Is it inflation of goods and services, or is it devaluation of the currency that is happening?

When I was a young boy back in the late 1960's, my mum would send me to the local grocer to buy a loaf of bread. That loaf of bread used to cost $0.11 (11 cents). That is all !

Today, that same loaf costs $4.00. That means that that bread has incresed in value around

36 fold in 50 odd years! That is crazy inflation isn't it???!!!

In 1973, my father purchased a house in suburban Sydney for $24,500. Today, that same house is valued at around $2,000,000. That is an 81 fold increse in under 40 years. That's some crazy inflation too!

In 1970, one ounce of gold was US$36.00. Today, that same ounce of gold is valued at $1800.

That is a 50 fold increase in 50 years. Again, crazy inflation once again.

In 1979, a litre of petrol would cost just 15 cents. Today, that same litre of petrol is $1.70.

That is an 11 fold increase in price.

Now, consider this......

The loaf of bread, the house, the ounce of gold and petrol that I related to above, are the same size loaf of bread, the same house, the same ounce of gold and same litre of petrol today. So what has changed to make them worth so much more????? NOTHING !!! They are the same as what they were back then. It is the value of the dollar that has diminished.

What has changed is that it takes more dollars to buy the same thing.

Think about this for a moment... if the items are the same, but the owners are demanding more dollars in exchange for them, then the percieved value of the dollars is less than it was 50, 40, 30 years ago. The dollar is valued less against the item today than it was 40 years ago. In fact, the term inflation refers to the value of the goods going up in price - which is one side of the coin. The other side of the coin is that the value of the dollar has gone down.

Items of value (such as assets, food supplies, energy, commodities etc) tend to increase in value, over time, against the dollar. Whereas consumer items (such as TV's, cars, boats, furniture etc) tend to NOT increase in value, over time, against the dollar.

You need to understand that the dollar is losing value every single day.

They call it "inflation", and yes it is, but the inflation is due to the devaluation of the dollar.

Let's put it into perspective like this.....

• in the case of bread, a dollar buys you only 3% of what it did 50 years ago

• in the case of a house, a dollar buys you 1.2% of what it did 40 years ago

• in the case of gold, a dollar buys you 2% of what it did 50 years ago.

• in the case of petrol, a dollar buys you 9% of what it did 40 years ago.

11 cents bought a loaf of bread 50 years ago. Today, 11 cents cannot buy you a single slice of that bread. It's not the bread that has increased in price, it is the value of the dollar that has decreased by around 98%. That dollar you had 50 years ago has lost 98% of it's value - and that is the reality of the situation.

Holding cash may be nice as a short term asset, and it's great to be "cashed-up" for investing opportunities, but it's value is diminishing every day.

The reality is that the dollar today is losing around 7% per year. Any compound interest calculator (and there are plenty on the internet) will prove that.

You can look at the situation in two ways, prices are going up by about 7% per year (inflation), or your dollars are buying 7% less each year (deflation of the dollar).

Forget what the government stats are telling you about CPI and inflation, that is rubbish and based on a "basket" of goods.

They deem what is in the basket, which can be falsely manipulated.

The government inflation numbers mostly hover around 2%, but we all know in reality that is NOT the case. Don't listen to what they tell you... draw your own conclusions from your own data, information and calculations.

Stuff like electronics and consumer products etc have become relatively cheaper over time due to production efficiencies and competetive forces. A tee-shirt cost about $10 about 40 years ago, the same tee-shirt today is still only about $15-20.

However, assets and things we need (food, shelter, power, property, fueel, commodities etc) have become more expensive over time. Just look at your power bills, private health insurance and house prices.

Don't tell me that these have gone up by an average of just 2%.

When my wife and I purchased our first house in 1987, it cost $97,000. Our combined income was $50,000 per annum (we were both employees in average jobs). This means that our house cost twice what we were earning at that time. Today, the same house with no improvements costs about $1,300,000. If the same ratio was to hold, then a couple's combined income would have to be around $650,000 - and we know that is not the case, it would be more like $130,000 (assuming the same jobs we had back in 1987). so the ratio has blown out from 2x gross income to 10x gross income for the same house and same jobs.

Scary right?!

If you can understand that your money is losing value every day, then you will understand that you need to invest it in something that produces income and growth. The combined income and growth of your money has to be 7% just to keep up with real inflation!

Most people today will tell you that achieving 7% returns on your money is not possible.

What they are actually saying is that they don't know how to achieve this growth.

However, let me tell you, that I have been achieving an average of about 15% return on my capital year after year. In fact, last year, with COVID-19 lockdowns, I achieved about a 24% return on invested capital. Yes, it can be done. No, it's not that hard, but you do have to use your brain, do your homework and due diligence, study the investment market of interest, get decent advice and put the time and effort into it.

As the saying goes.... "nothing for nothing". In other words, zero or minimal effort gets zero or minimal results. Hard work, financial education, learning from others that have done it, aplying yourself and backing yourself in your investment decisions pays off - it's not hard, but getting the financial education needed takes time and effort and not many are willing to do the work required. If you go the extra mile in educating yourself financially, you should do well, as it's never crowded at the top.

If you sit and do nothing, you're going backwards, and that isn't you, if it was, you wouldn't be reading this.

Lessons:

• Your money is losing value each year. If you do nothing, you will fall behind.

• Find an online calculator and calculate the real inflation rate of things that you need and know appreciate with time - property, electricity, petrol etc. You may be surprised by the results.

• Don't believe what the government tells you about inflation, work it out yourself.

• Understand that the it's the value of money that is depreciating.