Money Management Edition
In October of 2021, the annual inflation rate in the US hit 6.2%, the highest level since November of 1990 and above forecasts of 5.8%
Inflation, or the devaluation of money, is affecting most of the world recently, especially the United States. It’s taking a toll on American citizens as this is the highest it has been in 30 years. Price increases across the board. From energy costs like gas and electricity, food, and even used cars and trucks.
Based on a Pew Research Center study, in the third quarter of 2021, the country had the 8th-highest annual inflation rate out of 46 countries studied. In the weeks leading up to Thanksgiving, Americans, especially the poor, have felt the effects of inflation as food prices have risen across the board.
What are the reasons behind inflation? Should we worry about the rising prices of goods or not? And are there ways for American citizens to combat it?
For wealth manager Lee Michael Murphy, it is possible. Join us as he discusses the causes behind inflation and what we can all do to combat the devaluing of our hard-earned dollars. With co-hosts career advisor Sergio Patterson and attorney Matthew McElroy, tune in to this week’s episode of The Free Retiree Show.
What You’ll Learn:
- The causes of inflation in the United States
- How we can combat inflation
- Other investment tips and tricks until retirement
Lee Michael Murphy: [00:00:00] Welcome into the Free Retiree show your go-to podcast for your career, your finances, and where we learn for people that have done amazing things. I’m your host wealth manager, Lee, Michael Murphy, and I’m along beside my two pals Sergio Patterson career advisor extraordinaire interview, coach.
Sergio Patterson: I’m doing great. What is up everyone?
Lee Michael Murphy: And everyone’s favorite attorney Matthew
Matt McElroy: What’s up.
that was part of like the cool intro that I was trying to give you. You ruined it, but.
never heard of that one before.
Sergio Patterson: Where are you like scratching? You’re pretending to be a DJ.
Matt McElroy: That’s suppose to be like a DJ beat. You’re
Lee Michael Murphy: Yeah. As I was running to drop a DJ beat while I said his name. So whatever screw you guys, I thought it was cool, but thanks for tuning into our show, everybody today, we’re talking about inflation. Listen to a money management edition right now. In the news, you turn on, everyone is talking about [00:01:00] inflation and we’re going to talk about what the numbers show us.
Is there a lot of inflation creeping up on us right now? what is the economic outlook right now in regards to inflation? How does that impact us? And we’re also going to given you. Steps to combat inflation. There’s things that you can do and things that you should know about, given the current economic environment, but let’s just start off.
guys, what are you guys seeing in terms of inflation? Have you noticed anything over the last year and a half in regards to how inflation is impacting your lives, concerns that you have about.
Matt McElroy: Yeah. it’s kind of transitory, right? It’s like some things have been very extreme and then some things aren’t hit as bad, but I mean, it’s still really soon, right? I think a lot of this is that we’re going to see a lot, a different, scheme of things in the next, what, six months to 18 months, it’s probably
Lee Michael Murphy: Yeah. It’s like one of those like fancy words everyone’s would say it’s transitory. It’s transitory. I mean, I don’t know, man.
Matt McElroy: But
Sergio Patterson: is it? what does that, even, what does it
Matt McElroy: really mean? [00:02:00] Tran transitory means that it’s affecting only some areas and not others. Right? It’s
Lee Michael Murphy: Yeah. And they think it’s temporary in nature. And like, I think I’m calm, on the show we like to call things that are bullshit. I think that’s bullshit right now this point in time, like
Matt McElroy: well, no, but I think some of it is transitory just because of the problems they’re having with the supply chain logistics and COVID right.
Lee Michael Murphy: Oh, obviously. There’s some legitimacy to that claim, but I think it’s bigger than that at this point in time, but yeah, a transitory, I don’t know. We can talk about that
Sergio Patterson: I mean, I don’t know if this is related, but what I’m seeing is, gas, a lot of people are talking to the cost of gas. I think in California right now, it’s over, it’s around $5 a gallon. I think cost of food. There’s like, I feel like there’s a shortage of food. I don’t know if that’s a part of this thing. the used car market is kind of insane right now.
Lee Michael Murphy: Yeah,
Matt McElroy: I don’t know, Sergio is the best authority to talk about gas. Cause a
Sergio Patterson: Well, no, this, that
the cost of gas me to buy a Tesla.
Lee Michael Murphy: Well, we actually listened [00:03:00] to, we have two opposite sides of the spectrum. we have Sergio who bought a Tesla. I guess high. And then we have, everyone’s favorite attorney. The reason Matt McElroy is everyone’s favorite attorney. He has, obviously in the street by he’s going to beat up whoever, whatever attorney he runs across.
He’s got an arm sleeve and he drives a
Matt McElroy: my amazing
Lee Michael Murphy: He drives a Hummer. he
Sergio Patterson: a Hummer.
Lee Michael Murphy: It’s a Matt, how’s the how’s gas right now with your Hummer.
Matt McElroy: It’s wonderful. Cause I, I shop at Costco and Safeway and I use my points and
Sergio Patterson: what’s it cost to fill up.
it ranges, on a good day when I allow my Safeway rewards, they’re at their highest, I’ll get it for like 90 bucks. And,then on the worst days, it’s between 120 and 130. So, and the problem is not so much because some cars cost that much just cause they have big gas tanks.
Matt McElroy: The problem is really how long does that last.
Sergio Patterson: that’s the thing he, what does it get? Like 12 miles a gallon or something?
Matt McElroy: I, that would be great if it did. No, it gets nine. The 10 is the half graves. [00:04:00] yeah. Well, the thing is like, this is a good example of like, Hey, I love the car. I obviously bought it cause I, the stylistic value, I’ve always liked that car. nine to 10 miles, I knew what I was getting into.
Right. I was definitely a factor I took into consideration when I bought. But I’d never driven anything that gotten that shitty a gas mileage before. So like, you know,I was like, oh, I can weather night at 10 miles a gallon, no big deal. And I get in and I was like, oh shit, this is different.
Sergio Patterson: So you drive from your house. What Morgan Gilroy. And you use it,
Matt McElroy: to San Jose?
Sergio Patterson: obviously you drive it like Gilroy. You use a gallon of gas.
Matt McElroy: Yeah. Yeah. Well, here’s a good example is I went to a Redwood city, right. I got a full tank of gas and we went and visited relatives up in Redwood city. And then we came back. Right. And that was half a tank just going there and back. So, that’s pretty, pretty
Sergio Patterson: I mean, honestly, dude, like, this isn’t what the show’s about, but I think there’s going to be a point they’re already making a push for electric vehicles. Like I’d say in the next like five, 10 years, like [00:05:00] most cars are going to like the new cars are going to be electric. I’m
Matt McElroy: Oh, yeah, it’ll be more electric than there are gas. Yeah. A hundred percent. Well, it’s really going to be a good business, I think is those, the charging stations, like having, like setting those up at random different places like vending machines and whatnot, A hundred
Sergio Patterson: percent. Yeah. There’s a couple of good companies, a charge ChargePoint. Tesla’s going to open up their charging stations too. I think all electric cars soon. but yeah, Lee. That’s what I’m seeing, man is like gas prices going crazy, which influence us to buy a
Lee Michael Murphy: absolutely.
Matt McElroy: I would like if I were to buy a car again, I would definitely be looking
Lee Michael Murphy: You’re getting a Prius.
Matt McElroy: Like, sir, Sergio has convinced me that Tesla is like, even though they cost a little bit more, you’re not paying gas. You’re not paying maintenance.
Sergio Patterson: Yeah.
you got to test
Matt McElroy: has already made
Sergio Patterson: to test drive at
Matt McElroy: to the shop.
guys, our show is not about, part of our pillars, just making the financial mistakes. And Matt can tell
Matt McElroy: Yeah. I was going to say I’m leading by example, right?
Lee Michael Murphy: He’s leading by
Sergio Patterson: Wait Lee, are you going to buy it? You’re going to buy a I probably will, at some point in time, none of that, no rush. I’m going to [00:06:00] drive my car to the ground. And then I will probably hop on that train of drinking the Kool-Aid,
Matt McElroy: yeah,
He’s he’s suffering right now in his Mercedes.
it’s yeah, that’s the hard life,Yeah.
Lee Michael Murphy: So going back to our topic inflation, as you guys know, like we talk about the things that you need to be concerned about, when it comes to investing, just so you guys know, like 30, 40% drops, 50% drops in the stock. Absolutely does not concern me. I have a lot of faith in, the monetary system in terms of, the world of investing and the S and P 500 and, modern portfolio theory.
Matt McElroy: So those things, although most people would feel fearful and stressed out. They don’t affect me at all, but the thing that does scare me is inflationI don’t think your clients are gonna like that, dude.
Lee Michael Murphy: I mean, like it’s like, you gotta, it’s all about positioning your
Matt McElroy: You’re saying I’ll give a shit. If the stock market drops
Lee Michael Murphy: No, I mean, I, okay. Here’s the thing. I’m concerned it for my clients, but I’m not worried overall.
Like, I have absolute faith that those things will [00:07:00] work themselves out. Right. Inflation is something that it’s harder to just say like, oh, that’s going to work. It’s. Like, so just to clarify, the, I do feel bad for people when the, when you have those massive market drops, but the end of the day, like if you position your assets correctly, you should be fine.
Inflation is another beast,
Sergio Patterson: Lee can you like ground us though? Like, what is, what’s the high-level definition of inflation just for the
Lee Michael Murphy: basically the de-valuing of your money, right? So you might, make a return of 5% on whatever investment you do. Right. But if you have like 7% inflation, you lost 2%. Right. You’re not your nominal return is five. if you have inflation at seven, you’re really a negative two.
So even though you felt like you made money, you really didn’t cause inflation and just, devalue what you thought you
things are getting more expensive. So our money isn’t going as far as.
Lee Michael Murphy: Exactly.
Matt McElroy: Well, and think about that example of what leaders gave, right? Like say you don’t put it in an investment, so you just keep it in your savings account. And it’s seven patients, 7%, [00:08:00] you’re losing 7% on that money, you get the hedge when you have actually invested it in.
Lee Michael Murphy: And that’s the thing is like, you know why we want. think that investing is optional. It really isn’t like, I’ve always said like, unless you have like millions and millions of dollars in the bank, maybe investing is optional for you, but for the normal folks, we have to invest.
We have to be okay with it. but if you guys look at, Argentina, that’s a prime example of what inflation can do to a country. You look at,
Matt McElroy: I don’t know. I don’t know what happened with Argentina.
Lee Michael Murphy: So in eight, in 1895 argentina was looked at as a very rich country. Like the wealth of someone from Argentina to the U S was the same.
Through the years they printed a lot of money. They’ve had a lot of social programs. They’ve basically had rampant inflation. And now the average person, if you compare an Argentinian to the person from the U S has three times more wealth than someone from Argentina, and that is just a prime example of what inflation can do to your wealth.
Sergio Patterson: Same thing happened in Venezuela,
Lee Michael Murphy: Right. [00:09:00]
Sergio Patterson: out to Venezuela. That’s where my mom’s from. But Yeah. Lee you’re spot on Argentina, but it happened to a lot of countries in south America.
Lee Michael Murphy: Yeah. So for today’s episode, we’re going to talk about, what are the reasons behind inflation? We’ll talk about specifically what we’re going through today. and we’re gonna talk about what you can do to combat it. So this is going to be a really great episode. If you want to tune in for it, I’m going to go to, to a quick break before we do so make sure you smash that like button we need that love.
You need that support and share it with your friends. We’re going to take a quick break, but if you have any questions, financial related career related, legal related makes you send to firstname.lastname@example.org. We’ll be right back.
Welcome back into the Free Retiree show. Today, we’re talking about inflation. What does it mean? What can you do about it? So guys, We talked a little bit in the beginning about, we’re seeing the effect that the Pompa, what else have you guys seen over the last year and a half in regards to like how inflation’s been impacting your lives?
Sergio Patterson: What about cost of food? Is that due to info? I feel like when we go to the
Matt McElroy: Because I feel like that’s higher too.
Sergio Patterson: right. Ma like, as you’ve got two kids now. Like, I feel like we’re spending [00:10:00] hundreds and hundreds of dollars, like constantly on food. Like, and it doesn’t go as far. Like what? We’ll leave Costco, we won’t get as much food, right.
For like 200 bucks. You’re not getting that much anymore.
Matt McElroy: The other part of it is like, what about when you take your family out? What about that? How expensive is that? I mean, I feel like if I fit feed everybody for under 40 bucks, that’s a huge win, you know what I mean? Like, it’s just, it’s this, like, it’s the reality of it now, right?
I mean, I’m talking those are just like simple places, right? Like super tuckeria or like, like those types of things,
Lee Michael Murphy: Yeah. I don’t know if you guys
Matt McElroy: like,
Lee Michael Murphy: but restaurants they’ve been actually including like a service charge. I don’t know, like from what I’ve
Matt McElroy: Oh for COVID right? Yeah.
Lee Michael Murphy: They’d been including a service charge of 10% or 12% and that’s like, some people are like, oh, well that’s the tip. It’s not even like 15 or 20%.
So you add onto that. And so.
Matt McElroy: When it probably screws the servers too, because then they see they’re getting that [00:11:00] 10% and they’re less inclined to tip a good tip when they, they’re getting that extra tacked on. And then it’s like, those servers are probably already hurting anyway from not the same consistency of business that was before.
Sergio Patterson: Lee, I think you’re right, dude. I was wondering why, when we’re going out there, it seems like it’s a little bit more every time now
I need to start looking at my receipts because I tip good usually.
Lee Michael Murphy: So I’d say I’m typically I’m taking a while to my wife would want me to tip more though. She’s she used to be a service. she hammers me if I, if I’m not tipping 20 every time. So I am. But thanks to my wifi. I’m held to the standard of high tipping. so let’s talk about some of the stats that are coming out, from the third quarter, October.
So the consumer price index surge 6.2% from a year ago. And that is the most since December, 1990, for October specifically, CPI increased 0.9%. It was estimated that it would increase at 0.6%. So we’re heading higher than [00:12:00] what the expectations are right now. fuel prices. Now this is a great one.
Matt will be able to relate to this one. They soared 12.3% for the month as part of a 59.1% increase over the past year. And so guys I’m driving much less now since COVID happened like significantly. But I feel like my gas bill is about 40% higher than it was before cOVID I don’t know if you guys are feeling the same thing.
Well, surge doesn’t cause
Sergio Patterson: I am not feeling that
Lee Michael Murphy: he drives a Tesla and he’s above that, but Matt, you can read it with me, right, buddy.
not too much. I don’t really drive anywhere.
Lee Michael Murphy: Okay.
I’m a home body, right? Like I work at home. Don’t have to, you know, go to the grocery store,
Lee Michael Murphy: so, uh,
Sergio Patterson: Lee. I was like, when you said it’s, it.
raised 6.2%. I was thinking, tying it back to some of our career stuff and re trying to get raises. some people’s raises are like 4% and under that, a lot of tech companies. So we’re saying what we’re saying is your annual raise [00:13:00] isn’t even
Matt McElroy: Covering the.
Sergio Patterson: covering.
Lee Michael Murphy: And that’s what we were talking about. Like a previous episode is like,
Matt McElroy: Well think about how many people are already underpaid too. And then on top of that right now, they’re now they’re screwed on inflation and they’re underpaid. So it’s just going to create like a bigger gap between the rich and the poor. I mean, that’s really what it’s going to
Sergio Patterson: So this makes sense, like why you’re more concerned about this versus a stock market dropping because the stock market will correct itself. This is actually impacting
Lee Michael Murphy: is something that it makes us like our, what we make our livelihood. It can make it worthless. I mean, I don’t want to scare everyone, but man, this is, we just went through Halloween, not too long ago where I saw I’ll use this analogy. if you’re looking at it, like, what is inflation is, Freddy from the scary movies.
This is the bad guy right here. It’s not volatility actually. Although it seems scary. It’s something that helps you,in the long run, you take on a bit brisk, you get more reward, but man inflation, it’s one of those things that it’s not really a lot of good when it’s, it gets out of [00:14:00] hand.
You want a little. keep it that 2% every year. That’s great. But these numbers that we’re getting no bueno it’s tough. So also in California, we’re seeing gas prices at $6 a gallon in Northern California. Some places are charging $6. Matthew. The reason Matthew McElroy is a home body is he can’t afford to drive to anywhere right now.
Sergio Patterson: to wait
Matt McElroy: Yeah.
Sergio Patterson: paycheck.
Matt McElroy: complete lie. Yeah.
Lee Michael Murphy: He’s a he’s out. You can see it, Matt, you at his front yard, washing his Hummer. That’s about it. He not going many places right now. used vehicle prices, rise about 2.5% on the month, 26.4% for the year. So man, if you gotta use car, you’re trying to sell. This is actually a good time to do it.
A new vehicle prices were up 1.4%. And then 9.8% for the year food prices. so for the last month in October, we were at 0.9%, 5.3% respectively for the year. we look at the category of meat, chicken, poultry, fish, eggs, those [00:15:00] rows about 1.7% in the month and 11.9% for the year.
Sergio Patterson: On the used car thing. do we see, do you think that’s going to correct itself? I was. Cause I, I don’t know if you guys have used CarMax, have you guys heard of car?
Lee Michael Murphy: Yeah, heard
Sergio Patterson: They like we’ve sold a car. We’ve sold cars to them before. And, they offered me for my model three Tesla in a Mount that’s like I would make, I owe a certain amount.
I would make like nine grand if I sold it. to
Lee Michael Murphy: Wow.
Matt McElroy: Wow.
Sergio Patterson: and I’d be able to pay off my loan and then make nine grand.
Lee Michael Murphy: This is wild.
Sergio Patterson: It’s a
Lee Michael Murphy: wild. Your cars are not supposed to do that. Cars are supposed to, it’s supposed to take a loss
Matt McElroy: but it’s
Lee Michael Murphy: man,
Matt McElroy: is it happening? Right. you have to look at the reason why it’s happening. It’s because of this. Manufacturing stuff. Right. That’s going on. That’s my understanding. You have a chip shortage. So it’s like, I don’t even really know anything about like the real background on that, but it’s only going to be temporary.
Right. And you got to think that whatever shortage is going on, they’re going to, it’s going to get ramped up eventually. Right. It’s not like they can’t make these chips. It’s not [00:16:00] like there’s some barrier. It’s like, it’s just that there’s just the it’s
Sergio Patterson: Like, there’s not as many new cars because of the chip shortage.
Matt McElroy: Yeah.
And and that’s, what’s causing these up in the used.
Sergio Patterson: So I should probably sell my car
Sergio Patterson: to correct. It’s going to correct.
Matt McElroy: what yeah. The question is how long is it? Will you know, is it going to be a year, two years, six
Lee Michael Murphy: yeah, so it goes back to our whole thing. Transitory, you know,
Matt McElroy: Well,
Lee Michael Murphy: hell does that mean? I hate, I’m just getting so annoyed with all these people on the news. They, oh, it’s transitory.
Matt McElroy: well, but herehere’s the, here’s a good example of why it’s transitory. Look at it. Look at rent rents, going down. All these other presses are going.
of rent going down right now.
Lee Michael Murphy: I mean, it depends on where you’re
Matt McElroy: Yeah, but I mean, we’ll know, but look at like Morgan hill, San Jose, San Francisco rents are down overall for the year.
As my understanding. I don’t have any like stats like Lee here to back it up, but you know, I that’s my general.
maybe temporarily, but overall. I think there’s a lot of [00:17:00] data that’s out there saying we’re going to be moving to a massive, like rent renter’s market, just because the affordability of homes. So if you look at it, it’s all about supply and demand, right? Like economics, there’s a lot of BS out there, but like it all comes to supply and demand. Right? If you have obviously housing, a housing market, that’s overpriced. People got to rent, supply and demand means run. So you’re going to go up eventually at some point, maybe from the big cities, you’re seeing a mass Exodus right now because of COVID, but overall,believe reds are still on the rise.
Matt McElroy: yeah, well, they look at,look at the example too, of like what it costs to buy a house versus renting it. You go, you say like your average house in this area is like 1.3 million, right. what’s a loan on 1.3 million. That’s like over 6,000 a month. Right. You’re not going to rent what you’re getting for 1.3 million for 6,000 a month.
Right. You’re going to get like three grand for it or something like that. You know, we’re saying that traditional, like three bedroom, four bedroom, two bath, right? Just, cookie cutter, suburban home. It’s like, you know what I mean? it’s going to take a certain person to [00:18:00] be a certain investor, I should say, with a certain amount of money to make that equation meet.
Lee Michael Murphy: Yeah.
Yeah, but let me everything that we’re talking about right now, it shows that man inflation is becoming a massive factor. so let’s talk about the main reasons behind inflation. The first three are kind of like standard reasons behind inflation that you see. And then the last one I’ll give is.
What’s kind of specific to a COVID last two are very specific to the COVID environment. So, number one reason behind, rising inflation is an increased money supply. So we look at what happened during COVID. You had people getting all these unemployment checks, making more money than they were, when they are working.
you had all these, payment protection loans that a lot of business owners were, getting, and I’m not saying. the business owners,try to duke the system or anything like that. But a lot of them felt like they were going to need it. They ended up not needing it and they invested it.
Lee Michael Murphy: I’ve seen it with my own eyes, many business owners,ended up coming up from a lot of the things that our government did to protect us. So there’s an [00:19:00] increased money supply, number two, declining value to obviously that’s kind of goes hand in hand with the first one. When you ever, you have an increase in the money supply or it’s printed too rapidly.
you’re going to have, that’s going to lead to inflation and then supply chain. So when the pandemic struck, a lot of companies are trying to maintain production, but you know, people were getting sick and they couldn’t, have factories and operations. So that caused a lot of issues with the supply chain.
Lee Michael Murphy: With Matt, you mentioned in the beginning, that caused a lot of difficulties and thus we have a lot of goods and services that rose in price because the supply chain and then the fourth which I think is unique to the current environment we are in is wage inflation. as we’ve talked about before, we’re living through a historic time, the great resignation where, massive amounts of people are leaving their companies, trying to do different things.
And they no longer want. that crummy pay that they were getting before they want to go find their next job, and they’re not willing to do what they were doing. They don’t want to work that the night shift or [00:20:00] clean the bathrooms for X amount of dollars anymore. They want more,or they want, higher pay and Serge,
are you seeing that, you know,from what you see at Silicon.
Sergio Patterson: yeah. LinkedIn is calling it the great reshuffle. I think there’s a lot of people are saying it’s a great resignation, but it’s really just, people are, yes, they’re resigning, but they’re actually trying to find somewhere else. So it’s almost like a reshuffle. That’s like the way I’d frame it.
and it’s to your point, Lee, like people are fed up. They’ve had all this time to reflect and they’re like, let’s figure out something different. So people are starting to definitely change jobs, careers, all of the above.
Lee Michael Murphy: Yeah. So we’ll go on to the things of what you can do to combat inflation. So I’ve come up with seven, some seven tips to help you combat what we’re experiencing. So tip number one. Own real estate. So obviously we’re seeing goods and services spike up, so lumber, that was a big issue right during COVID I’m sure you guys heard [00:21:00] about wood, right.
And how lumber was skyrocketing, which was.
Matt McElroy: Well, hold on. Sorry, Lee. I don’t mean to cut you off before you go further. Is it, is this another one of your tips for the top? I’m just wondering, cause you
started off with owning real estate. So,
Lee Michael Murphy: So, so, so my attorney, Matt McElroy is still bitter about my travel tips. he called it the travel tips for the 1%. No, Matt, this
Matt McElroy: I think that was Sergio title actually.
Lee Michael Murphy: Sergio titled
Sergio Patterson: we, I think we, we worked on that together, man. We w we get
Lee Michael Murphy: you guys worked together against me on that. Congratulations. It’s very feel
Sergio Patterson: but yeah, like own real estate. I think it’s a good tip. Or maybe like, explore the opportunity or something like, I’ve been thinking of
Matt McElroy: Well, it
depends on your state, right? bays there’s opportunities, like outside of the bay, for sure. We, I could do something. I can’t do anything in the bay.
Lee Michael Murphy: But even almost the California is kind of hard to, you have to go outside to like some of these other states and then that’s where you really find the kind of like, oh wow, that’s great deal. Yeah, but you know, whether [00:22:00] you own it, where you live or outside, the message is simple. when you have periods of inflation, real estate is a great tool for you to have in your basket. That’s going to help offset it.
Matt McElroy: I got one more question on that. How do you still, do you feel that way? Even in light of how crazy high this market is right now, it’s at a peak, right? Or it could be right. It could keep going. In reality, we’re really high already. So like buying at this high, I mean, I agree traditionally property is a good way to combat,inflation, but it’s like, it’s weird this time, it’s weird.
Cause it’s high already.
Lee Michael Murphy: no, I hear you. I hear you on that. And you might have a valid point that you have real estate. Market’s pretty high, but you know, I’m just looking at the historical. This historical data and, having real estate during inflationary periods has been a good thing. So yeah, maybe there’s a housing crash who knows, but I
think, the general messages, when you have periods of inflation real estate works for you.
there’s advantages there.
Matt McElroy: Well, [00:23:00] also too, it’s like, everybody’s all primed off of, everybody knows that all this money has been pumped into the economy and the word inflation is being, like you said, transitory, all this stuff’s being tossed around like crazy. But it’s like in my head, Are we really seeing the effects already?
I feel like it’s going to be like, that’s a thing that we don’t see for a couple years, right? How are we seeing really in six or seven months, the full effects of inflation and whatnot are not
Lee Michael Murphy: I mean, we’re seeing it. We’re seeing it already
Matt McElroy: but also too, it’s like, you gotta think like, everything’s weird right now. The world’s not normal from COVID yet.
So how much of that is attributed to the weirdness still going on? That we haven’t like fully recovered and coming.
Lee Michael Murphy: Yeah. to your point, like, yeah, some of this could be transitory, but I still think that there’s enough data that’s out there. And if you listen to the fed projections, like they’re underestimating every month of like what the inflation number is. So like, I think it’s, I think it’s big. It’s probably, yeah, some of this is transitory, but then I think also that a lot of it is bigger than that
Matt McElroy: Well, I’m not even saying like transitory, I’m saying [00:24:00] like, like we haven’t even really seen the real inflation yet. That’s coming in like
two years or something. You know what I mean? Like it’s like the real effects haven’t even really hit yet. that bombs not dropped.
Lee Michael Murphy: I think we’re feeling some of it though, but I think it could be prolonged. Well, we’ll have to see.
Matt McElroy: Because it just doesn’t it seem quick, like just the way things work and like the world, like, it just seems really fast to the amount of money that was pumped in for us to really be like, oh, that’s, what’s, that’s the cause and effect. It’s like, no, we haven’t even seen the effect yet.
Lee Michael Murphy: You did, it could be more to your point. Yeah, I agree. Like this could be just the
Sergio Patterson: I mean how much worse so he could get worse.
Matt McElroy: Yeah.
Yeah. Well, think about gaps, right? Gas
Sergio Patterson: It’s pretty bad. It’s pretty bad. yeah.
Matt McElroy: Well, and think about what that would do, right? If could say gas went up to like $9 a gallon, right? That whole thing that you guys were talking about, electric cars, that’s going to come into fruition for sure. Then.
Lee Michael Murphy: Sorry, Matt, Miguel. I just purchased a moped
Sergio Patterson: going to have to accelerate.
Matt McElroy: Solar power.
Lee Michael Murphy: solar
Sergio Patterson: to,
Lee Michael Murphy: moped.
Sergio Patterson: I mean, L a the Hummers coming out with an electric one, like
soon, [00:25:00] but It’s probably like a hundred grand.
Matt McElroy: yeah. I checked it. It’s like, it was like one 10 or something. Some ridiculous.
Lee Michael Murphy: So, let me go into number two. So number two is kind of tied to number one. and this is going to be interesting. One. I think you guys will appreciate this one, utilizing debt to combat inflation. Now, one thing that we’ve seen and heard,in the media, a lot of people out there’s, oh, debt, all debt is bad debt.
And I am someone that I believe that, credit card debt is bad. Student loan debt is bad. Get rid of that stuff soon as you can. If you’re using debt, for real estate, I think there’s a lot of power there. we go back and we think about like the home prices were in the barrier, like 10 years ago, like, let’s look at Gilroy, right.
Since you guys are in that Gilroy area. we looked at these homes for like 400,500,000 in Gilroy. We’re like, oh my gosh, that’s so expensive.
Sergio Patterson: Yeah.
Lee Michael Murphy: I mean, literally looking at it now, like imagine that you took out a loan, for a house then 30 year loan at a really, generous interest rate.
and it’s over 30 years. [00:26:00] Think about like what that, what happens to that debt? your real estate appreciates inflation happens. And then all of a sudden that debt, that seems so terrible. You know, really allowed you to get an asset and your debt over time, it’s becoming less and less because of inflation.
Lee Michael Murphy: Now we have to like, stop these like generalizations, right? All debt is bad debt. Like that’s just, you hear that from a lot of financial gurus and that’s just not the case. Like it depends right. When you get debt for real estate and you’re buying an asset that works for you.
It’s not bad. Generous interest rate. Now, if you had a massive interest rate on that debt, that’s a different story, but right now, interest rates are super low. And using that to your advantage is a powerful thing. Any questions on that one guys?
Matt McElroy: Yeah. A little bit like, cause the example you’re giving, it’s it’s mainly focused on property, right?
Lee Michael Murphy: Yeah, mainly focused on property. I’m not saying student debt or credit card debt. That’s bad shit, but
Matt McElroy: So I shouldn’t take out a loan and go all in on crypto, then
Lee Michael Murphy: no, [00:27:00] I would not suggest that.
Sergio Patterson: No,
I thought you believed in crypto. I thought we all believed in crypto.
I thought we were part of the ripple army who what’s going on.
Sergio Patterson: Everything on Dodge, doge coin or whatever. I think it’s a good point. Lee, like, what’s funny is the house that I’m in is it’s standard four bedroom, three bath in Gilroy and a guy I’m renting it. The guy who bought it 10, 12 years ago for like 300,000, I looked in Zillow today. It’s 1.2.
Matt McElroy: Jeez.
Lee Michael Murphy: So that’s a perfect example, right? You got all these people, on media saying, oh, don’t take out big loans for your homes. I mean, that’s not realistic. You got to take out loans for homes. For most of us, can’t pay all cash, especially if you live in a place like the bay area, but you look at it as like, when you have these great interest rates, you can use it to offset that. You’ve generated this massive asset, like debt [00:28:00] can be your friend in some cases. And that’s how I’d encourage you guys to look at it. Especially, when inflation is involved, number three, improve your energy efficiency. So we kind of touched on this already. We talk about, your electric cars and how those can help save you money.
like from my car, I don’t drive that much, but I think I’m paying about 500 to 600 a month on gas. I don’t
Matt McElroy: That’s a lot too. That’s more than me and I have a Hummer. What are you doing?
Lee Michael Murphy: I mean, I just drive to, clients here and there, but I don’t drive that much. I drive like two days a week. I might go around the peninsula, down the south bay, like to see some people,
Sergio Patterson: Is that you and Victoria’s bill
no, it’s mine. Just mine. Just
Sergio Patterson: That
Matt McElroy: That’s dude, that’s a lot, dude. That’s
Lee Michael Murphy: maybe I drive more than I realized. but yeah, it was Serge.
what are you paying right now in your,
Matt McElroy: doesn’t pay anything.
Sergio Patterson: for gas or for my electric, like.
no. Just your, auto transportation. Like, what is, what’s your bill at right now?
Lee Michael Murphy: Like you don’t pay anything for your,
Sergio Patterson: Well, I mean we pay, oh, sorry. no. We paid to charge the car here and
Lee Michael Murphy: yeah. Yeah. What’s that.
Sergio Patterson: So for,
Matt McElroy: Can you really distinguish that from your
Sergio Patterson: yeah. [00:29:00] Yeah. So you can actually track it. There’s an app and I did it. I did it like probably a month ago and I think over. So I’ve driven on our white car, 27,000 miles. And I
Matt McElroy: Oh,
Sergio Patterson: the near,
Matt McElroy: in a year.
Sergio Patterson: yeah, we’ve had it for almost two years now. for the year and a half, I think I’ve spent $800 on charging for about two years, almost a year.
Lee Michael Murphy: Wow. So
Matt McElroy: That’s like Lee’s gas bill for one month.
Sergio Patterson: yeah, And then we don’t notice our lectures. Like it doesn’t impact our PGNE bill. This is more when we’re going to the Tesla chargers where you actually have to pay,
Lee Michael Murphy: Wow.
Matt McElroy: Oh, you, oh, you have to pay it those. Okay. So like, when you say you’re close to eat and you go to one of the types of charges and fill up what the cost.
anywhere from like three bucks to 15 bucks.
Matt McElroy: Wow. That’s
Sergio Patterson: It just depends on how low.
Matt McElroy: How hard is it to find one, like, say you’re out and just
Sergio Patterson: they’re
Matt McElroy: go, oh, I got to find a charger,
Sergio Patterson: They’re everywhere. They have [00:30:00] Tesla as the biggest network, for any electric company. But yeah, there are, especially in California. Yeah. They’re everywhere.
Lee Michael Murphy: Yeah, so that right there, as you can see, that’s something you can do. if you’re in a position that you need to get a new car, Instead of buying a Humber like Matt MCO cut the tests that are out like Sergio,energy for your home light bulbs. Obviously, you can use, they have a lot of, light bulbs that are great on electricity.
You have solar panels, sealing your windows and your doors. Those are all ways that you can, protect yourself from the rising cost
Sergio Patterson: Totally. I don’t want to interrupt you, but I will say RPG. Bill is like, I don’t know about you guys. I feel like it’s way higher than normal.
Matt McElroy: Well, cause they do that special thing now from four to nine, if you use during that peak time, you’re going to get screwed. You know what I mean? you
Sergio Patterson: there’s different tiers, right? There’s like
Matt McElroy: Yeah. And that’s the math, if you use during those hours, which is like, you have a family, so of course you’re going to use during that
Sergio Patterson: Yeah. And I’m working from home, like PG needs a whole nother thing, dude. like,
they entered the cost of, just powering your home.
Lee Michael Murphy: Yeah. not happy with them, [00:31:00] put California on fire and charge me a lot.
Sergio Patterson: Can we do an episode on that?
Lee Michael Murphy: We did a little while back. It’s probably, they probably just raised their PhD. Screw these guys. So, tip number four, invest in stocks, right. make sure you’re diversified,
Matt McElroy: Well, what’s the average yearly growth on the stock market,
Lee Michael Murphy: We’ll just say it’s around nine, look at the S and P 500, um,
Matt McElroy: kind of inflation are we expected to face on this new, this round of money that’s come in and everything what’s like
Lee Michael Murphy: and that’s at the everyone. No one knows everyone throwing numbers around they’re transitory, blah, blah, blah. But like,
Well, my question is like, is it going to beat that, just that safe traditional investments or are you going to be in a losing game and going to those ways and have to be more, This last year was, this last year was bad. Right. But I think we can, I’ve heard numbers from like 5.59. Now I’m seeing numbers of that 6.2 for the year over year. so, marketed way better than that, but let’s just look at the average. Let’s just say like, the market does about 9%, Well, that’s, it [00:32:00] actually does a bit better than that, but let’s just say, well, we’re doing 9%.
there’s your hedge to inflation, but it’s volatile. You have to make sure that you’re extending it out. Or if you’re investing, you got years, not one year or a brief amount of time, but it’s a long-term way to combat inflation.
Matt McElroy: But at the same time, say it’s, let’s just play with 9% and then you said 6% inflation. You’re really only getting, you’re protecting yourself, but you’re only really making a gain of 3% for you.
Lee Michael Murphy: Yeah, that’s
Matt McElroy: That’s pretty shitty, right? That’s not,
Lee Michael Murphy: it’s better
than it’s better than losing, right? It’s better than losing. And you hope, that inflation isn’t a long-term thing. I mean, we can, we had a hope that it goes back to normal, and it doesn’t continue this path, so, but that’s why I told you guys in the beginning.
Market volatility doesn’t bother me, but inflation is one of those things. It’s like, it’s a serious thing. You look at all these countries that were great powers at one point in time, and now they’re suffering. but, the reason we have like these, the way the U S has been over the [00:33:00] last couple of decades, modern monetary theory has become a big thing.
we talked about it with our, professor Kotlikoff and he’s not a fan of modern monetary theory. Doesn’t believe it works. There’s a lot of economists that are in the same boat as him. And I feel like there’s a handful of economists that think that, modern monetary theory is okay. That you can conceivably bring in $10,from taxes and spend 12 and you’ll be fine.
Lee Michael Murphy: But, there’s a, there’s a lot of debate on that. I personally, yeah. Give my opinion on it, but I think it’s still scary. No matter how you look at it,
Sergio Patterson: I mean, what’s the normal, like what’s the next, an inflation percentage we are okay with,
Lee Michael Murphy: we want to, two to three, I think
is like what the fed always tries to go for,
Sergio Patterson: we’re double that right now.
Sergio Patterson: I’m sorry. We’re tripled out right now.
Cause we’re at
Lee Michael Murphy: triple a of
Matt McElroy: Okay. Six, you’re saying
Sergio Patterson: but six.
Lee Michael Murphy: I think too is like, where do you want to be? And we’re at like 6.2 right [00:34:00] now. So kind of getting that dangerous, definitely the danger territory right now. number three is commodities,investing so that you take benefit of the increase in agriculture prices, gas, oil,precious metals.
I don’t think that people should go overboard on this. I’ve seen a lot of, people make the mistake of putting too much. Any sort of assets and they don’t
have good. Yeah. A lot of people you see, they’re all about, oh, gold. My gold’s made this much money. I mean, your gold sucks. It hasn’t done that
Matt McElroy: Well, gold is a traditional hedge against inflation, right? It’s like one of the it’s like property. It’s like one of the core ones that people believe in for that.
Lee Michael Murphy: It is. And it’s gone up and it’s gone up over the years, but I mean, you look at the historical track record of it, a track record, and it’s not that great. And people act like, oh, I made this much money on their gold on my gold. And it’s like, Do you, your gold is a terrible investment, but like everyone that you see online, that’s like, oh my gold was so great.
Like, you don’t know what you’re talking about. Like it has not done that well, compared to the market. it’s UN [00:35:00] it’s. Okay. And during temporary points in time, like we’re going through something where it starts to look a little bit more advantageous, but it’s all about that. Long-term track record. It doesn’t have that.
So I’d say if you go and invest in those things, there’s a small portion of your money and don’t go overboard. that would be my, tips on that. tip number six, treasury inflation protected securities or tips. and this is for the people that are, in the retirement, don’t want to take on a lot of risks. tips, are I sort of a fixed income instrument that will offset the inflation that you get? So, you, you might get, a 2% return on it and then say inflation, for the years at 2%.
So it’ll offset. it’s the conservative instrument, but for people that are in their retirement, don’t want to take on a lot of risks. Like we talked about like buying real estate or buying stocks, they think that’s too much, that it can be a good solution. And then my last tip number seven, make sure you tweak your budget.
So we [00:36:00] all talk about, live in that 50, 30, 20 budget life. that you, when you look at your expenses that you’re factoring in inflation into it. A lot of times people, they do their budget and then, they don’t revisit it and they don’t factor in the higher cost of food.
you need to apply that to your budget, to make your budget work for you. So if you’re looking at what you spent in food, make sure you. Uh, extra costs that are associated with inflation and fuel and factor that into your budget. So you make sure your budget’s on track. And those are my tips guys.
Sergio Patterson: good stuff. I’ve honestly never have thought about inflation or factored it into any budgeting. Like I never think about it.
Lee Michael Murphy: Yeah. It’s
Matt McElroy: I’m kind there’s nothing you can really do.
Sergio Patterson: Yeah,
yeah, yeah. You just, okay.
Lee Michael Murphy: Yeah. And I think a lot of people were in that boat. but yeah, there are things you can do. Like all these things that we talked about today, I think these are things that you got to consider. in your fight against inflation, because this is the things that, derail people’s financial [00:37:00] futures.
Like I think I’ve told you guys before they, the clients of mine that struggle the most are the ones that can’t invest a lot of their money. They feel like, oh, I need to have this big bucket of cash. And, I’ve had multiple conversations with them over the years, or they can invest their money because they don’t believe in the market that much, they’re willing to only put a little chunk in there because it makes them so nervous.
And no matter how I, how much I explain it to them, they can’t do it differently. And they’re always the ones that are struggling with their retirement. So. be open to being an investor, understand that there’s risk involved with investing, but you need to, don’t be crazy with your money, but understand that, investing in things like real estate and stocks, are things that really do help you and they will help you combat this nasty inflationary environment that we’re experiencing. So that’s all I got today, guys. Thanks
for joining us. You’ve been listening to the free retiree show so long for now.