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Didactic Minute: Inflation, Is that Bad?

Hey, guys. It’s Jon. Welcome to today’s Didactic Minute. Today, we’re going to finally get some knowledge to you on a topic that you may have been hearing about the last couple of weeks or months or longer depending upon the circles that you run in and it’s that concept of inflation. What is inflation?

Well, it’s simply the prices of goods and services rising around a particular country – we’ll say, the United States, because that’s where we are and that’s who we care about. But when it comes to inflation, how does that affect us? Well, obviously, it’s the price of things like gas, appliances, houses, food, utilities, energy – all these different things that come from an index called – you ready for this? – the Consumer Price Index. So it’s this basket of numbers and averages that somebody gets paid to go figure out and collect these. Probably lots of people frankly get paid to compile these numbers all the time, monthly, at any given point in time. You can tell how prices are rising compared to where they were a year ago or two years or five years, whatever the case might be.

And inflation is a conversation today because somebody brought these numbers out and says, wow, we’re finally seeing inflation that we haven’t seen for decades, which is true. So if you look and some numbers will say there’s been between three and five percent inflation over the last year which is much more than it has been – in fact, it’s the strongest inflation that we’ve seen and I think the last 13 years. So prices haven’t risen this fast in the last 13 years, is this true inflation? Are we headed for more? Is the economy finally catching up from a great growth in wealth and stock market over the last 13 years but not the prices to track with that because nobody really thinks that prices rising is a good thing, okay, because we are the ones that have to take our paycheck to go buy these things and your money doesn’t go as far.

So that’s why we say when you’re investing for retirement 30 years from now and if we factor inflation to be around two to three percent a year which is what we typically estimate in our financial planning projections then you want to make sure that you’re at least getting that, hopefully more, if your money is going to actually be growing which is why the bank is not a good place for your retirement savings. When you’re getting half percent at best in the banks today and inflation is two or three percent, well, your money is essentially losing its value. So what you want to do is find investments where if you’re getting an S&P 500 index fund, you’re getting three to five percent for inflation plus what we’re typically seeing is 8 to 10 times – not 8 to 10 times – 8 to 10 percent a year is what you can typically expect for an S&P 500 index fund.

So all that to say that’s what inflation is, and should it be something you’re worried about? I mean inflation is a normal course of life, okay. As you get older, you’re going to see this happen again. There’s such thing as deflation; stagflation which is not a reindeer becoming inflated. It is a period of neither inflation or deflation for an extended period of time, prices remaining constant, but it’s not necessarily a good thing.

So inflation is a normal part of a healthy economy. Prices rise. They just do. Wages and incomes typically rise to keep up with that – that’s kind of the point – but that’s just the way it’s going to be. Currencies rise. So don’t be alarmed. Be educated. Keep on doing what you’re doing. If you’re not sure what you should be doing, seek professional advice whether it’s in finances or mental health or career choices. But either way, you know where to go to get more information from us. Subscribe to these videos. Be sure and hit that notification button so that you’re notified when we come out with these. They come out about every Wednesday or Thursday. We try to come out with a couple minute video although I’m sorry these are tending to be three to four minutes because I’m getting really good at talking and it’s becoming much easier. But go to the Didactic Minute channel on YouTube. We also put these on a Facebook page so like that, follow that. We’re on Twitter, we’re on Instagram, and we are on LinkedIn. Last thing, join the Financial MD community. That’s for you, physicians, to get and connect with other physicians to get advice, to give advice. I post articles there every day on things that are related to you. So check that out.

And lastly, the podcast is up and running. Subscribe to it. Episodes are happening. So if you’re watching this video, please like it, share it. We’ve got to get the word out to other young physicians so that financial mistakes are not made and we can maximize the money that you’re making for the greater good. This is Jon from Financial MD. I’ll see you next time.

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