The number one retirement worry this year is the same as it was in 2010… and my no-brainer solution to this worry is still the same, too.
Here’s what I’m hearing from my retired friends and readers:
I’m worried about all this government spending producing rampant inflation… overheating the economy… and ruining my savings.
If the inflation boogeyman has you ready to dump all your investments and head for a bomb shelter… relax. “Overheated” is the last word I’d use to describe our economy.
Longtime readers of my Retirement Millionaire advisory are familiar with the “money multiplier,” also known as the M1. It’s one of the most useful indicators in the world.[ad#Google Adsense]The money multiplier monitors the amount of money individuals and businesses have to spend on consumption or investment… relative to the money available for banks to lend.
When the ratio is less than “1,” it implies banks aren’t lending as much as they could and/or folks have less to spend on things that would increase economic activity. A reading greater than 1 suggests individuals and businesses have money in reserve that is primed to flow into the economy… like water building behind a dam.
As you can see from the chart below, the reservoir is low. Money is still not moving through the economy swiftly or broadly among sectors. You can take all the dire warnings of inflation and chuck them in the garbage right now.
Until this indicator ticks above 1, inflation is NOT a problem… or even a worry in the near term.
The declining M1, along with the slow recovery in housing values, means the economy isn’t completely out of the woods yet. And until people have the power to spend, the prices of goods won’t rise. Again, until the M1 passes 1, inflation remains a distant concern. So don’t crawl into the bomb shelter just yet.
The good news for investors here is that there is a stock strategy that will do well regardless of increasing inflation, flat inflation, or even mild deflation.
It’s owning the world’s best businesses, businesses that produce huge cash flows by selling vital products and then direct lots of that cash to the pockets of their shareholders… via constant and rising dividends.
For example, my Retirement Millionaire readers are collecting safe and growing income streams with companies like Chevron, which has increased its dividend every single year for 22 consecutive years. We’re also collecting safe and growing dividends from Intel.
Both companies are rock-solid dividend payers… with the strength to survive and pay you cash through good times and bad. They’ll do well in the current environment, and they’ll be able to increase their payouts if the economy picks up speed. These sorts of companies are a great place to keep a portion of your retirement portfolio.
To sum up, I’m just as concerned about the long-term effects of our spendthrift government as the next guy. But I’d rather focus on what the facts say right now, and position myself accordingly. Right now, the facts say inflation is not a worry… and the cash dividends in our accounts say my favorite stock strategy is working.
Here’s to our health, wealth, and a great retirement,
— Doc Eifrig[ad#jack p.s.]
* Source: Daily Wealth