Intro: Welcome to the Paragon Podcast. A podcast focusing on the needs of high net-worth individuals and their families. We discuss markets, tax strategies, and how to better manage wealth with the goal of living better for today while planning for tomorrow.

Elean
Hi everyone, I hope you’re all doing well. This is Elean Mendoza and I’m here with Evan Shorten, the firm’s founder and principal. 

Evan
Hello, this Evan. I want to thank you for tuning in to the podcast and I encourage you to subscribe on the Apple Podcasts App, Stitcher Radio, or YouTube. 

Elean
Ok. So it looks like we may be entering into a new economic landscape that hasn’t existed for several decades. This new landscape combines low interest rates with rising inflation. Now, whether you believe inflation is transitory (meaning temporary) or possibly the new economic reality moving forward, one thing is for sure – once prices go up they don’t come back down. To give you an example or two, the most expensive iPhone today costs $1,399 and it’s probably not going back to its 2016 price of $969; a base model BMW 328i today has an MSRP of $41,250 and it’s probably not going back to its 2016 MSRP of $38,350. Just like stuff today cost more than it did five years ago, five years from now stuff is going to cost more than it does today. 

While inflation is the hidden tax that erodes savings and purchasing power, investors today are being hit with the double whammy of low interest rates making it difficult to keep up with rising inflation. Now, while keeping up with inflation may become difficult, it’s not impossible, and that’s what we want to discuss today. 

Evan
I know talk of inflation can be stressful for investors. Especially if you’re retired and living off your nest egg with some combination of fixed income. For older investors it stirs up memories of rising prices during the 1970s and early 1980s. Fortunately, now more than ever, investors have the most tools and the greatest amount of flexibility to create financial strategies to help them offset the negative impacts of inflation – even while dealing with low interest rates. 

Elean
So Evan, what are some ways investors can offset the impact of rising inflation and low interest rates? 

Evan
Well the first thing inventors need to do is shift their investor mindset. The bull run we have experienced since 2008 really lent itself to passive “set it and forget it” strategies. Moving forward investors may need to adopt a more active approach to their portfolios. To be clear, I’m not saying investors who have become accustomed to ETFs and index funds need to become stock pickers all of a sudden, but investors should pay more attention to specific sectors in the economy and augment their portfolios with sectors that can perform well under periods of rising inflation. 

For example, let’s think back to the old adage “buy low sell high.” It may surprise some investors that there are still sectors in the economy that are undervalued. I know all the media coverage today focuses on asset bubbles, overvalued stocks, meme stocks, etc. What the media doesn’t cover is there are still sectors today that are undervalued and unloved. 

Elean
Like?

Evan
Well, you can still buy low if you look into energy stocks and the dividends being paid by energy companies are very attractive to investors seeking dividend income above the rate of inflation. A subset of the energy sector consists of Master Limited Partnerships, commonly known as MLPs. MLPs have the advantage that they are relatively agnostic to the price of oil because they make up the infrastructure used to move oil from one part of the country to another. In other words, they don’t drill or sell oil, they simply charge oil companies fees to move and store oil. Now I want to be clear, MLPs are structured as limited partnerships and that brings tax implications that need to be discussed with your financial advisor or tax accountant. 

Elean
Ok. So one way investors can help boost their returns and hopefully their dividend income as well is to be a bit more active and periodically search for unloved sectors; and to be clear we’re not saying be active all the time. You and your financial advisor can discuss potential sectors that look attractive during your periodic reviews. 

So what about real estate? Real estate is kind of what most investors default to when they think of inflation hedged income. 

Evan
Yes, real estate can be a potential inflation hedge and there are numerous ways to invest in real estate depending on how involved you want to be as an investor. You can invest passively through an ETF comprised of Real Estate Investment Trusts, also known as REITS, or you can purchase real estate properties directly and collect the rent yourself. 

Real estate operates on the basic principle that as time goes on rents will rise with inflation. However, keep in mind your returns scale with your level of involvement. A REIT ETF will most likely provide you a lower yield and less opportunity for appreciation as compared to buying a property, negotiating the price, and making value added repairs over time to force appreciation. 

Elean
Ok. Now one other financial strategy that doesn’t get as much coverage is geoarbitrage, or simply put, moving to a location with a lower cost of living. 

Evan
Yes. Like I mentioned in the beginning of the podcast, investors today have more available tools and more flexibility than they have ever had. Moving to an area with a lower cost of living is now much easier than it was in the past and it provides one of the best strategies to fight inflation. If you feel like your cost of living is rising faster than you’re comfortable with, you can simply move to a new location with a cost of living tailored to you. 

Geoarbitrage is most often discussed when individuals or families move to another state to lower their tax liability, but you can geoarbitrage healthcare costs, elderly services, leisure activities, climate, and so on. 

With that said, this is actually a topic we are going to be covering in an upcoming episode of the podcast. Please subscribe so you don’t miss it. 

Elean
Ok awesome. Hopefully this episode of the Paragon Podcast brought you some additional insights or something new to think about. We know inflation can manifest serious worries, especially when you’re retired, but like we mentioned earlier, keeping up with inflation is not impossible. 

Please subscribe to the podcast on the Apple Podcasts App, Stitcher Radio, or Youtube. Lastly, please visit our website at paragonfinancialpartners.com to sign up for our email list. 

Thank you for tuning in and we’ll see you here next time.