I’ve got bad news…
Inflation is getting worse.
CNBC reports that prices for everyday goods and services spiked 5.3% last month—the fastest rise in 13 years.
You’ve probably noticed it at the gas pump… where the price of gasoline has jumped 56.2% in the last year. But severe inflation is taking hold everywhere…
According to The Washington Post, the price of washers and dryers have gone up 27% in the last year. Used car prices are up 30%. Furniture is up 9%.
Even the price of clothing—which tends to get cheaper over time—has spiked 6%.
From talking with RiskHedge readers, I know inflation is a big concern. So today, we’re doing something a bit different…
Last week, I hosted our RiskHedge Reserve Quarterly Call with our senior analysts Stephen McBride, Justin Spittler, and Chris Wood.
This live meeting is exclusive to members of our lifetime club, RiskHedge Reserve. In it, we take questions from members, share our top investing ideas, and discuss today’s biggest topics.
The #1 question we got was: How should I shift my investments to beat inflation?
So in this issue, I’m giving you a peek behind the curtain. We’ll look at how each of our analysts responded to this question during the meeting.
As you’ll see, it’s one thing if you want to preserve your wealth during these times. It’s another if you want to grow your wealth while inflation ramps up.
Stephen McBride: Goldman Sachs did a study recently… and the results are very telling.
It found that US stocks have outperformed inflation 100% of the time over any 19-year window.
100% of the time!
In comparison, gold—which many consider a top inflation hedge—only outperformed inflation 50% of the time during the same time periods.
The data is clear: if you want to beat inflation, own US stocks.
Specifically, you want to own shares in world-class, “undisruptible” businesses. Even better if they pay a steady dividend.
Take Visa (V) and MasterCard (MA), for example. Both are strong buys in our Disruption Investor portfolio.
These are two of the most consistently impressive businesses I’ve ever analyzed. They absolutely dominate the payments market and will continue to for a long time.
People trust these companies to move their money around. Their stocks provide reliable income. And they’re two of the safest bets to beat inflation over the long haul.
And here’s something else I really want readers to understand about inflation. There’s a good side and a bad side.
Inflation is bad for everyday folks. It’s the “silent killer” that eats away at the value of our hard-earned savings.
The US government’s own calculations show a dollar is worth 16% less than it was 10 years ago and nearly 90% less than it was 50 years ago.
On the other hand, inflation is great for many businesses. That’s because they’re able to pass on higher costs to customers, which can boost profits… and their stock price.
These days owning stocks of a successful business isn’t a “nice to have.” It’s a must if you want to beat inflation.
Chris Wood: I think having some gold to protect yourself from inflation makes sense. But to really beat inflation, you need to make big gains.
You have to achieve returns that grow faster than the rate of inflation.
That’s why my strategy in Project 5X is to go after disruptive microcap stocks that can 5X your money or more.
Because of their small size, microcaps are able to grow in ways that are simply impossible for large companies.
They’ve historically produced some of the biggest gains in the stock market for one simple reason. Microcaps allow you to get in close to the “ground floor” before the most explosive growth occurs.
In 2019, for example, the ten best-performing stocks in the US were ALL microcaps. And over the past year, the iShares Micro-Cap ETF (IWC), which measures the performance of microcaps, has outperformed the S&P 500 by 58% to 34%.
In short, gold and large stocks will help you keep up with inflation. Microcaps used correctly will help you beat it.
And here’s the best part: it doesn’t cost a fortune to do so.
With microcaps, you can risk a little to make a LOT.
Of course, microcaps are extremely volatile. So proper risk management is key.
In general, microcaps shouldn’t make up a large portion of your overall portfolio. Treat them as a small—but absolutely necessary—chunk of your portfolio.
Justin Spittler: Inflation is an obvious risk because we see it every day. People see their grocery bills and restaurant tabs rising… and they’re paying more to fill up their gas tanks.
But it pays to step back and think about what’s causing these rising prices.
Some of it’s attributed to the bottlenecks that came about during COVID-19 shutdowns. But the bulk of the inflation is coming from the Federal Reserve’s loose money printing policies.
The Fed has printed money nonstop since the 2008 financial crisis. Conventional wisdom says you should buy gold to protect your savings. Why? Because gold is the oldest form of money. And the Fed can’t print it.
However, since 2008, gold has vastly underperformed stocks (113% vs. 197%).
And even during COVID—when the Fed ramped up money printing and stimulus packages—gold hasn’t kept up with stocks. Since stocks bottomed after the COVID crash back in March 2020, the S&P 500 has outperformed gold by 4.5X.
Investors should be seeking out higher returns to compensate for the higher prices that they’re seeing. And the best way to preserve and grow your wealth in this environment is to buy high-quality, fast-growing stocks.
That will continue to be the playbook in Disruption Trader and IPO Insider. Of course, the markets could change. Commodities, which benefit from inflation, could start outperforming stocks. If that happens, we’ll make adjustments.
But for now, I continue to love fast-growing stocks—software stocks in particular.
Executive Editor, RiskHedge