With America’s growing debt and rate of inflation, it does not pay to save. It pays to invest.

Can you recall in 1999, when a slurpee from 7-11 was $0.99 or the average price per gallon of gasoline was $1.30? How about when a movie ticket was $5.00 and a one-liter coke was $1.14 on average. Those were the days.

We all have heard about the “I” word — inflation. Yet, not everyone truly understands its impact on the economy. (I just want to warn you, this may be my scariest blog post to d­­­­ate. Not as scary as the 1^st “Paranormal Activity”, but more like “Saw IV” scary.) In this post, you will read about the deficit, the effects of inflation, and how to you can defend yourself with real estate.

The Deficit
I recently visited, http://www.UsDebtClock.org and discovered just how large the federal debt is. Here is a quick snapshot:

• US Federal Tax Revenue: $3.14 Trillion
• US Federal Spending: $3.64 Trillion
• US National Debt: $18.31 Trillion

In the United States, we are spending more than we make. Needless to say, this is a problem. But, our national debt is not the biggest problem. The US Debt Clock also touches on the US Unfunded Liabilities (GAAP), which is currently $97.16 Trillion dollars. GAAP includes entitlements such as Social Security.

In the 1970s, the US Federal Government promised Americans entitlements once they reach retirement age. So just how does the Federal Government plan to pay $97.16 Trillion dollars as the Baby Boomers retire?

Vance Ginn, a contributor for Forbes.com, discussed several ways to fund this problem in his article, “You think the Deficit is Bad?” They could raise taxes, but most believe the FED will likely borrow the money.

Hold that thought.

The “I” word
Tom Barlow, contributor for DailyFinance.com, authored an interesting piece titled, “Then vs. Now: How prices have changed since 1999”. This piece illustrates just how much prices have ascended over time. That is inflation my friends. The more money the Federal Government prints without paying down the debt, the more products and services will cost over time.

You may ask the question, “How does the FED printing money force inflation of prices of products and services?”  The answer: when something is in abundance, it becomes less valuable.

In 2011, The FED was printing money at 20K a second. The more money printed and circulated into the economy, the less valuable the USD becomes.

As a coin collector myself, I have a deeper understanding of this sort of impact.  In 1804, the Draped Bust Quarter was worth a mere $0.25.  Those quarters were in large supply.  Today they are extremely rare, and they are now worth approximately 158K a quarter per CoinTrackers.com. When the value of the dollar goes down, products and services cost more dollars to produce for companies. That cost is passed to consumers.

Okay, stop holding that thought: Imagine the amount of money the FED will print to cover the unfunded liabilities. Now imagine how much a movie ticket will cost in 2020. Inflation causes products and services to rise at roughly 2-3% a year.

Now, ask yourself if you currently have money in a Certificate of Deposit (CD) bank account or savings account. Ask yourself what is your interest rate. The very best offer is 2% interest a year. If inflation raises prices 2-3% every year, and your savings account or CD collects interest at 2% max every year, are you making money? In many cases, Americans are losing a ton of money. If you earned 10K in interest by 2025, because of inflation, it will only be worth roughly 7K.

This may blow your mind, but in the long term, it does not pay to save, but rather it pays to invest.  

The Defense
Time to open your mind to other investment strategies to defend yourself against the inflation curve. William Baldwin, a financial contributor for Forbes wrote, “Seven Ways to Beat Inflation”. William does discuss owning Stocks and Bonds, but his very first solution is Real Estate.

Think about it; if the price of Coke and gasoline goes up, what else goes up in value? The answer is real estate property. A home that was purchased in 1990 for 90K could easily be worth 200K+ today. Not many stock options will provide the average American that kind of return on investment (ROI). But your house sure could.

Did you know you could invest in real estate earning 10-12% every year? Did you know you could re-invest your earnings for compounded interest? See chart below:

ROTH IRA – $100K – 3% earnings	Real Estate Investing – $100K – 12%
Year 1 – $103,000	Year 1 – $112,000
Year 5 – $116,000	Year 5 – $157,000
Year 10 – $131,000	Year 10 – $247,000

If you take 100K of your retirement savings and roll it over to a ROTH IRA you could earn roughly 31K on that initial investment in 10 years. Many financial institutions offer higher earning potential, but they don’t tell you about the fees that eat at your retirement account. Oh yes, financial institutions aren’t about to control your money and perform transactions for free.

CNBC wrote a nice article on the hidden fees associated with your retirement accounts and stock trading here. Unfortunately, you will not find more information regarding those fees on any of the large financial institution websites. After the fees, your ROTH IRA may have earned approximately 3% over 10 years. It is important to remember that every experience is different, but that’s not a bad investment.

Now take a look at investing the same amount of money in real estate. Use 100K from your retirement account and you quickly see the earning potential is more than double your initial investment in 10 years. And, there are no hidden costs because you control your money.

In the USA Today article, “Are you ready for retirement”, it explains that half of Americans, 56 and older, are ready for retirement and less than half will be able to maintain their current lifestyle after they retire. Less than 4% of all Americans are ready to retire. We are taught to save, but because of inflation, we must do more. We must invest.

I hope that breaking down the basics of a good real estate investment and how it can protect you from inflation has arouse your curiosity about where your money is going. If you are interested in learning how to invest in Real Estate, visit this page and sign up for a free consultation.