Tags: inflation | income | home | car

Why You Work Harder and Still Have Less

Monday, 26 Nov 2012 07:43 AM

By Sean Hyman

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Sometimes I take a bit of time to reflect on my life to see where I’ve come from and where I’m going to.

Today I want to do that same sort of exercise, except I want to look at what inflation has done just over my lifetime.

I was born in the summer of ’69, as Bryan Adams says. So let’s just start a few months later by looking at 1970 going forward.

Editor's Note: Use This Single Loophole to Pay Zero Taxes. See Video

In 1970, the average annual income was $9,350 per year. That may not sound like much, but the average home cost $23,400, a gallon of gas cost 36 cents and the average car cost $3,900.

What’s the situation in 2012? The average median income is $50,964. That sounds good until we see that the average home now costs $146,000, we pay an average of $3.43 for a gallon of gas and the average car now costs $30,303.

So let’s look at that for a moment … apples to apples.

The average income rose 545 percent over that time. That sounds great … initially. You see, I’ve had some people tell me, “Ah, I don’t worry about inflation. That’s what pay raises are for.” Ok, with that thought in mind, let’s carry on with our list.

Incomes went up 545 percent but the average home went up 623 percent. Gasoline went up 953 percent during that same period, and the average car went up 777 percent. Now how are those raises holding up?

You see, inflation outpaces your raises, by a huge margin. It’s why it seems like you work harder and harder and have less. It’s also why it seems like previous generations made less and had more. It’s true. Why? Inflation wasn’t as great then as it is now. And it’s going to get even worse in the future than it is now.

This is why I started the Ultimate Wealth Report — to help people win their battle against inflation so that they wouldn’t have their standard of living slide backward while working even harder.

You see, I attack inflation at its core because I know that inflation is the true divider of the middle class.

You’ve probably heard the saying, “The rich get richer and the poor get poorer.”

A better way to say this is, “those who hold assets that benefit from the rise of inflation get richer and those who only consume and don’t own assets that benefit from inflation will get poorer.”

That’s why I’ve got as the cornerstone of my investing philosophy a mindset to win the war against inflation and thereby protect your purchasing power and keep your wealth from eroding.

I do this by owning assets that will benefit from inflation’s rise and the dilution of the dollar.

You see, putting all your money under your mattress isn’t going to cut it. Neither is just being “a good saver.” Savings rates, CDs, money market accounts, etc. won’t even come close to fending off inflation’s rise. Don’t get me wrong, you need some money in something that is quick to get your hands on and is very stable, but that won’t win the war on inflation.

U.S. Treasurys aren’t cutting it either these days. They fall short of the real rate of inflation. What is the real rate of inflation? Well for starters, it’s not what the government tells you that it is.

Editor's Note: Use This Single Loophole to Pay Zero Taxes. See Video

Over the past 42 years, housing inflation ran up an average of 14.83 percent a year, gasoline costs ran up a staggering 22.69 percent a year on average and the cost of a car ran up an average of 18.50 percent.

So fixed-income instruments that earn between 0.01 percent and 3 percent aren’t going to cut it.

Not even all stocks will perform well as inflation rises. Why? Companies use raw materials (commodities) to produce their products. As these input costs rise due to rising inflation, it costs them more to make their products.

For a while, they can pass those increased costs along to the consumer. But eventually, the consumer either loses the ability to keep up with the increases or loses the desire to pay that much for the product.

When this happens, the profit margins are squeezed and the company produces lower earnings, which then commands a lower stock price.

But there are some stocks out there that actually benefit from the rise of inflation. They are commodity-related stocks, such as mining companies, energy companies, agriculture producers, etc.

When you own the companies that own these assets and those assets become inflated, the company becomes worth more because the assets they hold are worth more.

Additionally, these companies make something you “need” and not just something you might “want.”

For instance, you don’t have to go see 3-D movies or get a high-end electronics product, but you do have to buy food and you do have to put gas in your car to get to your place of employment.

So you are going to “need” food producers and you are going to “need” fuel producers, etc. And these are the types of companies that we own in the Ultimate Wealth Report — companies that deal with the “have to’s” of life and that also benefit from the rise of inflation as the dollar continues to be diluted.

Therefore, if you’re going to win your battle with inflation, you’ve got to begin to focus your investments on stocks that will benefit from inflation’s rise and even outpace the rate of inflation.

Editor's Note: Use This Single Loophole to Pay Zero Taxes. See Video

This is why I don’t worry about inflation’s rise and its effect on my family. I know I’ve got my wealth positioned properly to take care of inflation’s effect on my life.

However, this is not the case for most of America. So come join us as we all fight inflation together! You can find out more about what I do at www.seecurrencywars.com.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.

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