The Jared Dillian Letter

Inflation Is Making Your Retirement 243% More Expensive

Is your investment portfolio set up to deal with inflation?

There's this great quote from Peter Lynch, a successful and well-known investor, who said:

"The day after the market crashed on the 19th of October 1987, people began to worry that the market was going to crash."

Same goes for inflation. No one notices it—let alone worries about it—until it's too late.

Here's how it works.

You sit down, do the math, and say, "I need $1 million by the time I need to retire."

Everyone likes a nice round number. However, what you haven't factored in here is an average inflation rate of 2% each year.

What you'll really need to save is $1,811,362. That's 81% more than you were planning to put away.

  • In other words, to enjoy a million-dollar retirement… you'd need to save up closer to $2 million.

You see, the Federal Open Market Committee (the main policymaking body of the Federal Reserve) has set an actual inflation goal of 2% year over year.

They see that 2% rise in inflation as "consistent with price stability." They see that as a sign of a stable and growing economy.

The thesis is this...

  • If you know something is going to get cheaper, you may hold off on a purchase hoping for a better price.

This leads to less production and perhaps a more stagnant economy.

  • If you know something is going to get more expensive, you not only buy the thing NOW, but you buy more of the thing than you actually need.

This, theoretically, leads to more production and a more vibrant economy.

But there are times when this gets out of hand...

Like when the US government hands out $4.8 trillion in stimulus.

(Fun Fact: We printed more money in one month last year (June 2020) than we did in the first 200 years of our country’s founding.)

So, we have plenty of dollars floating around out there. But this time...

  • They are chasing the same goods and products. And some of those goods and products are running really low.

Instead of a steady increase in inflation, in some cases… we are paying out the wazoo.

Been to Home Depot Lately?

The pandemic did more than mess with our health. It messed with the supply chain on a global level.

Turns out if you stop production and lock everyone inside... you can't just “start off where you left off.”

We are short everything from chicken, microchips, gas, steel, and metals... to chlorine, ketchup packets, and lumber.

Lumber is insane right now. It’s up 124% just this year.

Building a new home? Well, it’ll cost you about $36,000 more than you were planning on spending. (If that’s not an argument for renting, I don’t know what is.)


Source: Construction Renovation

And lumber isn’t the only commodity that’s up this year. Corn, copper, wheat… you name it, they’re hitting the top right of the chart with a sledgehammer.

We are just out of things

I went out to eat last Wednesday. I went inside, sat down, and ordered a salad topped with boiled eggs.

They told me they were out of eggs.

I ordered an iced tea.

They told me they were out of Splenda.

Perhaps you've had a similar experience.

Sometimes Up Is the Wrong Direction

We started this year with an inflation rate of 1.4%, which is a little under the Fed’s target of 2%.

Last month in April, we hit 4.2%.

I need you to know, that’s not normal. Not only is that a 13-year high, but it happened in four months.

I won’t get into Fed policy and why it won’t be taking action anytime soon to get that inflation level back down, but I will say this…

Signs point to inflation increasing well beyond 4.2% in the near term.

  • With inflation at 4.2%, your retirement becomes 243.58% more expensive.

I would not be at all surprised to see the Consumer Price Index printing 6% or more this summer.

So, what do you do?

You need to factor inflation into your retirement plan by adding investments that benefit from inflation.

This isn’t really the time to go full in on tech or innovation-based investments.

They’ve had their moment, and will again. But higher inflation scoffs at the likes of Peloton (PTON) and Zoom (ZM) when it’s on its way up.

  • This is a great time to put your money into what you might call “Grandpa assets.” They aren't new, they aren't sexy, but they are dang-sure reliable.

Hard assets and essential services that the world just cannot do without.

A classic example being precious metals like gold, silver, and copper.

Or, real estate investment trusts (REITs) that own swaths of farmland, other land, or physical buildings.

  • These are two great ways to not only combat regular levels of inflation but also longer periods of inflation.

You should have a form of precious metals and real estate in your portfolio at all times—which is what I recommend in The Awesome Portfolio.

These asset types not only help you fend off inflation, but drastically reduce your portfolio’s volatility (which is a good thing).

But there are times when ramping up a certain set of assets/securities is a good idea.

Speaking of…

If you want specific investing ideas related to inflation, I have a few.

Jared Dillian
Jared Dillian


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