Inflation: devastating or full of opportunity. Which do you want?

Banks lending again? What does that mean for you and your money? More than you may think.

Did you notice there are some banks that have begun to lift their tight lending requirements? For example, Key Bank here in Denver is now offering 100% financing again. So, what’s the big deal? Before we take a look at what this means, let’s ask a few questions:

  • Have there been any bad times before in the history of the world financially? Of course.
  • During those bad times, even the Great Depression, were there any people who made money? Of course.
  • Was it the people who planned and prepared or people who just let stuff happen to them that were most successful? Obviously those who planned.
  • So which one do you want to be and when do you want to get started?
  • If you could truly put yourself in a position to take advantage of the opportunities you have to earn your family’s financial independence even in bad times, then shouldn’t you be thinking the current economic situation is an opportunity and not a “bad thing”?

Inflation is going to do some real damage to our money if we’re not prepared. Stop and think about this, if you had $1,000,000 and you lost $200,000, you’re down to $800k and that money just stays the same. If we have 7% inflation that $800k is only going to buy $400k of retirement, or $400,000 of goods and services a decade from now.

  • What’s your strategy to make sure that you don’t get hurt by this inflation?
  • More importantly, are there any strategies available that would help you actually take advantage of that inflation to your benefit?

There are strategies that have been implemented for over a century.

Now, let’s get back to the banks…like what Key Bank is doing. The banking system received an unbelievable amount of [printed] money (inflation Step #1) that our government created when TARP was passed. We’ve discussed before but do you remember Step #2 that is required for inflation to take hold? Step #2, the printed money has to be circulated. You starting to put this together?

  • Did the banks circulate those monies initially? No they didn’t, at least not very much of it.
  • Even though they didn’t circulate a lot have we experienced some inflation because of those funds? Absolutely, all you have to do is go buy a gallon of milk today to see it first-hand.

Here’s the bigger problem, banks are beginning to circulate more of that money (i.e. Key Bank offering 100% financing again!). This will have a huge impact over the course of the next decade. Huge!

  • What happens to interest rates when inflation begins to roar? They go up. Remember the early 80’s after the inflationary pressures from the late 70’s?
Historical rates of great opportunity
If you don’t remember what interest rates were at that time then take a look at this graph. Opportunity? You better believe it but only if you were in a position to take advantage of it. What if all your money was in your house (equity)? Look at this graph. In 1982 would you have borrowed money at 16.08% in order to earn 15.12% for one year? Of course not.

There are always those who plan and those who do not. Over the next decade and beyond, you have the opportunity to take advantage of these opportunities but it requires one very important characteristic.

  • You MUST have access to capital, more specifically, guaranteed access to capital no matter the situation with the ability to collateralize those funds and earn a spread in a GUARANTEED and PREDICTABLE environment!
If inflation was raging right now and guaranteed rates, like CDs, were flying high, are you in a position to take advantage of it or are you currently positioned to be hurt by it? It’s a choice, not a matter of chance.
Since I’m on a roll, here’s some more questions for you
I love questions so here are a few more; however, these questions are designed for you to ask other advisors who want to invest your money. Those advisors MUST be able to provide an answer for each one these and we challenge you to ask them because, after all, it’s YOUR money and YOUR future.
  • What are you doing to do to make sure I don’t lose any money? What’s your strategy?
  • If I do lose, what’s your strategy to make back any money lost to get me back ahead of the game? What are your recommendations?
  • What impact are taxes going to have on all of this and could taxes prevent me from having a successful outcome?
  • Do you believe taxes will be higher in the future? If so, please answer the third bullet point again.
  • What strategy is there in place to keep taxes off my back going forward?
  • If you are recommending my money be put in a taxable position then please explain to me the specific reason why (especially if you believe taxes will be higher in the future) and the exit strategy to minimize those taxes in the future.
  • How can I take advantage of the pressures caused by inflation with your strategy?
  • What impact will inflation have on your strategy?
  • What is the impact of fees over time to the performance of your strategy? How can I get rid of or minimize those fees?

I hope it’s obvious by now but we have an answer, and a specific strategy, for each and every one of those questions.

You better be able to address each and every one of those. If not, then you’ll simply be one of many who didn’t plan…again, it’s not a matter of chance but instead a matter of choice.

We’d be happy to show you.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com

303.578.9708

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