Tax Tips (and other stuff)
The ugly monster is back. After an almost 40-year break from the ravages of hyper-inflation, we’ve gotten soft and have forgotten how to live in inflationary times.
First of all, you need to grasp the fact that inflation makes your cash worth less every day. If we have 5% annual inflation every year for 10 years, the value of your dollar has dropped to 61.4 cents. If we have 10% annual inflation every year for 10 years, the value of your dollar has dropped to 38.6 cents.
So, if you are one of those folks that doesn’t trust banks and has $50,000 in cash stuffed away in your mattress, with 10% annual inflation for 10 years, that $50,000 is only worth $19,300. You have lost $30,700 in spending power in just 10 years! All I can say is… OUCH!
What can a person do when inflation is running it’s course? First of all, STOP holding large amounts of cash (in actual currency or in a bank account). The stock market averages an annual growth rate of at least 7%, which means you lose spending power, but not as much. (Some years the stock market does WAY more than 7%, like this year, it’s been almost 25% so far.)
I hear some of you saying, “Gold! Buy gold!” Well, gold goes up and down and really doesn’t make sense as an inflation hedge. It’s too dependent of other factors, including when the Chinese buy or sell massive quantities of it.
Today, there are cryptocurrencies. Maybe that ship has already sailed. Currently Bitcoin is not having the huge gains it had in prior years. Will it come back? Who knows.
My Dad was a practicing CPA during the last period of high inflation. Under President Carter, we got to over 24% annual inflation at one point. Small banks and Savings & Loans went bankrupt, gas prices doubled, we boycotted an Olympics, there were hostages in a middle eastern country. Hmmm, this is starting to feel like déjà vu!
During the 1970s, my Dad would advise folks to invest in real estate, leveraged with debt. The value of the real estate went up, way more than the inflationary rate and the cost to pay off the debt down the road was cheaper because the spending power of the dollar had dropped by a lot. The difference between the appreciation in value of real estate and the cheaper cost of paying off the related debt was profit. In many cases it was over 40% if it was held long enough.
Who came after Jimmy Carter? That’s right, Ronald Reagan and eight years of massive growth in the economy. Let’s all pray for another Ronaldas Maximus to come along in a few years to rescue us once again.
Have you heard? Matt 6:19-21 says, “Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven… For where your treasure is, there you heart will be also.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.
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