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That's FijiAirways.com. From here to happy. Flying direct with Fiji Airways. Do you have some money in your bank account? Good. That's a good place to start. If not, don't worry about today's show. Just skip to a different show. But if you do have money in your bank account or some type of account, are you aware that just about every day that money is losing value?

It's becoming worth systematically less and less. This we like to call inflation and it's a careful design of our currency. In fact, the controllers of our currency supply, the Federal Reserve Board, there's a lot of hand wringing in Washington right now. They can't create as much inflation as they've been working to create.

But inflation calls for a defensive plan. Today we're going to talk about how do you protect your wealth from the effects of inflation in retirement. And more importantly, if you are an early retiree, how do you protect your wealth from the effects of inflation over a very long period of time?

Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheets and I'm your host. Thank you for being with me today. Today we talk inflation with a man named a rebel spy or Arabelspi. Well, that's actually not his name. His name is Joe and he's an awesome guy.

And even if you don't care about inflation, make sure you stay listening to this interview to hear how a couple of teachers gained financial independence on a teacher's salary by the age of 30. Perhaps for some of you, that might be even more interesting than the inflation conversation. I was able to coax a little bit of information out of Joe about his story.

He didn't want to talk about it too much but I coaxed just a little bit out of him about how he and his wife, starting with nothing, both of them working as government school teachers have been able to save their way to financial independence by the time that they were 30 years old.

You're going to hear a little bit of that story. Joe has been on the show a couple of times previously. He is well-known online under the username A Rebel Spy or if you did what I did and many others do, Arabelspi. That's how I thought of him as years.

But you've seen him. He is a moderator in the popular Mr. Money Mustache online forums and you'll see his screen name splashed across the internet in the personal finance space. But one of the things that I have enjoyed with conversations with Joe is Joe is not promoting anything. He doesn't even have a website.

He's not particularly trying to get anybody to do anything. He's just one of those quiet guys who's sitting around working on his own plan, systematically building his financial independence and building it for himself and his family, studying his way through. He's very knowledgeable about various aspects of finance as you may have heard if you've heard previous episodes with him.

He's just a normal guy who's a knowledgeable guy and his extensive involvement in online forums has led to his facing just about all the different questions that relate to finance. That's why I brought him on for this FAQ series of what are the most frequently asked questions of early retirement.

Today, we talk about inflation. How do you protect your wealth against the damaging effects of inflation? This is of special interest to Joe because he's 30 years old and he and his wife have quit their jobs and they are currently traveling around the world expecting never to return to the world of paid employment again unless they choose that that's something that they want to do.

Well, inflation is a little different if you're 30 years old versus if you're 70 years old. It takes a little bit of a different plan and you're going to hear that during the course of today's interview. This interview is not a carefully scripted put together presentation where he or I are trying to convince you to do something.

This is more like the kind of conversation you might hear if Joe and I had been sitting down in person sharing a cold drink some evening somewhere together and we were sitting around the table talking about financial topics. That's more the ebb and flow of this conversation. So if you enjoy that type of interaction, you'll enjoy today's interview.

Before I play the interview though, I'd like to just thank our sponsors for today. Sponsor of the day number one is SoFi, the social finance corporation who specialize in helping you refinance your student loans. One of the things that we always want to be working for is minimizing cost in all area of our life.

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It's not. If you're working on paying off a debt or if you've chosen to deploy your money into other investments that are growing at a rate of interest higher than your debt, then go ahead and try to lower your debt costs as much as possible. One way that you can do that is to refinance your student loans.

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Sponsor of the day number two today is Patrick Snow. Patrick is my personal publishing coach. As we begin the year in 2016, if you've ever thought about writing a book, why don't you follow through and actually make it happen? It's a New Year's resolution for many people and what happens is we often try to do things over and over and over by ourselves.

Well, I don't know about you, but personally I believe in hiring the best advisors and consultants that I can find and that was the process with my hiring Patrick Snow to work with me as my publishing coach. Patrick has helped me lay out a plan for the book. He's helped me with some of his templates.

I'm not using some of his templates because I've already had some other ideas, but he sent me his templates and things that would help me just create the book even if I wasn't sure of all the ideas to actually create and publish a book. It's probably one of the best marketing tools that you could have for your personal brand, for your personal business, etc.

So connect with Patrick. Find out more information on him at thepublishingdoctor.com. You can find some interviews with him and some details on all of his different packages and services. If you're remotely interested, reach out to him for a complimentary consultation. He'll give you a 30 to 60-minute complimentary consultation, give you some nuggets of advice on what you should do, whether or not you choose to hire him, that's up to you.

But check out his information at thepublishingdoctor.com. Let him know I sent you. Right now, sit back, relax, and enjoy the interview with Joe. Joe, welcome back to Radical Personal Finance. Joe F. Luskowitz, CFO Alphabet and Google Thanks, Joshua. Glad to be back. Always enjoy chatting with you. I was looking through the archives and the last time you were on the show was episode 95.

So I'm not sure if it's about a year or almost a year, but it's been quite a while. I'm excited to have you back on to talk about some of these early retirement frequently asked questions. But before we get into the question of the day, which is we're going to focus primarily on how to handle inflation in your retirement planning, a few things have changed since the last time we talked.

Where are you right now in the world? Yeah. Right now, I am in Zagreb, Croatia, staying in an apartment we have rented on Airbnb for a couple of weeks. Since last year, my wife and I actually decided to pull the plug on working and we quit our jobs in June, both teachers, and now we are kind of full traveling the world and checking out some places, seeing what there is to see.

So she turned, let's see, 67 and you just turned 68, right? To be able to retire as a teacher. Right. And I actually retired right before my 30th birthday. So now I'm 30, but I managed to squeak it in right at 29, about a week before I turned 30.

And then my wife's a year younger. She's 29 right now. No. So then obviously, your dad died and left you a couple million bucks and you used that to retire on it. That's obviously what happened, right? No. Thankfully, both of my parents are still in great health. We didn't get any inheritances or win any lotteries.

We had a lot of fortunate things happen in terms of we were both raised in loving households that taught us the importance of education and learning, reading. And then we just were very frugal and invested a lot and put in extra effort and yeah, managed to pull it off.

So I know obviously I'm being a little bit tongue in cheek here with my questions, but it is a remarkable story. It's not a common, even though it seems like there have been a couple people on the show in past episodes who are teachers who've built their way to financial independence.

It's not a common idea that people say, "I'm going to go into the profession of teaching and use that to get rich so I can retire early." At what point in time did you guys get hold of this idea of early retirement? That's a good question. It was probably right around when we started working.

We graduated college in 2007 and right as stuff was peaking, right before the recession. I wasn't planning on becoming a teacher. It was something I signed up for two years for with Teach for America to try and help close the achievement gap in lower income communities and just fell in love with teaching.

Just enjoyed so much going to school every day and working with these kids. But I knew that doing that wasn't necessarily something I wanted to do my entire life. I think right around that time, we had already been reading personal finance blogs like Get Rich Slowly back in 2006.

I think we first stumbled on that and then Jacob Lundfisker's Early Retirement Extreme in 2007. All along had some of these influences and just started investing and saving and buying rental properties and slowly and steadily making our way towards that. So, it is exciting and congratulations. You're in Croatia now and where have you been so far and where are you heading and then we'll get to the meat of our conversation today.

We started off doing a religious pilgrimage called El Camino de Santiago in Spain. It's about a 500-mile walk across northern Spain and there's all these different routes to get to the city of Santiago. But it's this pilgrimage that's been going on for over a thousand years that people will walk this and at the end, you get this certificate of completion, a compostela from the Catholic Church.

Neither of us are particularly religious but it's kind of people of all walks of life do it nowadays for whatever spiritual or physical or whatever reasons they have. It took us 35 days to walk and we were not prepared. It was a lot harder than we thought it would be.

We read some books about it and there's a movie called The Way with Martin Sheen that came out in 2010 about this walk and most of them kind of, they don't mention how difficult it might be. I think it has a survivorship bias in that all the people who go there and walk for three days and then stop walking and quit, they don't tell their stories.

Anyone who's completed it and writes a book about it obviously enjoyed it. But anyway, so we did that. We walked across northern Spain for 500 miles for a little over a month and then we went to Portugal for about 10 days and then we went to Germany for about two weeks and then we went up to London for about a week and down to Marrakesh, Morocco for about two weeks and now we've been over in Croatia for Split and now Zagreb.

And then we're going over to Istanbul. My wife is currently pregnant and due January 31st. - Congratulations, dude. I didn't know that. Congrats. - Thank you. Yeah, thanks. So that was kind of our plan all along was to retire and then start raising kids so that we can be full-time parents.

So we're going to be having the baby in Istanbul. We're going there in a week or two and we'll be settling down there for three months, having the kid and then move on from there. - That's exciting. Awesome. So let's get to the major question that we're here to talk about today.

It's been a while and you're a friend of the show and I wanted to have that personal update because I think it's really inspiring. I definitely – we're the same age. I don't know. Maybe I'm a year ahead of you or half a year ahead of you but I sometimes wish back.

I wish in 2007 when I graduated from college, I wish I had found Early Retirement Extreme then instead of, I don't know, 2012 or something like that when I finally found it. I would be in your position. But unfortunately, I have some money in IRAs and Roth IRAs and I had some good times because I saved my 10 or 15 percent, Joe.

- You were ahead of most people. - I was ahead of most people but I feel like I got sold the short end of the stick by the financial planning profession because I did what they said and I'm 30 and I'm not rich. I'm rich in many things and richer than most but still have a long way to go toward financial independence.

So let's talk about inflation. Inflation is one of those words that brings fear into the heart of most traditional retirees and it's one of those things that as a financial advisor, we spend a lot of time talking to people about how to protect themselves from inflation, how to plan for it.

You are basically screwed because you're 30 and you got 70 years to live off of this nest egg. Do you wake up with cold sweats in the middle of the night thinking about and worrying about the inflation of the currency and the fact that you're going to be broke in the future?

- Not exactly. I do worry about it. I think that inflation is the number one enemy of the early retiree. I think because like you said, I've got decades and decades for the purchasing power of my money to just erode. So while I'm not worried about it, I definitely think it's something that is important to talk about and plan for.

- How do you-- well, let's start with talking about what is inflation. What are the major aspects of inflation that you consider and how they're going to affect your life? - Okay, so inflation just in general is just the idea that things get more expensive over time and prices tend to increase and the value of your money goes down.

We see this example whenever we look at anything from more than a few decades ago, something from the '50s where someone goes in to get a soda bottle for five cents or you look at the median house price and it was $5,000. My wife and I were watching It's a Wonderful Life yesterday because now it's Christmas time we can watch all those fun movies and George Bailey in there goes, "You know how long it takes a working man to save up $5,000?" because he's talking to Mr.

Potter. Right now, I think the poverty line is somewhere around $20,000, four times that. So you look at examples like this and you see that money buys less things over time and there's a number of reasons why but that's just generally the idea of what inflation is. So if you are an early retiree and you go, "Okay, I want to buy things," but they get more expensive over time, obviously you're not working anymore, your salary is not going to increase, so you're going to have to do other things to make up for that, to make sure that your purchasing power doesn't erode via growing your portfolio in your retirement.

What kind of things? So there's a few different ways to protect yourself. In a word, or I guess in two words, asset allocation. Looking at what sort of things am I invested in and how can I make sure those things themselves keep up with inflation. So specifically, there's types of investments called TIPs, they're Treasury Inflation Protected Securities and IBONs and those are both very similar things.

We probably don't need to go into the differences then, but they're basically like a savings bond from the government that adjusts with inflation. So you get paid out every six months, twice a year you get paid interest on it and that interest increases with inflation, it's pegged to an inflation index and as inflation happens and the price of goods rises, your interest payment rises and also the principle of that bond itself rises.

So it's not worth any more at the end unless you're getting a rate plus inflation, but it holds its value if that makes sense. But you're not trying to live off of the income, a 30-year-old early retiree, you're not trying to live off the income from a TIPs portfolio, are you?

No, I'm not personally. That's one asset I think should be in, if you're making a balanced portfolio, that's one asset I think every early retiree should consider. I don't think, I think if you saved up and put your whole nest egg into TIPs, that's certainly one way to handle deflation.

I think you open yourself up to other potential problems like deflation. You might be kind of overprotecting yourself and then the other downside is they don't have a lot of growth potential, meaning you're probably going to have to work a lot longer and build a lot larger nest egg to be able to survive on the returns from those TIPs.

So how are you planning for inflation? So me personally, we have a number of rental properties. So real estate is another great inflation hedge simply because the value of the land will tend to go up with inflation as well as the actual whatever improvements are on the land because like I mentioned earlier, that $5,000 house may be $100,000, $200,000 now because the goods themselves, the materials, the wood, the nails, the shingles, whatever the house is built of goes up with inflation.

So any new person wanting to buy a house, say a young couple buying a new house, if a new house had to be built for them, then all those goods that are used to build it would cost more to buy and all the labor of the people building it, also their wages have gone up over time so their labor costs more.

So the house itself costs a lot more to build. So then your house that's older, it may not sell for the same as a new house, but it's still going to rise as those new home prices rise. So the underlying value of that hard asset rises with inflation and then also any income it produces.

Our rents, we can increase the rents on our tenants as sort of wages rise. So if our tenants get a raise at work, a cost of living raise because of inflation, then we can raise their rents and now we just got a cost of living raise. Mad Fientist I think real estate is definitely really powerful for this and the reason is real estate is always going to be – the value of real estate is always going to be tied to the actual value in the local economy, which is going to be driven by the local jobs, the local wages, the local things to buy and sell.

It's all going to be driven by what's actually happening in the economy. If you're living on the rental income from a portfolio – excuse me, if you're living off of the income from a rental portfolio, then that rental income, it may grow or it may shrink as you have to adjust rents to stay in line with the local markets.

But the value of that house, because it's a tangible good that's providing a commodity, a place to live, the value of that house is going to stay consistent with whatever the local market is doing. So if you buy right, at the very least, your income can adjust and fluctuate as you adjust your rents, assuming your houses are in good shape and all that.

Your income can adjust with the local economic environment. Now if you are investing in a rental portfolio in Detroit, that might mean over time your standard of living is going to decrease because the local economy has fallen apart. Or if you are doing it in San Francisco, it might have increased over the last number of years as the economy has improved.

But it's directly tied to the local economy, which is where you're going to be buying and selling, which is where you're going to be living and doing business. So it is a powerful inflation hedge. Absolutely. Absolutely. Another popular one, real estate itself, specifically rental real estate, a lot of retirees kind of shy away from because they don't want to work.

That's why they retired. And it can be seen as a lot of work. I don't necessarily agree with that as I haven't been in the same country as my rental properties for the last five months and everything's running along just fine. How have you set that up to be able to do that?

So I have a number of properties in a few different states and the ones outside of where I was living, I already had a property manager. So they take care of everything and email me updates. And then my local properties, I was managing myself. I have a number of property managers I know in town that I can turn the properties over to when necessary.

Right now I'm still managing them from afar because my management, I don't ever do any work on the properties. I always hire people. So I have a number of handymen and different companies that I've worked with, electricians and plumbing companies and things like that, AC. And so if there's a problem, the tenants text me, "Oh, hey, the AC is not working." And then I text my handyman and say, "Hey, can you go over to this property?

Here's the tenant's phone number." And it takes me about two minutes in a text message to handle any of those sort of issues. So that won't work necessarily while there's turnover when the tenants move out. So that's why I'm going to kind of turn the properties over one by one as a tenant moves out, hand it over to a property manager and they can get it fixed up, re-rented and take over at that point.

That's great. And also you get to benefit from earning your money in the United States and spending your money in Eastern Europe where hopefully there's a good geo-arbitrage opportunity for the value of your dollars. Yeah. That's definitely an advantage potentially at the moment. I kind of view that as I don't know what it's going to do in the future.

I can't necessarily predict that other dollars will rise or fall faster than the U.S. dollar, so I'm not counting on being able to continue to do stuff cheap overseas. But for now, there are definitely some really nice places. One place that's been on our list for a while is Chiang Mai, Thailand, and it seems like everybody loves it and it's cheap.

So yeah, that's definitely one thing we're excited about getting to take advantage of for now. Let's talk about personalized rates of inflation versus general economy-wide rates of inflation. First, talk about how the rate of inflation is calculated in the general economy and then how you would look at your own life and calculate your own rate of inflation.

Okay. So the way it's generally calculated for the economy is using something called the CPI, the Consumer Price Index, where the government has what they call a basket of goods. Basically they have, if you just picture a list of different items and it has on it different food like it might have chicken and apples and a pound of apples and it has stuff like gasoline and clothes and cars.

So it's got all these different items that people buy and it's kind of a monthly running update of here's what it would cost to buy these things. And then the next month they check in with all these different markets and see and go, "Okay, here's what it costs now and here's what it costs now." And slowly over time you see, "Okay, those prices on these things are rising." Well, that's then what we'll call the inflation rate.

The percent that those goods rose in that Consumer Price Index, that's how much inflation is. And one of the biggest kind of myths or maybe misnomers I see in early retirement communities and I've seen over the last decade when people go and post online and talk about inflation is they think that they can try and beat inflation by doing certain things.

They want to keep their own personal inflation rate lower and say, "Well, the CPI is maybe 3% but I think I can experience less inflation." And they try and argue for why they may not see that much inflation. So let me put forward an argument and I'd love to hear your thoughts on why I don't think that's the case.

- Okay, go ahead. - So generally what people say is, "Well, my inflation rate's going to be lower because I don't buy cars. I have a bicycle and I don't buy gasoline." And so they say, "Well, all those items on the Consumer Price Index, I don't buy a bunch of those so I'm not going to experience that same inflation." And that's generally their argument.

But the reason why I don't buy that is because even if you don't buy those particular items, whatever items you do buy should still increase via the rate of inflation, right? - Yeah, so I think this argument has pros and cons. And what can happen is somebody could be a little bit too starry-eyed, somebody who's new to the world of early retirement and says, "Well, I'm just going to live like Jacob Blundfisker lives and he's my guru." We love you, Jacob, but sorry you have to be the guru.

But I'm going to live like Jacob lives and I'm just not going to buy anything. I'm going to do it all myself. I'm going to fix my own bike. I'm going to go out and just find these things everywhere. And I think that certainly somebody like Jacob or somebody like you who's resourceful and who's able to demonstrate just their ability to find ways to accomplish things that don't just involve plopping down your credit card for retail prices, there's always going to be a way to control for prices.

- I actually disagree with that. So I think it's irrelevant how handy you are and how much you're fixing yourself because theoretically you should already be calculating that in your spending to start out with. So let's say, for example, you do live, you homestead and you've got this farm and you raise most of your own food and you repair everything yourself and you've got your expenses down to $5,000 annually.

And that's a couple thousand bucks for property taxes and health insurance and I don't know, and then some staples that you can't buy, some stuff that you just can't make yourself that you do have to buy. So your bike breaks and you repair it free. Great. You never had in your original $5,000 any budget to actually repair it.

But let's say you did have, I don't know, a bike tube in there in that $5,000. Well, that is still going to inflate with inflation. I mean, whatever you were calculating in that $5,000, even if you're like, I'll fix everything myself. So my cost is zero. Okay. So your costs of, let's say you're living a $20,000 lifestyle or $40,000 lifestyle and it's only costing you 5,000 because you insource everything yourself.

But whatever was of that 5,000, you still need to worry about inflation. So if you have income coming in that covers that 5,000, it still needs to be protected from inflation. Does that make sense? Yeah. So I'll buy that argument, but I'll just say that the difference comes in where the discussion comes in is when we're talking about it within the context of people who are knowledgeable and interested in early retirement, who are living a frugal lifestyle, who are taking control over their expenses.

Your argument is correct. When comparing an early retirement lifestyle to a generalized, I'll just say mainstream lifestyle, that's where the difference comes in. Because so example, housing, what are the inflation costs that are associated with housing? Well, once you purchase a property to live in, if you have a fixed rate mortgage and a fixed, excuse me, and a fixed mortgage payment, you have a fixed rate mortgage and a fixed mortgage payment, that mortgage payment is not going to be affected by the inflation rate unless you sell it, but your property taxes are.

So once you start to get in a little bit of control of setting up your lifestyle, you can control the inflation rate and you can transition some of the things that are going to be affected by inflation to things that aren't. And so the way I think about it is I think how can I go through and look at every place that you connect with the mainstream economy, there's going to be an inflation rate associated with that because costs are continually going up, the currency is continually debasing, that is the way that our monetary system is structured.

Until it's reset and adjusted at some point in coming decades, then it's going to continue to be the same. But you can decouple from the mainstream markets in some aspects of your life and as long as you stay decoupled from them. So for example, your inflation risk is frozen on your house until you've got to go and buy another one.

And then once you get back into that market, that's where you start to experience the effects again. I agree with you on the mortgage. And that's actually one of the best inflation hedges you can have is a fixed rate mortgage. And I think for that reason, every early retiree should have a long-term low fixed mortgage.

And I know that's going to sound crazy to a lot of people because they want the paid off house and the security that comes with it. But I think you're risking a lot more inflation when you don't have that mortgage. That basically if you instead had that money invested in something that's protected against inflation, yes, your budget would be higher, but that part of the budget wouldn't be rising with inflation.

Yeah, and just to give an example and then you can continue, I would rather have—living in a $200,000 house, I'd rather have as close to a $200,000 fixed rate mortgage on my house that I can have and then have a paid off rental property and have the rental income from the paid off rental property.

Because the rental income from the rental property I can adjust with the local prevailing inflation rate, but then I can take advantage of the fixed rate mortgage on my personal house. Would you agree? And feel free to continue your point. Yes, but I would say go ahead and have a fixed rate mortgage on that rental property.

Right. But in theory, I think the mortgage is the only example I can think of off the top of my head that is like that because you're essentially borrowing against the dollar. It's at a fixed rate, so any sort of inflation won't affect you. It won't affect that payment.

But if we presume a paid off house to make it easier, I think every other expense that you have is going to rise with inflation, whether that's property taxes, health care, home insurance, and whatever, food, whatever. All of those things are going to rise. So people's arguments of, "Well, I won't buy XYZ thing.

I don't buy a car." Okay, but you didn't have that in your budget to begin with, so that doesn't affect the inflation rate on all the other items. Right. So I come back to it's basically the only way to escape inflation is if you can decouple from the market.

So that's where you could escape some of the effects of inflation if you go ahead and purchase the solar panels that you'll need for your roof to generate your electricity. You go ahead and set up your water catchment system so you don't have to buy water from the grid, et cetera.

Well, now you're decoupling and you can freeze the costs. And so as the general economy is getting more expensive, costs are rising, the local utility company is supporting all of their pensions, you don't have to deal with that because you've just said, "Okay, $20,000 here. I'm buying these panels," or whatever the equivalent is in your area, and now you've frozen that cost.

But your point is that the budget that you're living prior to retirement is going to be the same as the budget you're living after retirement, and that budget is being affected by inflation. Right. So if you say, "Okay, I got my solar panels and now I put in my electricity cost is zero because the solar panels generate everything I need," then that's not a line item in my budget anymore, but whatever items are in my budget are still going to increase and you still have to think about inflation.

So when people talk about like, "Okay," or let's take another example. Let's say you stockpiled food. Let's say they say, "I'm worried about the price of food, so I'm going to stockpile all these canned goods." Okay, you've then protected yourself from inflation on the price of those foods, but what I would argue is you're doing it suboptimally by—what you're doing is you're losing out on the opportunity cost of that money that you purchased it with.

And so if you stockpile food, you're basically presuming food is going to inflate faster than whatever investment I would put that money into. That's the only way you would come out ahead. So I would actually hold to this perspective, and here's why. So far, we've been talking about a normal inflation rate.

So normal inflation rate, usually we plan on say 3 or 4 percent. But there have been periods in history in which economies go through abnormal periods of inflation. So you can go through a period of deflation, extremely unlikely in the U.S. economy, but you could, in theory, go through a period of deflation.

You could go through mass inflation, the term that I use, 10, 15, 20 percent per year for a period of years. And in theory, you could get to the point of hyperinflation, where you get dozens of percent or in excess of 100 percent of annual inflation. It's happened in some places in the world.

I think it's very unlikely to happen in the United States, but it's in theory at least possible. I look at a period, and what I expect as a possibility and perhaps even a probability is that at some point in time, we'll go through periods of short-term mass inflation. So back to the idea of what happened in the '70s, or where you're talking about inflation 10, 15, 20 percent per year for a couple of years as you deal with recession and deal with working your way through the economic cycles.

So those short-term hedges make a big difference. And if you look at each line item on the budget, so food would be heavily subjected to major changes in inflation. Gas purchases would be heavily subjected to major changes in inflation. But your electricity costs, the utility companies are not going to be able to raise their electricity costs on a month-by-month basis to deal with a period of mass inflation.

So I think if you expand the mindset and open up the potential economic situations that you're planning for from beyond just a standard 3 to 4 to 5 percent annual increase in the consumer price index, now all of a sudden you do open up some ways that you can plan.

What say you? I hear the sighs coming in of the disagreement welling up. So this will be fun. Go ahead. No, no, actually, I 100 percent agree. And inflation—so I just wanted to start with kind of the base level of inflation because I think that's what we're kind of—the environment we've been in recently and maybe for the last decade and a half, two decades, we've had relatively low inflation, especially over the last five years.

It's been close to zero. It's not even close to the 3 percent. So I wanted to start with kind of that basic, like, this is what inflation does sort of scenario. But I'm much more worried about what you mentioned. First though, before we switch over to those other crazy inflation scenarios, let me read a quote to you from Todd Tressiter's website, the financial mentor.

I think you had him on—you interviewed him before in the past. Because he says—I was looking for numbers around inflation and he just says this example so much better than I could, so I'm just going to read just a paragraph here. He said, "A couple retiring in their 40s with at least one partner making it to their 90s can expect their purchasing power at 4.5 percent average inflation to get cut in half three times during their retirement.

A dollar today would be worth little more than a dime when you're infirm and dependent. That's a very big deal. If you think this example is far-fetched and can't apply to you, then think again. According to Charles Ellison, winning the Losers' Game, $100 of goods in 1960 would have cost $500 in 1995.

That's a 4.8 annual compound inflation rate that destroyed 80 percent of your purchasing power." So, I mean, this is what we've seen in the U.S. over, you know, maybe not over the last five years or over the last ten years. But I'm always cautious when people say, "Oh, well, this is the new normal.

This is—it's different this time." And so while we've seen some lower inflation rates, I think we very well could go back to an average of more like 4 to 5 percent. And if you're an early retiree, a few decades later, your purchasing power has been cut in half and cut in half and cut in half, it's worrisome.

But going back to your point, in the '70s, that's really what worries me, is not so much this mundane inflation that's really not that mundane, just because of compounding. And we all always look at examples of, "Man, you invest this much and you do this for this number of years, and in 50 years you're a jillionaire." And we all look at compounding and it's amazing and it's great when it's working for you.

But when it's working against you, that kind of double-digit inflation in the '70s, '80s, and you get that multiple years in a row to where that double-digit inflation builds on itself and builds on itself because it's compounding, it's really scary. It very quickly makes the value of your dollar a lot less.

Mad Fientist Oh, yeah, hugely. Ryan Neuhofel So going back to, we kind of started talking about some ideas to protect yourself. So one would be tips or I-bonds. Another one is real estate, raising your rents as wages increase and they get cost of living raises and stuff like that.

Another kind of very popular one, I feel like the one you hear about most, is gold. And gold typically is not a great investment, but it is viewed as an inflation hedge. And it's one of the four main cornerstones of the permanent portfolio, which is trying to protect against a number of different downside scenarios, including inflation and deflation and all the different environments.

And a quarter of the permanent portfolio is kept in gold to help hedge against inflation. So that's another good one for people to consider when they're looking at their asset allocation of how can I help protect myself. Mad Fientist Do you have comments or perspective on the importance of investing in gold from your perspective?

Ryan Neuhofel I think I'm not personally a fan of investing in gold because it's an unproductive asset. There's a Warren Buffett quote, anyone listening can Google, that basically he talks about all the amount of gold that's been mined fits in this 90 by 90 cube inside a baseball, what's the word, not the outfield, the infield of the baseball stadium.

And it's worth X amount of dollars versus, and then he lists Chevron and all these oil companies, all these different companies that are generating billions of dollars in profits. And he's like, and they're worth about the same, I know which one I'd rather own. And so I don't like the idea of owning it as an investment.

I don't really like the idea of owning it while you are working, while you are accumulating, because theoretically if inflation happens while you are still working, hopefully your wages should rise with inflation. And that's not always the case. But eventually they have to, because if things get too out of whack where people can't afford food, then you have riots in the street.

I don't see that happening in America. So I do think wages, even if they may lag inflation somewhat, they'll kind of tend to catch up. So that's your inflation hedge while you're working is your job. And so, but I do see the value of having inflation hedges in retirement.

And so if someone says, yeah, gold is the one I've decided on for these particular reasons, I'm okay with that. Let me read you the Warren Buffett quote. So I asked the duck and the duck says, here's the quote. I will say this about gold. If you took all the gold in the world, it would roughly make a cube, 67 feet on a side.

Now for that same cube of gold, it would be worth at today's market prices about $7 trillion. That's probably about a third of the value of all the stocks in the United States. For $7 trillion, you could have all the farmland in the United States. You could have about seven Exxon Mobiles and you could have a trillion dollars of walking around money.

And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally, call me crazy, but I'll take the farmland and the Exxon Mobiles. Now that's the version, this is the first version that popped up.

There are other quotes we talked about the putting in a swimming pool and things like that. How I think about gold, and there's a lot of argument and debate about this, and I haven't presented shows on the different discussions. I'll just talk from me personally without trying to give all the different sides of the stage.

If I had the money to simply retire on dividends from Exxon Mobile stock, I would rather do that any day than have gold. And so because if you can own companies, if you can own great companies, and again, take Exxon Mobile, diversify your portfolio, et cetera, et cetera. But if you owned fractional shares of 100 great companies and you were able to simply live on the dividends, those dividends over time are going to be your best inflation hedge because those companies, assuming that they are well run, those companies are going to be looking for new markets, they're going to be hiring, firing, buying, selling.

They're going to be dealing in the economy and they're dealing with the effect of the economy and as an owner, I'm gaining the dividends from that. However, those dividends are not always going to lag. Some of the companies are going to come in, some of the companies are going to go out.

But for me, the ultimate is just simply to be able to live off the dividends from the companies that I own. And that's the same thing that we do when we are working in private business that we own or it's the same thing we do when we're investing in publicly traded stocks.

The major value of gold is for those times when things are changing. And so the reason I want to have a good portfolio of gold coins I can put my hand on is number one, something funky happens and I got to get on a plane for Columbia, you need to be able to put your hands on some money.

I think everybody should have some walking around gold that they can put their hands on. The crazy stuff has happened. The biggest example I mentioned several times on the show is that dentist. The dentist, now that wasn't bad because it was just the media publicity, the guy who killed the lion.

It was just media publicity but all of a sudden, his whole business falls apart. Now in that situation, there's no need for gold coins. You just need cash in the bank and money to transition to. So at some point, you got to be able to put your hands on some money.

The other thing is just recognizing that every Federal Reserve, the Federal Reserve Bank here in the United States and every national bank around the world, they own gold. And so there is a stability there of that asset based upon the intrinsic characteristics of the fact that that's what the major banks of the world hold and own.

So that could give you some stability and then if you're looking at the economic environment around you, the question for those who own gold that I would challenge you is at what point in time are you going to sell? There should be almost no asset. There should be no asset that we are allied to where we say, "This is the asset I'm going to own and I'm never going to sell." It doesn't matter whether it's a piece of real estate, whether it's a gold coin or whether it is your business.

Everything should have a price tag and you should understand, "Here's the point at which I'm going to sell." Because if you see a mispricing in the market, you see some things happening with the currency system or whatnot, now it's time to sell your gold coin to move back into other investments.

That's the opportunity I see is as gold, understanding its characteristics, understanding the value that it gives you and then understanding when you can go ahead and sell it and move into other asset classes. Yeah, and I think the tricky part with doing that would be trying to value the gold, trying to put a number on that, "When am I going to sell it?" If you're saying, "Well, I'm going to sell it at $2,000 an ounce." The problem is if gold rises to that, we're probably in some economic times where the dollar's falling and we're having inflation and you hit that point and you say, "Well, no, I'm going to hold it a little longer and then it falls.

I mean, gold doesn't have a value in terms of its productivity. You can't look at it like you do a business and say, "This is how much revenues it had and this was its net profit." So putting that value on it can be difficult, which is why I think just a flat percentage is the best and easiest way to go.

Is to say, "I want to have 5% or 10% of my portfolio in gold and use it for rebalancing purposes essentially." Yeah, but then that's good as a general outline and I like that as a general outline, but then at some point in time, you should know. I guess I just am convinced you should know when you're going to sell everything.

By that, I don't mean I got to sell everything I own, but we've got to be – instead of – we've got to be – Do you mean completely exiting a market and – Yeah, I mean paying attention to the relative value. So if you're looking at your portfolio and in every biography I've read of people who get rich, like really rich, mega tycoons, things like that, what you'll often find is you'll often find them looking and seeing a mispricing in the market and going ahead and taking advantage of that based upon the assets that they have.

Now, those assets are sometimes just hard work. Sometimes it's just seeing an opportunity and having the work to do it. Sometimes it's money. Sometimes it's selling a house and buying a business. Sometimes it's selling a business and buying a house. But that in our lives, we can't sit on the sideline and say, "Well, I'm just going to do nothing." Rather, we should be prepared to be watching the market.

So we should understand what's going on. If you tell me that there becomes a mispricing in the market where I can take some gold coins – I don't know, make up some crazy numbers. We end up in mass inflation and I'm looking around at my local real estate market and I can buy a three-bedroom, two-bath house for a dozen one-ounce gold coins.

Well, I'm going to get rid of those coins and go buy the house because the coins have no worth whatsoever with regard to any utility function whereas the house has a utility function. If I look at a market and say this housing price is very devalued, the price of this gold is high, I'm going to transition the gold asset into the real estate asset.

Then as times change and I move forward a period of time, then I'm going to look down and I'm going to say, "You know what? I think I'm going to go ahead and rebuild my gold holdings. The prices, the ratios have changed and now I'm going to go ahead and move into it." There's no reason to not have the approach of saying, "I'm going to buy and sell my assets as time goes forward." Now that's only – Let me give you a reason.

So I think all of that is phenomenal for a very sophisticated investor who can evaluate all of these different markets and move back and forth between them trying to time them. I think that's difficult for a lot of people especially controlling the emotional aspect of it and I think that as we get older, our mental faculties may decline.

We may be more prone to, I don't know, paranoia. There's different factors that we deal with as we get older that may or may not be the case and certainly isn't for everyone, but there's still things you might have to deal with that I wouldn't be comfortable telling someone who's 70 to, "Okay, now's the time to sell your house because gold is really undervalued," or having them try and make that decision.

So setting an asset allocation, making a plan for, "Here's what my investments are going to look like and gold is 10% of my portfolio and if a year from now gold has gone up by 10 times in price and now I can use a little bit of it to buy that house," like your example of now, "Wow, I can use a couple of gold coins and buy a house because this gold didn't produce anything," well, what it produced was that inflation head, that diversification in an uncorrelated asset so that, "Wow, now it's worth a bunch more.

That gave me a bunch more money. I'm going to sell off. Now gold is 50% of my portfolio because it shot up so much. I'm going to sell off 40% of that gold so now I'm back down to just 10% still and invest that in my other assets that are lower," which may include a REIT that does own that house down the street.

I think in an ideal scenario a very intelligent, sophisticated investor who knows all those markets might be able to do what you're describing. I think for most people a much more simple, "Here's my asset allocation and I'm going to stick with that and use rebalancing in order to do what you're describing." I don't have to worry about which market is overvalued, which market is undervalued.

I know, "Hey, gold has gone up a bunch. It's a higher percentage than it should be in my portfolio. I'm going to sell some of it and buy this one that's lower because I'm just rebalancing my allocation." You make good points and I'll accept most of them but I will just simply respond and say why I'm making the point that I'm making.

I come from the formal financial advisor world and if I were a formal financial advisor still then I would have to give that answer. The rules in the financial advisor world is that we assume our clients are ignorant and we have to protect them from themselves. That's the reality is most people are ignorant and we have to protect them from themselves.

I would never feel comfortable personally in a one-on-one situation, never is a strong word. It's hard for me to imagine the scenario in which I would feel comfortable personally telling somebody the bet to make. "Hey, look, you should sell your house and buy this investment asset or you should sell this investment asset and you should buy the house." Because that's going to affect their life and I'm not sure if they're ready with the pros and cons.

But I'll tell you this for me, after years of studying mainstream finance and after years of being a mainstream financial advisor, I'm done with the crap that the mainstream financial advice world puts out. Now, if I'm running a pension portfolio for 40,000 retired school teachers then I'm going to follow traditional asset allocation rules.

I'm going to stick to that with safety and my reason is twofold. Number one, it's probably the best move for me to protect those pensioners' income but it's also going to cover my butt, which is what all of the investment managers have to do. You cannot go too far out of the mainstream.

So if everyone goes down together but we all follow the mainstream approach, well, at least we're all protected. So I sort through all the advice and say, "Okay, how much of this is actually true and how much of this is good planning versus how much of this is just simply somebody protecting their butt?" As a financial advisor, you cannot make interesting recommendations and interesting analyses.

But what I started to look at is I said, "What do the rich people actually do?" What I realized is that the rich people actually, the people who live high lifestyles, whether they have a million dollars in the bank or they just live a really great lifestyle, they're always buying and selling based upon the value in their local markets.

This is the fundamental function that's been lost in today's world's approach to investing. So I would rather my 18-year-old son, I would rather he not put any money in the stock market and I would rather he learn to buy and sell lawnmowers in the fall and snowblowers – and he buys lawnmowers in the fall and sells them in the spring and buys snowblowers in the spring and sells them in the fall and learn to judge the value of assets and then buy and trade them.

And when I look at it, yes, there is a level of sophistication where if you're running a large fund and you're getting paid, you need to be very sophisticated to understand the values of large markets. But I don't think the average person, if they pay attention, they're a listener to this show, if they pay attention, you don't have to be that sophisticated to get a sensing in your local market of, "You know what?

Things are a little bit out of whack." If your taxi driver is telling you about their real estate rental houses, it might be time to sell and sit back and stick your money in cash and sit back and wait for some deals again. So I guess it's a challenge for me to work through and say, "What is the approach?" And here in this context, I'm talking about like you and me as individuals, as individuals who are desiring to live a free lifestyle, then we're going to get far, farther by paying a little bit of attention to education, paying attention to the markets and then dealing with the opportunities that we have than we are by taking a mainstream approach.

What say you? I really do, by the way, I really do struggle with these things which is why we're just kind of having a conversation. Feel free to disagree but I struggle how to articulate this because I look around and I see the stuff that people preach is not the stuff that works.

And so what I try to do on the show is I try to give the academic background but the reality is many of the people who develop the academic background are broke and look at what the rich people do. Look at what the rich people do and do what they do, not what the people who are teaching about finance teach people to do with their money.

Okay. And that makes sense and for an 18-year-old son who's going to be starting a career, some sort of active business entrepreneurship will probably make him a lot more than just passive investing in the stock market. And that's one reason why my wife and I were able to retire so early is active real estate investing.

I read dozens and dozens of books, I went to real estate meetings and different training sessions and after school I would be looking at rental properties and it was fun for me. I enjoyed it but it was also extra work but it made us a lot higher return than I would have netted otherwise.

So I'm in 100% agreement that that is valuable and that that's a good way to get rich. The part where I disagree is when I'm thinking of the typical early retiree who, however early they are retired or whether they retired at a regular age, whether they're in their 30s, 40s, 50s or older and they're thinking about inflation, I don't necessarily think that just saying, "Well, deal with, just have your money in assets that are low and then when they get high, shift it over to other assets." I think, I just don't think a lot of people do have that proclivity or necessarily even want to.

They don't want to buy snowblowers and they don't want. So a more passive portfolio designed to their risk tolerance and with all these different things in mind, thinking about inflation and how they're going to feel with different risks of how are they going to feel if the market falls 30% tomorrow, that sort of thing, is going to provide them a more stable base than trying to say, "Well, here's a more optimal way if you know what you're doing, good luck." I absolutely agree with you and you make good points which is why it's so challenging in the course of conversation to get the nuances out.

I agree with you. But we should always be paying attention to the relative value. And so if you were looking at your, you're traveling in Chiang Mai, Thailand or you're traveling in Croatia and let's say you've been there for a year and you're looking around and you're looking at what the rental prices are working at and you're looking at some of the resorts in the local area and all of a sudden you find out that real estate prices in the United States have just massively increased in a very short period of time and you start to get the sense that, "Man, there's a little bit of a, it feels like a bubble." And you're looking at wages, is there anything that's really causing demand to go up, that's really solid on my rental properties?

You would start to think about saying, "I've got these values, some of these deals over here that are much more valued and I can buy land and develop it and you're researching that and I've got this overvalued property in the United States." You'd probably start selling a few units and transitioning to something else.

And so it's definitely not all or nothing. But I know for me, I wouldn't, as an early retiree, who knows, maybe when I get there then I'll be able to say, but it's hard for me to think that you'd be all in on anything. You're not all in on real estate, you're not all in on stocks, you're not all in on gold.

It is a balanced, diversified approach but you are paying attention, I guess, to your portfolio and looking for deals. Is that accurate? Yeah, absolutely. And I think that's where proper planning comes in. But you're right, it's definitely a balance and a mix of different things to both grow your portfolio, protect against different potential downsides and just tailor to what your experiences and interests have made you more knowledgeable of.

I may be able to evaluate certain types of real estate but I would have no clue what I'm doing if it came to investing in commodities as an inflation hedge. Agreed. I would just, yeah, exactly. So yeah, I think it's very individual. It is hard to generalize. Right. And that's where one of my convictions is that we should be teaching people to invest in the things that they know.

And so what has happened is the financial advice industry has hijacked the word "invest" from people. Investing has become about putting money in your 401(k). And constantly I'm talking with people just in my personal life or even in a professional life who are investing through their 401(k), they're investing in mutual funds and they don't even have the slightest concept of what those things are and how they work.

Well that's how you get taken advantage of is if you don't have a concept of what they are and how they work. They're excellent tools and it's hard for me to beat. If you can earn a couple hundred thousand dollars a year doing a job that is important to you and you can just stuff money aside in the 401(k), buy low-cost funds, it's hard to beat that from a simplicity and an efficiency standpoint of an investing perspective because the investments are taking care of your life.

But that's not the right for everybody and what other people should be doing is investing in what they know. And when I look at people, I mean I have some experiences even just in the last couple of weeks where I know some people who are very, very rich but you would never know it.

It comes down to their skill of buying and selling the things that they need and providing for themselves with good deals. Now you can't invest $100,000 in snowblowers but you can teach your kid how to invest $100 in snowblowers, how to flip that and then when they get to the $100,000, that's all they do.

And so when Warren Buffet, to pick on him, the guy who always gets picked on, when he's paying a billion dollars for a percentage of a company, he's doing the same thing. He's trying to figure out how to allocate the capital in a market that is strong. Yeah. Yeah.

I agree. I don't know if we beat the dead horse or if it was interesting. Go ahead. The one caveat I do want to add though is you are mentioning – you're talking about how to get very wealthy and you keep saying the very rich people and I personally and quite a few people who are kind of in the early retirement different communities online are very big into the concept of enough.

We don't want to get super rich. We want to have enough to live comfortably and hedge against potential downsides and then spend all of our time doing the things that we enjoy and that may make money or it may not. We don't care but we're not interested in having tens of millions or more, hundreds of millions.

So go ahead. But if that's the case, I think if you wanted to be very rich, like right now if I needed to make $20 million in the next five or 10 years and I wanted to become very rich relatively quickly, I would go read a book called The Millionaire Fastlane by M.J.

DiMarco. M.J. DiMarco. Yeah. Have you read that book? Yes. Yeah. Okay. I love it. The title is gimmicky for anyone listening. The Millionaire Fastlane sounds so gimmicky but it's a phenomenal book in terms of it's just all about here's how you build a business that provides value. His general thesis is like the more people you impact, the more money you can make or if you impact less people, impacting them to a greater degree.

But it's all about the impact you make on people's lives, then you can make a lot of money. And he talks about how to build a business to do that and it's just filled with solid tips. I would go, I've read it, I would go basically reread that two times in a row, spend the next two days just like reading it twice through and then implement everything in that book.

And I think that's the best way to actually get really, really rich. And this is obviously just my personal opinion but it's building a company and investing is a way to get rich slowly over time but it's a lot more probable. It's a lot more secured and likely. If you're steadily investing in a passive index fund for 20 years, you're going to do pretty well.

But you may not be massively rich at the end. So, I hope you don't feel like I'm just arguing with you. Hopefully listeners will just like this back and forth as far as you two. I love debating so I don't mind at all. Hopefully I can get some out of you.

Good. So, it's up to them to listen or not. But I'll tell you. So, I don't actually care. I don't make the differentiation you made about becoming really, really rich. I also come from the perspective of what is enough. So with my personal plan, I don't ever intend to live a lifestyle that is massive because I've got much more important things to do with the money than just simply to turn it into personal lifestyle.

So whether it's $20 million or $30 million, to me, that doesn't matter. I think that it's mostly irrelevant to most people who are focusing on the details of their financial lives of how to actually go through and make it happen. The key thing that I am focusing on is just simply how do you build a plan that's going to work for you in your specific situation.

The likely way that you're going to do that is by focusing on the minimum level that you need to cover your lifestyle. So that might be as simple as three rental properties. If you need $3,000 a month and you own three rental houses, which in net, given allowances for vacancies and repairs, net you $1,000 a month each, you're now financially independent.

And so I would focus first on developing that. And if that were my plan, if I needed $3,000 a month, I would focus everything on getting those three rental properties. I would not buy gold coins. I would not buy any of those other things. I wouldn't do that. I wouldn't focus on that.

I'd focus first on the rental properties. But then as you have the rental properties, if you continue to have excess, which you will, you'll start to have continued excess. Now how do I diversify that? And that's when you start to push, you start to adjust your portfolio. And so I'm always interested in levering up.

I wouldn't risk it all. Once you've built a certain lifestyle for yourself, I wouldn't want to risk it all. But I would want to focus on, I guess, looking for the opportunities that are there because we should be working to make our portfolios as productive as possible as we go through.

So it's not a matter for me of $10 million or not. It's just a matter of how to approach it. And we approach it within the context of goals. What are our initial major focuses? If gold coins are not going to help you be an early retiree until you've got the money, you need an income plan.

And so once you've built that income plan, now for some level of security or some level of defense, then gold coins might help you with your portfolio. Yeah. And I love all of that for you and for the investor who's interested in that. But for someone who's, let's say they've worked as a, I don't know, a nurse or a computer program or whatever, somebody who's just invested in their 401(k) and they've had a super high savings rate, they've saved 50, 60, 70% of their income and just dumped it into passive index funds, whatever, and they're going to be relying on the 4% rule, I think their plan is just fine.

I think that the interested active investor who gets those rental properties as their kind of their base and then they start diversifying out from that. And so I'm not putting down that plan because that's exactly what I did. We got a bunch of rental properties. I'm very overweighted in real estate and our additional income right now is going into diversifying into more other assets.

So what you described is literally exactly what I'm doing. So I'm not knocking that at all. I'm a big fan of it. But I'm also, know that I'm different than a lot of people. And you and I are both different than maybe a lot of people who would love to retire early.

I see people come on, but they don't have a clue about investing and they have no interest. They will learn it because they feel like they have to. But once they're retired, they don't want to think about money. They want to get those dividend checks every month and I'm done.

I don't want to look at what is the S&P at and what's the current price to earnings ratio. They don't have no interest in that. And so I think it comes down to the individual. If we were designing a plan for you or for me versus a plan for my sister, they'd look very different.

Agreed. Now, here's my question. Do you know anybody, and I'm not talking about somebody new who's come onto the boards, onto the discussion forums and said, "Hey, I just started reading Money Mustache and now two weeks later I'm going to get this early retirement thing and I'm going to retire in two years." I'm not talking about a new person.

Somebody who's actually worked their way through, built financial independence and has actually followed through and pulled out of the workforce in order to live a financially independent lifestyle or who's at that point. Do you know anybody who has done that, who doesn't also take at least a serious interest in their money?

I mean, I don't know how you're defining a serious interest in their money. Most of them, to get to that point, you're going to need to at least take an interest in your spending because you will need to be doing more than the save 5% to 10% of your income thing.

So, they will probably have quite reduced expenses. They will have an interest in their money but not necessarily an interest in investing. I do not care personally. I don't care about the stock market. I find it utterly boring as far as it's my least favorite thing to talk about.

But I care about investing. I just don't care about figuring out what is the P/E ratio of the stock that I'm watching. So I can empathize with that perspective. What I look at is I just look at the fact that you cannot get rich and stay rich unless you are interested in your money.

It's not going to happen. So a good starting point is going to be to say, "Okay, put money in your 401(k)," but then you got to say, "Let's pay attention to your 401(k)." Now, there are a bunch of plans that can work but somebody has got to pay attention.

They've got to read Jack Bogle's book and say, "Well, let's see. Which funds from Vanguard are going to give me what I need? Oh, look. Jim Collins says I just need this total stock market index fund. Okay. That makes sense to me. I'll buy this total stock market index fund and I'll live off of that," and they understand their plan.

Then you'll look at someone who understands and says, "Oh, I read the portfolio approach. This makes sense to me. They understand their plan." But they've got to – people have to get focused and understand what they're actually going to do in order to make it. So that – the more efficient they want to be and the faster they want to get there, the more they've got to pay attention.

I just don't see any other option. Yeah. Okay. I completely agree with that. My point was the person who decides, "Hey, I like this balanced 60/40 equities bonds portfolio," or, "Hey, I like the permanent portfolio," or whatever they decide, choosing that asset allocation and sticking with that while they're retired and having it be completely passive may fit a lot more with their proclivities of, "I'm not interested in investing.

I had to at least learn the basics. I had to go read Jim Collins' stock series and go, 'Yeah, that makes sense. I buy that theory. That will work for me. I'm okay with the volatility and that's how I'm going to invest my money.'" You're right that they need to learn about it, make those initial decisions, consider the different options, that sort of stuff, but they may not enjoy it and they may not want to continue doing that sort of activity in retirement.

If they've decided, "This is the portfolio that works for me. It's quite passive and that's one of the pros of it for me. That's why one of the main reasons – one of the main draws," then they won't necessarily be doing anything, actively deciding, "Hey, this market's overvalued," that sort of thing.

If they wanted to get really rich, yes, but I think lots of people who just go, "Okay, I've saved up for my job for the last 20 years. I'm good. I've just been very frugal and now I'm done, done working and I just want a passive portfolio where I just collect my dividends every month or every quarter.

I'm good." I think that's quite common. Best thing for the people in that situation to do is going to be pile up your money, call Northern Trust or Bessemer Trust and say, "Here, I don't want to pay attention. I'll pay you to pay attention to my money for me.

I just want to live in retirement." There are some other good solutions too. I like the Target Retirement Date Funds that Vanguard has. I think that's a fairly good solution. Let me plug one cool tool that I just found out over the last few months, just discovered and I think it was only created a few months ago but it's amazing.

It's called PortfolioCharts.com. It lets you put in different asset allocations for all kinds of different—now, obviously, something like a rental property it can't cover or a business you're running yourself but all the traditional kind of standard types of investments and a lot of some non-standard ones too that he has data for and look at how did those returns happen versus the volatility that they present.

Then it just visualizes it in just the most beautiful ways, makes these charts and it shows what your safe withdrawal rate could be for these different potential portfolios. It shows you how long would it have taken you to work on average and with the standard deviation and then it shows it in a chart so it's pretty so you don't have to understand what standard deviation is.

It shows you how long it would have taken to retire if you had 100% equities portfolio over 1979 or if you had 100% gold portfolio or a mix of those or you had this percent bonds or you can basically just put in whatever percent you want of all these different things and it'll show you how long would it have taken you to retire if you had that as your allocation.

How long would it—what sort of volatility would you have? It's just fun to go on there and play around. If you are one of those people who are interested in this sort of stuff, learning about this and then he's got a little blog on there where he posted some different—like here's a potential allocation that's really interesting to look at or here's this new calculator.

It's worth—he had a post a month or two ago called the Golden Butterfly which is kind of a tweak on the permanent portfolio that he made that was just fascinating to me looking at this asset allocation for this portfolio that I would have never considered. So if you are into that sort of stuff, it's a fun site to check out, portfoliocharts.com.

Cool. I'll try to link to it in the show notes. Any other resources or ideas that you think would be useful for people trying to solve through this problem? Yeah. Yeah. So let's see. The kind of circling back to—we kind of got a little off topic but going back to inflation, there's a cool site called westegg.com/inflation that has all the inflation data from the year 1800 up through last year, 2014.

You can put in a dollar amount and starting and ending year and it will tell you how much that amount would have been worth. So if you're like, "Well, my grandfather said his house was $5,000 in 1925. How much is that today?" Or "I have this much today. What would that have been equivalent to back 30 years ago?" You know, "Oh, my salary this year." So it's fun to play around with a cool inflation tool to just see how it actually played out historically.

I think thinking about early retirees and inflation, it's important to go on and play with retirement calculators and look at what does inflation—change some of those inflation assumption rates and see what that does to your portfolio. And then also make sure you use ones that are not just like have you put in a fixed number guess but do a Monte Carlo sim that will show a whole range of scenarios.

And then also use a tool like C-FIRESIM, the letter C and then F-I-R-E-S-I-M.com, which uses historical inflation when it's in historical interest rates—or not interest, like market returns—to calculate how your portfolio would have done historically. So using actual real-world data, there's no easy answer, but it's important to get a feel for what might it look like and playing around with those different scenarios and getting comfortable with the idea and then coming up with different plans to help think about it.

One thing you said earlier when you mentioned your thoughts on gold is you said that you would rather have those productive assets, those businesses making money. And that's one of the best inflation hedges in my mind is if you are investing in equities, if you have an index fund, I think a lot of retirees worry about a market crash, and so they don't want to put too much in stocks.

And so they have a high cash allocation and they have a lot of fixed-rate bonds. And the problem is that inflation just destroys that. And you can recover from a market crash. You can kind of wait it out and the stocks will recover, but you're probably not going to get buying power back.

We're probably not going to have deflation for decades that's going to re-get you your buying power back. So I think it's important for an early retiree to look at that. And owning equities, having a high enough stock percentage, because when prices are going up, if food is going up, if gas is going up, if clothes are going up, but you own the companies that are selling that food and selling that gas and selling those clothes, you're getting more profits.

And that's why it may be scary to go, oh, no, the stock market's tanked. As inflation happens in the stock markets, I need to sell. But keep in mind that those companies are still generating profits. They're selling those items that are now at an increased cost. And you as the owner of that company are earning those profits.

And even if the stock market drops, it eventually will correct. Mad Fientist: I had a friend of mine who primarily earned their income from a portfolio of oil wells that a family member had put together. And I just remember when gas was up at $4 a gallon here in the States, I remember kind of just thinking about it.

I was bemoaning it. And the person said to me, "Hey, it's great for me. I'm getting bigger checks than I've ever gotten in my life." And so, it's kind of a cool way to balance it. If you own some oil wells or some oil stocks or whatever way that you're investing in the oil market, if gas prices are low, you're not making a lot of money, but you can enjoy the low cost of traveling in your car.

If gas prices are high, you can hurt a little bit when you fill up your tank, but you can sit back and enjoy the nice big fat checks coming into your bank account. It's a good place to be. Absolutely. And I think there are specific strategies I've heard of where people will buy stock in their local electric company and buy stock in their local natural gas company.

And the utility companies that they pay money to every month, well, if those utility costs rise, theoretically, so should the price of those stocks or at least the dividends and the amount of profit that those companies are making, the revenues. And so, that's definitely another kind of fun mental hedge too for inflation is like, "Oh, my electricity went up per kilowatt, but hey, I'm at least paying some of it to myself." Right.

Right. Yeah, I agree. I guess, I think it's been a good conversation. Sorry, before I wrap up, anything else, Joe? No, I think we covered quite a bit. It's definitely an interesting topic. I think there's a lot of resources online. The financial mentor, Todd Treseder, that I mentioned earlier, he's written a fair amount about inflation for retirees.

So Google "financial mentor inflation" and that'll give you some more articles to read if you're interested in the topic because it's a fascinating one for me just thinking about how money works and how the value of it just really changes over time. The challenge of these types of conversations, and I think it's been a good conversation, a good introduction, but the challenge that has emerged is the question of speaking in broad generalities versus specific application.

And this is always the problem. And so, what we've done is many people talk about inflation from the perspective of the large scale economy in general. And that's what the CPI is measuring. Well, you can home in a little bit more to the inflation in your town or in your state or in your industry or things like that.

When you start to dig into financial strategies, you can go with financial strategies for the mainstream than financial strategies for the early retirees. But the true power is going to be to hone in on your situation. And so, that's what's emerged even in the conversation. You can hear Joe's perspective and my perspective of our situation.

And frankly, Joe, it's very difficult for me to bring together the concept that is prominent in early retiree scenarios, the idea that, well, we're going to retire at 30 on a portfolio of passive index funds because I can't find, with the exception of Doug Nordman, I can't find anybody who's actually followed through and retired at 30 and done it for 40 or 50, excuse me, and lived for 70 years on their portfolio, maybe Doug Nordman and Joe Dominguez.

That's about it. And I'm sure there are a couple out there, but I think it's a little unrealistic to say that this is going to be the approach. Rather, that's why I bring in things like business. That's why I bring in these other things and say, "This is a much more expansive, inclusive opportunity." And this is what people are actually doing, is they're actually, at some point in time, you're still going to be buying and selling real estate.

Some point in time, you're going to find some little thing that you care about, whether it's running a canoe outfit or operation in Chiang Mai, Thailand or something, and you're going to be back in business. And then you're going to be filtering that in, and then you're going to sell that business because you get a good deal on it.

This is the way that the world works. It's not this approach to passive portfolio perfection. Yeah. I agree that you may make more money doing those sort of passions, but not necessarily doing it for the money. So your main base may still just be the passive portfolio and you're doing the hobby income for fun.

But yeah, yeah. I agree that there's very few. I think the problem is it's a selection bias, a sample bias, in that most of the people who do get there to that early retirement are because they are interested in that and become interested. And so if someone's not interested in their money, it's rare, or not interested in investing, it's a lot more difficult for them to achieve that.

And I wouldn't even necessarily count Nords in there because he's got the military pension. Yeah, I think Paul and Vicky Terhorst, I think there's some out there. And I think there's more than we know about that don't necessarily blog because they're not interested in talking about financial topics because they're not that interested in it.

But I definitely have seen people post questions like, is there anybody out there who actually built up a big passive portfolio, takes 4% a year, and there are people that are like, yeah, yeah, I do that. And then there are other ones who get into angel fund investing and who do all kinds of other stuff.

And so it's definitely-- there's a range. But you're right in that most of us seem to be more active and interested in our investments. And I think that's a great thing. Yeah. What you focus on, that's where your energy goes. And when you focus on your money, then it can start to grow.

So Joe, thanks for coming on. Is there anywhere-- are you blogging or posting anywhere about your trip? People can check out even just any personal stuff that you're sharing? Not yet. We've talked about starting a blog. My wife has actually written about a dozen blog posts for it. But my computer died a couple weeks ago.

And it's a MacBook. And I have AppleCare. But apparently, there is no Apple stores in Split, Croatia. That-- AppleCare is not helpful when there's no Apple store. So we did just-- we got to Zagreb a couple days ago and dropped it off at the store. And it's getting diagnosed.

So one of my-- people keep asking us about a blog, family members and friends who want to keep up with our travels. And we'll probably eventually start something. So maybe next time we chat, I'll be able to answer that better. Well, at least just do Instagram or something. I'd enjoy seeing pictures of the trip.

And super simple. Instagram would be a simple way to share something. That's a good idea. I don't have one of those yet. But I will think about that. That's a good idea. Yeah. We'll talk more offline. But Instagram is the way to go. So. Yeah. We'll see you on the show.

And we'll-- maybe another year, we'll be back in who knows what corner of the world you'll be in at that point. Cool. Thank you so much, Joshua. As you build wealth, develop wealth and work on your plan, you must take responsibility to control the risks of your plan. Every financial plan has risks.

Every stage of life has different risks. When you are an employee, inflation poses a certain risk. But it's not nearly so difficult to manage inflation as an employee or business owner as it is if you are living on your nest egg. None of us know what the future holds.

But you had better have a plan for your money. So I hope the conversation today has perhaps given you some ideas. I'm sure we didn't provide any real answers or specific advice. But hopefully at least it gave you the encouragement and motivation to go back and consider your plan and make sure that you have plans to handle the risks that face you and your money.

Remember step four of the radical personal finance framework for wealth is avoid catastrophe. And that means from time to time, you need to put on-- take off the rose tinted glasses and put on the dark and gloomy Eeyore glasses. Look at your situation and ask yourself, what are all the bad things that could happen from the mild to the wild?

Ask yourself the question, what would you do? Now what's going to happen? I don't know. Neither does anybody else. We all have ideas about it. So my personal approach is just simply to recognize that I don't know and do my best to plan for all eventualities and give myself as many options as possible.

Can't always do that perfectly. But a lot of times you can do it. And I encourage you to stress test yourself. Ask yourself what you would do when facing inflation, mass inflation, hyperinflation. Ask yourself what you would do and how would that affect your wealth. Thank you for listening to today's show.

If this content has been valuable to you and you would like to support me directly in the work that I do to provide you great value as consistently and as regularly as I'm able to, please go to radicalpersonalfinance.com/patron. That is a direct crowdfunding site where you can sign up to directly support the show.

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