Here is a little dose of reality for all of those inflation naysayers out there:
- 76% of Americans are living paycheck-to-paycheck.
- 65% of Americans say they don’t own their homes.
- 53% of Americans have no money in the stock market, even through retirement accounts.
Together, these three depressing facts mean a vast majority of Americans have seen their wealth and income crushed by inflation.
Your wealth needs to have grown 220% over the last 30 years to have outpaced inflation.
Unless you have owned your home for 30 years or heavily invest a large portion of income in the stock market, there is little chance you have experienced anything close.
If you bought a home in 1987, on average the appreciation falls just short of keeping up with inflation.
Right off the bat, we know a third didn’t do that. And the real number is much higher.
Considering a 30-year mortgage is the longest you’ll find, only 35% of U.S. homeowners don’t have mortgage debt, and home value is the dominant form of wealth for a vast majority of homeowners, we can infer that a majority of Americans have seen their total wealth trail well behind inflation.
The S&P 500 is up around 1,000% over 30 years. We know 53% didn’t ride that wave. Yet again, the real number is much higher.
The average head of a household in the U.S.A. only has $12,000 stashed away for retirement.
That leaves income as the major source of wealth creation for well over a half of Americans, which is clearly the case considering 76% live paycheck-to-paycheck.
Check out this graph to see how stunningly depressing life has been for Americans over the last 30 years:
There has been about a 30% real wage increase and a nearly 220% increase for all items in the consumer price index.
Effectively, anyone dependent on wages has seen his or her purchasing power drop by half.
Of course, it isn’t all roses for investors, either. The compound annual growth rate of the S&P 500 is 11.66% through the end of 2016
According to official U.S. government data, annual inflation has grown at an average of 4% over the last 30 years. What cost $1 in 1987, on average, costs $2.20 today.
Of course, that’s after the government implemented all sorts of shenanigans to make inflation seem artificially low. The official line used each time is that the change makes inflation data more accurate. Yet each and every time, and there have been dozens of times, inflation is tweaked down. How convenient.
If we still determined inflation using the calculations from 1980, it’d be significantly higher:
Courtesy of ShadowStats.com
The simple fact of the matter is inflation has been the predominant reason a majority of Americans are being pushed towards poverty and deeper into debt while creating a massive headwind for wealth creation for the rest.
The low inflation we’ve seen in recent years is an aberration. There will be a return to the norm. Anyone taking the government and Federal Reserve’s dismissals of inflation concerns at face value is ignorant to reality.
The Best Way Out
I wish I had a way out for the half of Americans who don’t have any exposure to the markets or the 76% who live paycheck-to-paycheck. If I, or anyone else did, they’d be a shoo-in for a Nobel Prize.
For those of us with money to invest, there is a tried-and-true way to offset some of the effects of inflation on our portfolios.
Get into gold and gold miners.
I know the idea is anathema to some, but we can’t really afford to avoid the reality of the situation.
Gold is up roughly 400% over the last 30 years.
Go back to when President Nixon abandoned conversion between the U.S. dollar and gold reserves in 1971, and gold is up around 3,500%. The S&P 500 certainly can’t match that performance.
The simple fact is that gold has and will continue to be the best way to protect and preserve wealth over long periods of time. The numbers don’t lie.
And right now, we’re looking at a great time to get into gold miners in particular. We’re coming off a cycle of wealth destruction in the sector that started with the steep gold price drop in 2013. Debt has been unwound, management teams have been tossed, and we’re seeing a lot of leaner, very efficient operations being developed right now.
Of course, not all companies are poised to thrive in the post-correction years of gold. Due diligence is an absolute necessity.
It is a pain, I know, but there is no way around it. It feels like a full-time job. That’s because it is, and it often requires a lot of overtime too. The Outsider Club‘s Gerardo Del Real has made a career of it.
He has worked behind the scenes providing research and advice to large institutional players, fund managers, newsletter writers, and some of the most active high-net-worth investors in the resource space, including those who count in billions, for a good decade now.
And Gerardo’s Resource Stock Digest Premium subscribers now have full access to his research into three of the best gold mining stocks today. Please do yourself a favor and check them out.
