar with, like gold, real estate, or inflation-protected bonds.
After four decades of studying markets, I’m absolutely convinced that the single best way to get out ahead of rising costs is the same as the best way to generate true wealth. The same as the best way to consistently beat the markets.
It’s as simple as owning the highest-quality individual stocks you can find.
Let me show you what I mean in one more chart…
What you’re looking at is a performance comparison of gold, silver, the Dow, and S&P indexes… and a blend of high-quality, cash-rich company shares.
Keep in mind, we’re talking about 45 years of data. That includes oil wars and gas lines, recessions, crashes, currency collapses, and even terror attacks and political scandals.
The cash-rich companies absolutely crushed the other investments.
Many investors are not aware of this hidden risk of real inflation, but it’s important to know about, especially right now when the impact on your portfolio is more significant than usual. I lay it out for you in a new video presentation here.
And if you want to learn more about finding those cash-rich, market-crushing investments, that’s exactly what my system does. The stocks on my Growth Investor Buy Lists are growing sales and earnings, sporting superior fundamentals, and are seeing strong buying pressure. If you would like immediate access to my top picks and more, click here to become a member of Growth Investor.
Source: InvestorPlace unless otherwise noted
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