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3 Ways to Beat Inflation

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According to a Newsweek poll released last week, 63% of Americans are in favor of federal stimulus checks to help them combat inflation.

It’s probably safe to say that more than 63% of those Americans have no idea what actually causes inflation – you know, things like the stimulus checks that were given out during the pandemic.

I get that there are people suffering under the pressure of higher prices. Why wouldn’t they want free money from the government?

But there is little question that the funds that were handed out by both the Trump and Biden administrations from April 2020 through December 2021 led to the high level of inflation we have today. An estimated $5 trillion was injected into the economy, including $1.8 trillion to households.

Considering the U.S. has a GDP of more than $22 trillion, manufacturing an extra $5 trillion in cash was going to be inflationary. Anyone who was paying attention could see it. Combine that extra cash sloshing around with people’s desire to get out and do things as the economy reopened, and it was as clear as a newly washed window that prices were going to surge.

The effects of the stimulus checks may be waning. Much of the money has likely been spent already, though some people saved it and are now booking cruises and other trips. Nearly every flight, hotel and tourist destination is bursting at the seams with travelers these days.

Here’s what the government needs to do, and here are the steps you can take to fight inflation.

Forget the idea of stimulus checks. That’s just pouring gasoline on the fire. For people who really need help, the government should increase the availability of food assistance and vouchers for gasoline.

I’m no fan of Fed Chairman Jerome Powell. He’s lucky he’s not up for election today… If he were, he’d be one of the few people on unemployment tomorrow. He’s the guy who shows up at 9:30 for the dinner party that started at 8 and asks where the hors d’oeuvres are as everyone is sitting down at the dining room table.

That said, he’s doing the right thing (finally). He’s raising rates and letting people know that this might pinch a little bit.

But we’re a “participation trophy” culture now. No one is allowed to feel discomfort, even when recessions and inflation happen.

Here’s a news flash…

Recessions and inflation are unpleasant. Recessions, while painful, are often necessary to clear away the remnants of bubbles and dumb investments. Inflation slams the brakes on excess spending.

Handing people more money does the opposite of that. It’s like serving a heart attack patient a bacon double cheeseburger with a side of fries.

Now, here’s what you can do in case the government doesn’t come to your rescue like Prince Charming.

For your short-term money, consider Treasurys. A four-week Treasury bill is currently paying more than 3.6%, which is more than you’ll get at most banks for a certificate of deposit or savings account.

For intermediate-term needs, consider investment-grade corporate bonds. You can get as much as 6% on an A rated corporate bond maturing in one to three years.

Lastly, your long-term solution is to invest in Perpetual Dividend Raisers – companies that raise their dividends every year.

For example, a company like Hormel Foods (NYSE: HRL), the maker of Spam and other fine canned meat products, has raised its dividend every year since 1968. Over the past 10 years, its dividend grew an average of 13.2% per year, more than enough to outpace inflation even when it’s high. If you received $300 in income from Hormel in 2012, today you’d be getting paid $1,030.

Even better, the stock more than tripled during that time, so your investment capital also would’ve beat inflation by a wide margin.

I won’t be the least bit surprised if a new “inflation-fighting stimulus package” (yes, that’s an oxymoron, which is a fitting description of most elected federal officials) is enacted to appease the masses that want to have their cake and eat it too… but don’t want to pay 10% more for said cake.

But with the investment ideas mentioned above, at least you’ll be able to keep up with and beat inflation, without a participation trophy check from Uncle Sam.

Good investing,

Marc

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