The Personal Finance Podcast
The Crazy Difference in Buying Power Today (By Decade!)
Wed Jul 12 2023Life InsuranceInflationInvestmentsReal Estate
Description
The episode covers topics such as life insurance comparison, combating inflation, building wealth through investments, and insights on various investment options. It emphasizes the importance of understanding inflation's impact on buying power and provides strategies to outpace inflation. The episode also highlights the benefits of real estate, index funds, ETFs, stocks, and high yield savings accounts in building wealth.
Insights
Actively managed mutual funds underperform index funds
Actively managed mutual funds have high fees and tend to underperform index funds, making them a less suitable option for hedging against inflation.
Term life insurance is cost-effective
Life insurance salespeople often mislead customers about cash value life insurance as an investment. Term life insurance is the most cost-effective option for most people.
Real estate and index funds are reliable ways to build wealth
Real estate, index funds, ETFs, stocks, dividend stocks, bonds, and high yield savings accounts are reliable ways to build wealth and combat inflation.
Chapters
- Policy Genius and Chime Online Checking
- Inflation and Its Impact on Buying Power
- Building Wealth and Combatting Inflation
- Investment Strategies to Outpace Inflation
- Real Estate and Other Investment Options
- Insights
Summary
Transcript
Policy Genius and Chime Online Checking
00:00 - 06:46
- Policy Genius offers easy comparison of life insurance quotes from top insurers, with policies starting at $25 per month for $1 million coverage. Options include coverage in as little as a week and no medical exams. Licensed agents are available to help find the best fit, and there are no added fees and personal details are kept private.
- Chime Online Checking account offers perks like fee-free overdrafts up to $200, getting paid up to two days early with direct deposit, and the ability to pay friends through Chime regardless of their bank account. There is no impact on credit score to apply and cash out money fee-free.
Inflation and Its Impact on Buying Power
06:30 - 12:48
- Inflation erodes buying power over time, which varies by location. To combat reduced buying power due to inflation, it is recommended to keep cash in buffer accounts, emergency funds, and short-term savings. Additionally, investing cash can help outpace inflation and preserve wealth for future generations. It is also important to negotiate salary and wage increases annually.
- Using the Nerd Wallet inflation calculator, we can see how the value of $100 has changed over the last century. In 1910, $100 would be worth $3,071.99 in today's dollars. In the 1930s, $100 would be worth $1,821. In the 1950s, $100 would be worth $1,261. In 1970, $100 would be worth $783. In 1990, $100 would be worth $232. In the early 2000s, $100 was worth around $176.61 in 2010 and around $139.47 in 2020. During the pandemic in 2020, $100 was worth only $117.51. The rapid rate of inflation shows how quickly buying power can erode if money is not invested to outpace inflation.
Building Wealth and Combatting Inflation
12:22 - 19:19
- Factor is a ready-to-eat meal kit that delivers healthy meals to your doorstep. Shopify is a commerce platform that helps businesses start, run, and grow without struggle. The Stacking Benjamin Show is a personal finance podcast that provides practical advice and expert insights.
- Investing in the stock market can help outpace inflation through growth and dividends. Index funds and ETFs are recommended for long-term investing as they have historically provided over a 10% rate of return. Adjusting contributions by the rate of inflation helps maintain buying power over time.
Investment Strategies to Outpace Inflation
18:51 - 24:49
- To keep up with inflation, it's important to increase your investments over time. Increasing the amount you contribute to your investments can help maintain your buying power. Using a 10% rate of return is realistic when adjusting contributions for inflation.
- Dividend stocks, especially dividend aristocrats, are a great way to outpace inflation. Bonds like TIPS and I bonds can be used as a hedge against inflation. Real estate is also a good hedge against inflation due to appreciation and income generation.
Real Estate and Other Investment Options
24:24 - 30:36
- Real estate is a hard tangible asset that can outpace inflation through appreciation and income generation. Rents tend to rise when inflation rises, providing a hedge against inflation for real estate investors. Leveraging borrowed money in real estate can be done safely and help build generational wealth.
- High yield savings accounts are a good option for emergency funds to keep up with or outpace inflation. Dividend paying stocks can help investors outpace inflation and generate wealth over time. Crypto and commodities are not recommended for hedging against inflation due to their lack of intrinsic value. Actively managed mutual funds have high fees and underperform index funds, making them less suitable for hedging against inflation.
Insights
30:10 - 33:45
- Actively managed mutual funds have high fees and underperform index funds.
- Life insurance salespeople often mislead customers about cash value life insurance as an investment.
- Term life insurance is the most cost-effective option for most people.
- Inflation-adjusted annuities have high fees and are difficult to understand.
- Crypto and commodities can be considered as alternative investments, but should only make up a small percentage of your portfolio.
- Real estate, index funds, ETFs, stocks, dividend stocks, bonds, and high yield savings accounts are reliable ways to build wealth.