As we near a potential deal regarding the federal debt ceiling, some Americans are breathing a sigh of relief. The chances of our nation defaulting on its debts have been lowered, at least for now. But inflation continues to impact our wallets, and we’re faced with an important question: Even if the debt ceiling is suspended, what will our economy look like when that ceiling returns in two years? Or 20 years? What sort of economy will our children and grandchildren be inheriting, and what does that mean for the financial legacy we hope to leave behind?
We may have to work harder than ever to provide a better future for our families.
As CNN noted on May 30, 2023, “The debt ceiling deal in Washington did not set off a celebration in the stock market.” While it may be good news for our economy as a whole, still other factors may be affecting economic growth.
Inflation is one such factor. According to a May 30, 2023, article by The New York Times, while some prices—like those for oil and food—have decreased, “Some of the world’s biggest companies have said they do not plan to change course and will continue increasing prices or keep them at elevated levels for the foreseeable future.” The article continues by noting that this strategy by companies “could keep inflation robust, contributing to the very pressures used to justify surging prices.” America is not alone in this struggle against increasing prices. Another May 30, 2023, article by CNN notes that “Britain is getting so desperate to tame inflation, it’s talking about food price caps.”
These reports of still-hot inflation mean one thing to me, both as someone who likes to keep an eye on economic news and as a parent: We’re likely going to have to work extra to help our wealth do nearly as much for our children and grandchildren as it has done for us.
As prices rise, the dollar falls—and it’s unlikely to return to its current level.
When it comes to our economy, inflation is a part of life. Our economy grow, and with it our dollars go less far as prices increase. According to the U.S. Bureau of Labor Statistics, the purchasing power of the U.S. dollar “declined about 7.4 percent between 2021 and 2022 because of inflation. Or stated another way, a dollar in 2022 could only buy 92.6 percent of what it could buy, on average, in 2021.” Since the creation of the Federal Reserve in 1913, the dollar has lost nearly 97% of its buying power. But the speed of this change is just as important as the change itself.
When inflation is running at a low rate—the Federal Reserve’s goal rate of two percent, for example—it may be easier to stay ahead of inflation’s negative effects, depending on economic performance and your unique asset mix. But with high inflation—say, the 9% rate of inflation Britain is experiencing right now, according to CNN—you would need to realize overall gains greater than 9% just to maintain your spending power. For reference, Investopedia says that the average annualized return of the S&P 500 between 1957 and the end of 2022 was just 10.15%.
Once again, we’re faced with a conundrum: If our hard-earned dollars are going to continue losing their purchasing power, what can we do to help preserve our wealth for future generations?
Physical gold is a time-tested form of private generational wealth.
Here’s a sobering statistic: According to the U.S. Bureau of Labor Statistics CPI Inflation Calculator, the same goods and services that would have cost you $5,000 in 1963 would cost you nearly $50,000 today. But in that same time frame, $5,000 worth of physical gold would have seen its price increase to $284,000.
For generations, gold has been seen as a store of wealth—in other words, a place to put a portion of your hard-earned dollars to help them retain their purchasing power. This is why gold is said to be a hedge against inflation and similar market factors. It’s also one of many reasons gold continues to be used to maximize financial legacies. With physical gold, you have a physical, discreet way to pass down your wealth.
Every day, I work hard to make sure that I can provide a better future for myself and my loved ones—and I want to continue providing that help long after I’m gone. In that vein, taking a position in gold is, to me, not that different from buying a life insurance policy. I know what to expect in the long term—in this case, continued inflation and a falling dollar—and by taking action now, I can help protect my family in the future.
Though we may have avoided a major economic catastrophe resulting from a national default, I still believe we owe it to ourselves and our loved ones to remain vigilant against other market factors that could negatively impact our portfolios. When I want to add further protection to my portfolio in the form of a hard, tangible asset I can pass down to future generations, the first place I turn to is physical gold.