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What if inflation is here to stay?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 438.2 million views in recent years.

In the answers below I focused on the following topics and issues:

  • What if inflation is here to stay?
  • How do I choose stocks like Warren Buffett in 2022?
  • What are some good countries to move to from the USA?

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Source for all answers – Adam Fayed’s Quora page.

What if inflation is here to stay?

Well, of course inflation is here to stay!

With the exception of Japan, every single country in the world has had inflation for nearly every year for over a hundred years, save a few deflationary years.

I suspect your question is more “what if high inflation is here to stay”.

Well, if that happens

  1. More people will go into poverty unless pay keeps up.
  2. The first point will cause more political instability. We are already seeing that in Sri Lanka, as will currency crisis in many countries.
  3. Governments will try to increases taxes, especially on “the wealthy”, who could become the easy targets of populist backlash. That could, in turn, ensure that more get second residency in lower tax jurisdictions.
  4. Cash in the bank could become worthless versus investing the money, unless interest rates go up A LOT.

At least, all the things above are likely if high inflation persists.

I don’t see excessively high inflation of 9%+ lasting though.

The reasons are

  1. Real pay isn’t rising
  2. Oil, wheat and many other commodities are coming down now
  3. Even a shallow recession could further decrease prices
  4. A lot of the inflationary pressures are one-off shocks, such as the Covid-19 lockdowns and the Ukraine war, unless we get more unexpected shocks.
  5. Technology is a huge deflationary force. As we have more automation, that could further decrease the price of some items.

That doesn’t mean it will go down straight away. As producer price inflation is higher than consumer price inflation, as per the chart below, some of those costs will be passed along.

main qimg ed1c17dedd401a72dc70dccbd86ba36e lq

It is hard to keep inflation down to 10%, if your costs as a business are going up by much more.

So, the worst might be yet to come, but I don’t think we are in a 1970s style situation.

To the contrary, it isn’t out of the question that central banks will need to do a big u-turn and decrease interest rates again within a year, if inflation comes down rapidly, and the economy slows a lot.

How do I choose stocks like Warren Buffett in 2022?

Berkshire Hathaway doesn’t buy individual stocks in a “stock picking” way these days.

They are more focused on buying entire businesses. That is a strategy that individual investors can’t replicate unless they are super wealthy.

What makes more sense is to follow his advice tailored to the average investor.

Firstly, they are buying quite a lot of assets these days.

Buffett’s advice has always been that very few people can time the best time to enter the stock market.

Therefore, the average person should buy in every month, or at least periodically, but especially be aggressive when the market is down like now.

Be fearful when others are greedy, and vice versa. That is the most sensible advice that is hardest to follow for most people.

Most people get greedy when others are greedy and fearful when others are fearful.

Look at the recent past. Very few average DIY investors wanted to buy stocks after Covid-19 started in 2020.

During the worst panic, stocks were down 10% a day.

main qimg a57148a4f2cd2187b00048bc0ca8dfc8 lq

The market fell 50% before the recovery started. Few wanted to get in at the bottom for fear of the market falling further.

Then barely three or four months later, when the market was recovering well, people got in.

The fear started again this year, even if it was less extreme than in 2008 or 2020. Once again, right now, quite a few people want to get back in now a recovery appears to have started.

Ultimately, nobody can find the perfect time to invest. It is better to invest periodically, but be happy and grateful when stocks fall a lot – assuming you have fresh money from a salary or business income to put in.

So, it is more sensible not to try to ape Buffett’s technical skills but his temperament:

main qimg 91bd1db1f406bebdcaf74553b5afce20 lq

A no-nothing investor with balls of steal will easily beat a professional investor who lets their emotions control them.

Consider this. The best do-it-yourself investors are dead! Yes, that is right. Surveys have shown that the accounts of dead people outperform the living (including those in finance) due to the lack of emotional impulses.

I have seen it on countless occasions. I know some people who know hardly anything about investing do well because they keep it simple and control their emotions by themselves or with the help of an advisor.

Just investing today in a long-term, sensible and periodic fashion, will beat over-analyzing and trying to “wait and see”.

What are some good countries to move to from the USA?

For retirees, the following places rank highly in expat surveys:

Portugal

main qimg a1dbb5a4e19a2d0cba0b80479aab6a04 pjlq

Panama

main qimg 28d4b20e38280cc0d0d81c86e63a2640 lq

Costa Rica and other places near the US such as Mexico:

main qimg 61717d1d3d5183215b2eaaa355bb3e68 pjlq

Spain:

main qimg 3c028fb2e61a03d3ab5349e580ad8320 lq

For working age expats, it is wherever the package, adjusted for cost of living and taxes, is best.

That is usually in “hardship” locations in some industries like Oil & gas, international government and NGOs.

If you want to save on cost of living and taxes, you need to focus on countries with good double taxation treaties, or renounce your US citizenship and obtain another one.

The foreign earned income exclusion is now $108,700 a year, and sometimes more if you incur housing costs. Best to get proper tax advice on that though, as it is always changing.

The key thing for people of any nationality is to work out why they are going abroad (lifestyle, financial or any other reason) and then work out the best countries from there.

Pained by financial indecision? Want to invest with Adam?

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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.

This website is not designed for American resident readers, or for people from any country where buying investments or distributing such information is illegal. This website is not a solicitation to invest, nor tax, legal, financial or investment advice. We only deal with investors who are expats or high-net-worth/self-certified  individuals, on a non-solicitation basis. Not for the retail market.

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