How Can I Hedge Against Inflation? (Hour 2)
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What is the main topic discussed in this episode?
Live from the headquarters of Ramsey Solutions, it's the Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. We help people build wealth, do work that they love, and create actual amazing relationships. Thank you for joining us. George Campbell, Ramsey Personality, is my co-host today. Our phone number is 888-825-5225. Lee is with us in Omaha, Nebraska. Hi, Lee. How are you? I'm doing well, Dave. How about you? Better than I deserve. What's up?
Well, I want to give you a little quick history. I talked to you about five years ago after reading The Money Makeover. At that time, I was three years away from retirement. I called and told you that I had paid off everything but my house, and I wanted to get an annuity in my IRA to make my house payment, and you advised me against that and told me to take a withdrawal and pay off the house. Well, against the advice of my friends, I did that, so I've been debt-free for the last five years, and it's a pretty darn good feeling, so I appreciate the advice, but What's happening now is the same friends are telling me I need an inflation hedge and that I should withdraw money from my IRA and put money down on a couple of rental properties so that they increase in value over the next few years.
But my problem is I have quite a bit of my IRA tips staggered. So they come to do at different times and I bonds. So I'm making eight, 9% now I'm only withdrawing three. So, My wife tells me, why in the world would you want to be a landlord and have leaky toilets and calls in the middle of the night and all that? So my question to you, Dave, is do I listen to my friends or do I listen to my wife?
Well, that's a no-brainer. then we could talk about the advice too, but I mean, the proverb says who can find a virtuous wife for her worth is far above rubies. The heart of her husband safely trusts her and he will have no lack of gain. If your wife isn't a nag and she is a wise, virtuous woman, her wisdom will cause you to have no lack of gain as opposed to stupid friends. And lots of people have stupid friends. I've got a few stupid friends.
You're not sitting next to one, though.
No, George is not stupid. George is a lot of things, but stupid is not on the list.
But I agree. I think you can ignore your friend's advice on this one, and not because your wife is right and they're wrong, but because it's not a wise move for everyone.
Now, let's talk about it for a second, okay? What is a hedge against inflation? A hedge is literally like you think of a row of bushes. Right. Tightly woven together so that the neighbor's dog can't get through, right? I mean, it's a blocker. A hedge is a blocker, a wall, to keep inflation from getting in. All inflation hedges are investments that invest in things that inflate with inflation. So real estate is a hedge against inflation. Investing in companies whose stock goes up and price goes up if the inflation rate goes up would be a hedge against inflation. Energy Company is an example. What happens? What's a component of inflation? Gas price at the pump, right? Right. And so if you buy an energy company, you have a hedge against inflation because they are inflation.
And so you own a piece of inflation, thus it's a hedge. Real estate is inflation. The raising of real estate prices is a component of inflation. So that's a hedge against inflation. Tips aren't. Savings accounts aren't. So if you wanted to have a hedge against inflation, yes, real estate would be a play and a good one. Yes, moving some of your money into some mutual funds that are investing in stocks of companies that are gaining due to inflation. So you are riding the wave of inflation rather than being crushed by it. That is the definition of a hedge. That's the essence of it.
But aren't tips tied to inflation?
Well, they could be. Depends on what's in it.
Well, I mean, I own tips within my IRA, but they were purchased as bonds. So it's not a tips fund. It's an individual bond.
Bonds are not, because bonds are just a debt instrument.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:27–7:29
2
What are the implications of withdrawing from an IRA?
7:29–11:11
3
What does it mean to hedge against inflation?
11:11–14:35
4
What are the benefits of investing in real estate?
14:35–36:41
5
How should I manage an inherited 401(k)?
36:41–39:50