5 Ways The Rich Make Money With Inflation

in 2020 we experienced the start of the destabilization of the global economy the coven 19 pandemic created a halt of production of goods and services a massive shift in the workforce and the creation of trillions of dollars by the government to prevent financial markets from failing the result a rapid increase of inflation and a very real threat of an economic recession what is interesting is that in times of high inflation there are always people who are affected by it and

others who benefit from it so in this video we’re going over five major ways wealthy people use inflation to make money and by the way this is not financial advice this video is meant for entertainment purposes only as we discussed in our previous video about inflation one of the major reasons for inflation is the money supply in the economy when the supply of money increases it leads to more demand for products and services more demand leads to an increase in prices in other words inflation this is one of the reasons why wealthy people like to invest in number one real estate let’s use an oversimplified and hypothetical example to illustrate how real estate can be beneficial in times of inflation imagine a small island with a closed economic system this island only has 100 in their

entire economy and their only industry is real estate but there’s only 10 houses on the island if distributed evenly each of these houses would be worth 10 each but let’s say that the government decides to print an additional 100 to put in the economy now we have two hundred dollars in the economy but still only ten houses now each house is worth twenty dollars by increasing the money supply in the economy two main things happened if you held cash the value of your money went down by fifty percent before if you had ten dollars you could buy one house now you can only buy half of a house but if you owned a house the value of your property doubled you spend ten dollars to buy a house now you can sell your house for twenty dollars now this is an

oversimplification of the way things work but something similar happened in the us lately throughout 2020 the fed created trillions of dollars as their stimulus package to add into the economy the goal was to prevent the financial markets from crashing too badly this wouldn’t be much of a problem if it wasn’t for labor shortages and supply chain issues created by the pandemic that held back the production of new homes this meant that demand for new homes went up but supply couldn’t keep up so prices grew at a much faster rate than expected and so did homeowners net worth now the increasing value of properties is only part of why real estate is a great tool to take advantage of inflation cash flowing assets like real estate benefit from inflation because in an inflationary economy rent prices also go up as a landlord you can buy a property using debt at a fixed interest rate

this means that your monthly payment will be the same every month yet you’re able to raise rent prices to keep up with inflation allowing you to use inflation to essentially increase your income which leads us to our next point number two debt for most people debt isn’t really a good thing but during times of high inflation debt can actually be beneficial you see inflation means that one dollar today is worth more than the same dollar tomorrow therefore borrowing money allows you to buy more today than the same money will buy you later this also means that inflation lets the borrower pay the lender back later with money that is worth a little less than it was before for the average person that is only beneficial if 1. they have a fixed interest rate meaning the interest rate does not change over time two they had this debt before high inflation happen and three their salaries keep up with inflation if their salaries grow on part with inflation then this means that they make more money so their debt payments take a smaller

piece of their monthly income in other words if these conditions are in place the relative value of their debt shrinks but for the rich debt makes them even richer in times of inflation if debt is used in a productive way like to expand a business or by appreciating or cash flowing assets inflation increases their wealth as we saw before inflation shrinks the value of debt but their business or their assets grow in value because they use the debt in the first place making this gap in value between shrinking debt and growing assets extra wealth that was created by inflation number three real assets many wealthy people have what are called real assets in their portfolio real assets is just a word for commodities like oil gas and raw materials for example in ray dalio’s all-weather portfolio which helps investors keep their money safer and profitable in all economic weathers holds seven and a half percent of their entire portfolio in commodities as a protection or hedge against inflation the reason why commodities are considered a great hedge against inflation is because these real assets are needed to run the economy for example oil is an important

part of every economy because it allows for the creation and transportation of products as demand goes up in an inflationary economy so does the price of oil making it a pretty good hedge against inflation in 2020 the price of oil was around 40 dollars per barrel in mid-2022 the price hit an all-time high of 120 dollars per barrel tripling its value in just two years number four stocks since inflation has to do with high supply of money in the economy stocks tend to also go up in value when there’s a lot of money in the economy there’s also more demand for these financial assets now this can create a bit of a bubble in the stock market as we saw in the recent decline in the stock markets especially as the federal reserve tries to reduce the flow of money in the economy but not all stocks are created equal having an understanding of the underlying business behind the stock can help with choosing great inflation-resistant

companies for example in times of high inflation companies in the consumer sector that are easily able to pass down the cost of inflation down to customers typically do better in times of high inflation now when supply chain issues are the problem capital like companies like software communication and technology companies tend to be less affected a software company will be less affected by a truck driver shortage than a retail store will because software companies don’t depend on transportation of goods understanding what’s causing inflation and choosing your companies carefully can help reduce the risk and even profit from high inflation now if you haven’t already check out our video on inflation in the upper right hand corner or at the end of this video so you can understand the different types of inflation and what causes them number five gold for centuries gold has been the store of monetary value in the u.s gold was the foundation of the economy and each dollar had an equivalent gold value up until 1971 that is when the u.s government detached the value of the dollar from gold which eventually led to the start of inflation the combination of inflation and the fact that there is a finite amount of gold in the world led to this precious metal to be generally inversely related to the value of the us dollar this means that in times of deflation when the dollar goes up in value gold tends to go down in value and in times of inflation when the dollar loses value gold tends to go up in

value as a result gold is often seen as a hedge against inflation as inflation goes up so does the price of gold many wealthy investors have a portion of gold in their investment portfolios for example ray dalio’s all-weather portfolio holds around seven and a half percent of their money in gold to create stability in times of high inflation so in summary the six assets to beat inflation are number one rental real estate number two debt under certain conditions number three real assets aka commodities number four stocks in certain industries and number five gold in the comments below let me know what are some of the things that you are doing to navigate inflation and if you want to check out our video breaking down how inflation works and how it affects your pocket check out the video on the right and if you want to learn more about ray dalio’s all-weather portfolio that i referenced in this video make sure to watch the video on the left and i will see you in the next video

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