How Concerned Should You Be About Inflation? – Podcast Episode 290

On this episode of the Dentist Money™ Show, Ryan and Matt take a hard look at inflation. They define it; do a poll to find out what people are saying; and offer four practical tips on what to do to counter its risk. In the Pandora’s Box of economic worries, Ryan and Matt explain why inflation, like recession, is something you can work your way through when you understand how to do the right things.

 

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Podcast Transcript

Ryan Isaac:
Hey, Dentist Money Show listeners. What is happening? Thanks for tuning in to another episode. Today on the show, Matt and I talked about the big dirty word, inflation. It’s a little bit of a longer episode, but man, there was a lot to cover. We really wanted to include feedback and perspective from people that have sent us questions and comments and from all different vantage points and different parts of life that people react to and how they feel about inflation. More importantly than this, we want to give everyone a sense of control of what you can actually do about this stuff. You hear about, “What can I do about inflation? How do I outpace inflation? How do I hedge against inflation? How do I make my dollars last longer in the future?”

Ryan Isaac:
We give some practical tips to wrap up the show that are things that dentists actually have control over. So, thanks for tuning in. We love the support and we really appreciate it honestly. I really mean that. It means a lot to us. So, thank you for being here and listening to us. If you have any questions for us, go to the Dentist Advisors Discussion Group on Facebook. Post a question and we’ll post the answer or go to dentistsadvisors.com and click on the Book Free Consultation link. Let’s have a chat today with you. But anyway, thanks for being here, everyone, and enjoy the show.

Announcer:
Consult an advisor and conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a registered investment advisor. This is Dentist Money. Now, here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to The Dentist Money Show, where we help dentists make smart financial decisions and avoid the bad ones along the way. I am a guy named Ryan Isaac, human if you will. Here with another human, one of my favorites, the Hollywood mountain himself, Mr. Matt Mulcock.

Matt Mulcock:
Hello, Ryan.

Ryan Isaac:
What’s up, buddy? How are you doing?

Matt Mulcock:
Good. How are you, man?

Ryan Isaac:
Nice to have you back.

Matt Mulcock:
Yeah, it’s good to be back.

Ryan Isaac:
Summer’s busy, man.

Matt Mulcock:
Trying to be back into many things.

Ryan Isaac:
Yeah, busy times. We’re jumping straight into this one today, because I feel like there’s so much to talk about and I doubt this is going to be a short episode, but it is a question, a fear, a worry. It’s a constant in financial discussions, investment discussions. It’s really hot right now. If you’re listening down the road, we’re recording this in end of June 2021.

Matt Mulcock:
Near the end of June.

Ryan Isaac:
Just wild. I can’t believe we’re six months into 2021.

Matt Mulcock:
I know.

Ryan Isaac:
It’s so crazy. So, we’re talking about inflation today. Specifically, we’re going to start with we’re just going to acknowledge, I guess, people’s thoughts, worries, questions on inflation, the things we hear from dentists. We ran a little poll in the Facebook group. That’s Dentist Advisors Discussion Group on Facebook if you want to go there. Join us by the way if you’re not in that group. You should be in there. You should be our friend in that group.

Matt Mulcock:
You should be in there and our friend, because we are friendly guys.

Ryan Isaac:
At least in there. You don’t have to be our friend, but we would prefer that too.

Matt Mulcock:
You don’t have to be my Facebook friend, but you do have to be my friend in the group.

Ryan Isaac:
Be friendly in the group. We got Dentist Advisors Discussion Group. We put in polls, questions in there. It’s really a good way to get audience feedback for this stuff. Also, people post questions and we post the answers. Anyway, did a poll in there. We asked some different people of different ages and phases of life what they feel.

Ryan Isaac:
Part one, we’re going to define what inflation is really, what it really is. I feel like it’s a phrase that should be simple, but it’s actually pretty complex. It gets thrown out in discussions a lot without context and maybe without a lot of understanding what it is. So, part one, what is inflation? Part two, what are people saying about it? What are their questions? What’s the feeling that we get? And then part three, what can you do about it? That’s what we’re going to do today.

Matt Mulcock:
I love that format.

Ryan Isaac:
Yeah, it’s great format.

Matt Mulcock:
This is going to be a great format. Let’s do this.

Ryan Isaac:
Buckle up, pack a lunch, here we go. Matt, you’re going to kick us off, I guess. How do you want to educate us on what inflation means? What does this actually mean for us?

Matt Mulcock:
Yeah. So, I think if you just walked up to someone on the street and you said, “What’s inflation?”, I think most people would give you some answer around-

Ryan Isaac:
It’s intuitive.

Matt Mulcock:
Yeah, it’s intuitive, like prices rising, right? I think that’s probably the intuitive, just common sense. Again, walk up to someone on the street. They’d probably say something along those lines. That’s not incorrect, by the way. That’s not necessarily incorrect.

Ryan Isaac:
Yeah, that’s true. Right.

Matt Mulcock:
The true definition is the flip side of that, which is more a decrease in purchasing power of a given currency over time, right? So again, it’s the same way of saying prices are going up. You have $10 to buy something. That $10 bought you a lot more back in 1994 than it does today.

Ryan Isaac:
Hey, speaking of that, I was thinking about this thing. One of my favorite things that I love buying as a teenager around 1994 was the Wendy’s Jr. Bacon Cheeseburger.

Matt Mulcock:
Of course.

Ryan Isaac:
Absolute classic.

Matt Mulcock:
The go-to.

Ryan Isaac:
Yeah, the Jr. Bacon Cheeseburger, JBC.

Matt Mulcock:
How much was it in 1994, the JBC?

Ryan Isaac:
99₵.

Matt Mulcock:
99₵, right?

Ryan Isaac:
Yes. I usually had enough for two of those, all cash, of course, coins mostly. Yeah, the 14- and 15-year-old me-

Matt Mulcock:
You’re the guy that goes to the counter and you spread your pennies and stuff on the counter.

Ryan Isaac:
Honestly, man, it was a good day to get a JBC. I’m not going to lie. Actually, in the early days of Dentists Advisors with Reese and I, when we were broke and young and brand new business in the middle of 2008 downturn, I would be excited when I’d have enough change in my car for a few JBC’s in the middle of the week.

Matt Mulcock:
Of course.

Ryan Isaac:
So, it lasted a while.

Matt Mulcock:
Classic JBC.

Ryan Isaac:
JBC is 99₵. JBC is now $1.99.

Matt Mulcock:
Boom.

Ryan Isaac:
I haven’t had one in a while. I did the math on that over 15+ years. That is about almost around a 3% inflation rate actually.

Matt Mulcock:
So, you actually calculated the-

Ryan Isaac:
I did.

Matt Mulcock:
… inflation rate of a JBC.

Ryan Isaac:
I had to, because I was trying to think, “What did I used to buy that I really loved that got more expensive over time?” The JBC’s, they went up. So, anyway, back to your stats then.

Matt Mulcock:
No. So, that’s the perfect example. Again, the average humans like we are, you just say the price of a JBC went up, but again, what an economist would say is your purchasing power actually went down.

Ryan Isaac:
My dollar.

Matt Mulcock:
Your dollar lost value in aggregate to that item, whatever that item is. So, I don’t know how detailed you want to get into this. I don’t want to muddy the waters too much.

Ryan Isaac:
If I start getting confused, I’ll just stop you, which might be really fast.

Matt Mulcock:
I’ll just go fast. I want to give people just the basics. This is really like a 101 of inflation. So, again, we talked about the decline in purchasing power of that given currency. Basically, you’re getting less for the same amount of money as you did in the past. What you’re going to see and probably you’ve seen or heard this term, Consumer Price Index, CPI, it’s the most commonly used index to measure inflation. It’s basically a measurement or an average of a basket of goods. Ryan and I, we’re just talking about this before we started recording of what’s included.

Ryan Isaac:
What does that mean?

Matt Mulcock:
Basically, think of it as an average of all services and goods to evaluate your cost of living. So, think of housing, think of food. Even when I was looking at this, it was random items like tobacco and going to a museum and funerals. So, pretty much anything you can think of for cost of living is factored into this CPI, this Consumer Price Index. So, they take this every single month. It comes out from the Bureau of Labor Statistics. There it is, Bureau of Labor Statistics.

Ryan Isaac:
The old bureau.

Matt Mulcock:
The old bureau.

Ryan Isaac:
You know it.

Matt Mulcock:
So, every single month, they released this data and we just got it back. I was just looking at this to give us some numbers here. To acknowledge that this is a real concern, we want to acknowledge that people are fearful for a good reason, right? So, if you look back at the average… This is also that, by the way, usinflationcalculator.com. You can go look at this. In 2020, for that 12-month period of 2020, the CPI average was 1.4% for that 12-month period. The most recent reading they just came out with in mid-June was 5%. So, it’s real.

Ryan Isaac:
Historically, over 100 years, on average, it’s around 3%.

Matt Mulcock:
Yes, I think 2.5 to 3% in that range. So, we are definitely at a point, if you’re factoring in the CPI and everything and this basket of goods, basically, the cost of living, we are up significantly over the line. You can see March, it was 2.6; April, 4.2. May was 5. So, it is increasing. I think the question people have right now and if you really dig deep into these articles and things that are coming out, the question remains right now is, “Is it here to stay or is it just temporary because of a lot of factors?” One of them being COVID?

Ryan Isaac:
Yeah, okay. I thought that was a perfect definition. That was not too much. It wasn’t too little. It was perfect, man.

Matt Mulcock:
The Goldilocks of explanation.

Ryan Isaac:
The Goldilocks of inflation definitions.

Matt Mulcock:
It’s so important to talk about when it comes to inflation, the vantage point in which you sit, right? So, for example, even when we talk about CPI, that’s only the vantage point of consumers, right? There’s other indexes you can track. So, I’m looking at it right now like the PPI, the Producer Price Index, measures the inflation in the production process, right? You can track the Employment Cost Index.

Matt Mulcock:
So, depending on the vantage point you’re at, some of these indexes, one might be favorable for wherever you’re sitting, where if you’re sitting somewhere else, it might be a disadvantage. You mentioned one that I want to hit on really quick, because it’s a hot topic being real estate. Right now, I have people that I know in my life that are first time homebuyers or they’re trying to be a first time homebuyer trying.

Ryan Isaac:
Trying, yeah.

Matt Mulcock:
Right, whereas I own my home. Well, the very thing that is impacting inflation of homes right now. It’s out of control all over the country. It’s an advantage to me, because I own the home. I own that asset. It’s a disadvantage to people like my brother-in-law who does not own a home yet or a good friend of mine who does not own a home yet.

Ryan Isaac:
Trying to buy it.

Matt Mulcock:
It’s painful to him where I’m sitting here saying, “I bought my home three years ago.” I’m looking at prices now and I’m like, “Holy cow, I have built so much equity in my home.” So, vantage point is really, really important when it comes to this topic.

Ryan Isaac:
I love that and let’s name some vantage points. One would be age, right? If you’re 20 or 30, maybe even 40 like me, maybe it doesn’t weigh on you as heavily, because you think in terms of, “I have a lot longer. I plan on working. Universe, God willing, I plan on working for 30 more years.” I mean a home, I want to say that I own but the bank does, but I’m already here, right?

Matt Mulcock:
It’s semantics.

Ryan Isaac:
So, I bought it with their help.

Matt Mulcock:
Yeah, you live in it, you’re renting it from the bank.

Ryan Isaac:
Yeah, as of right now, this could change in a heartbeat, but me and my family aren’t heavily dependent on any medical care, medications, medical procedures as of right now, as we’re recording. It can change five minutes from now, who knows? But those are vantage point, age, home ownership, health status. Some of these things are not things we have control over either. You can’t just be like, “Well, inflations or markets or economies aren’t great. I’m just going to hop in the time machine and go back to when I was 40.”

Matt Mulcock:
Exactly.

Ryan Isaac:
Health conditions are out of our control sometimes. Yeah, I think any more come to mind for you, I think, vantage points are huge man. Age, health status, home ownership, business ownership.

Matt Mulcock:
Yeah, I was going to say whether you-

Ryan Isaac:
Are you an employee? Yeah.

Matt Mulcock:
… own a practice or you’re an associate in the practice. I think age is a big one, right, because we’ve talked about this. I talked to my dad who’s been in real estate his whole life. I remember talking to him about he lived through the ’70s and ’80s. He was working in real estate. He remembers when interest rates on mortgages were high teens and even 20% back in the ’70s and ’80s. So, he’s going to have a different perspective when inflation comes to mind.

Matt Mulcock:
Someone like my dad or the older generations are going to probably have a little bit more deer in the headlights like, “Holy cow, I don’t want to go back to that period.” Where us and younger people are told it should be scary, because maybe the media is telling them that, but they don’t really viscerally feel it because they’ve never experienced it.

Ryan Isaac:
Let’s talk about these vantage points. Again, shout out to the Dentist Advisors Discussion Group on Facebook. If you’re not a part, go be a part of that, but I posted a question. I did this three or four days ago. I asked, “When you hear about inflation, what, if anything, comes to mind or worries you?” There were 15 answers here. I’m just going to roll through these because these are from dentists. I don’t know all these people. So, I’m just going to assume. I know some of them. Some are practice owners. There might be some associates or just W-2 employees in here. Men and women, young and older, and a lot of perspective here.

Ryan Isaac:
So, I’m just going to go down the list here. Number one was the worry about being contracted with PPOs and not having power or control as prices go up to contact your PPO and be like, “Hey, I need more money from you guys.”

Matt Mulcock:
Yeah, that’s legit. That’s a legit fear.

Ryan Isaac:
Being beholden to PPOs as a dentist owner. I was just going to say this really quickly. I’ll say it now. The ownership, that’s a vantage point, right? Owner or employee, that’s a vantage point difference. There’s pros and cons to that, though, too. If you’re just an employee and inflation starts affecting your employer, you’re just getting paid your production, right? You’re getting paid your production. So, maybe it doesn’t impact you as much, because at least, you just don’t have to deal with the rising costs of all kinds of things, supplies, marketing, overhead, people. But as an owner, as a business owner, you have more control over growth, if you choose to. You can choose to add chairs, locations, producers.

Matt Mulcock:
Continue to grow your business.

Ryan Isaac:
You can choose growth in some ways. Obviously, there’s some things that will impact the owners that are out of their control, but they have more control than an employee does, which is one main complaint of being an employee for some employees. I don’t have control over this business for my career. So, I’m just thinking it’s a double edged sword being an owner. You have to deal with the rising costs during inflation and insurance contracts, like this person says, but you do have more tools in your control for growth and revenue and income-

Matt Mulcock:
… than an employee does.

Ryan Isaac:
… than an employee does. I mean, that’s just the bare bones of it. Okay. Someone else said, “The stock market goes down. So, I’m worried about stocks.” Someone said, “Increased business and personal expenses. Will I eventually notice my profit shrink?” So big question. How to invest, whether real estate is overpriced. Basically, real estate’s overpriced. Our investors are heavily in real estate. I think that goes for probably all asset classes. Basically, how to invest, that was the question. Another person said, “How to save enough to live off what might be like double my expenses in the future? If I’m used to 20 grand right now, will it be 40 in the future?”

Matt Mulcock:
Yeah, purchasing power is decreasing. If I’m planning on 40 grand now a month, but in 20 years from now, that will be much less.

Ryan Isaac:
Yup. There’s a few jokes in here. Actually, I’ll skip the jokes. They might be good. We’ll skip them. Let’s see. Okay, just the country and government spending, our country’s debt, right? Not being able to pay our bills, not being able to pay for our debt is a big concern. I think this comment thread might have gone into a little bit of a different direction after that point, but anyway. So, not being able to pay for our debt, our government spending, that’s very, very valid. This reminds me of when we started Dentist Advisors in 2007 and after the crash and some expansive economic growth after that huge government spending, which the biggest at the time, same topic.

Matt Mulcock:
The biggest at the time until COVID came around and shattered that record.

Ryan Isaac:
Someone said, “I get excited. My debt becomes cheaper.”

Matt Mulcock:
Very true.

Ryan Isaac:
We’ve seen that happen because of government intervention. Some of it has to do with that. Typically, historically, I think inflation, I mean, it’ll affect interest rates directly, right? Inflation will go up and interest rates will go up. Right now, though, we’ve seen the opposite effect, but it’s more nuanced than that, right? There’s other factors, reasons why debt has been so cheap. Oh, I love this one. We always talk about our total term, right? How do you know when you have enough money to retire one day? Our measure has always been something we call total term. It’s about roughly 30 times what you need to spend in a year in net worth that you can use, money you can access.

Ryan Isaac:
Someone says, “I wonder if 30X is going to be enough anymore.” So, I liked that part of the discussion. Buying real estate, PPOs again, and last one, the effect of inflation will have on holding cash. Okay. I want to skip to one more thing really fast. I asked a couple people that were in their 60s about their thoughts on inflation. It’s really interesting, because asking someone in their 60s, like you were just talking about your dad, I’ve had conversations with my father as well about his retirement investments and inflation. It’s a conversation that comes up a lot. If you’re in your 60s or above, you lived through periods of time that you and I, Matt, have not lived through.

Matt Mulcock:
Exactly.

Ryan Isaac:
We have not invested through, we have not owned houses or businesses through, right? They’re thinking back to times when interest rates on houses were in the high teens, up to almost 20%, I think, in the ’80s. Inflation was topping at 14% in the ’70s and ’80s. So, these were periods of time when you got paid and your paycheck wasn’t going up 14% a year, right?

Matt Mulcock:
But the cost of living was. Yeah.

Ryan Isaac:
Yeah. So, these people were getting paid the same, but their gas money was not going as far and their grocery money was not going as far. All those things that you talked about in the CPI, the goods and services baskets, they weren’t stretching. So, someone who used to have $1,000 a month left over for emergencies or heaven forbid a vacation or a little bit of lifestyle, some fun.

Matt Mulcock:
I was going to say, even have some fun. Yeah.

Ryan Isaac:
Heaven forbid we have some fun with the money we work so hard for.

Matt Mulcock:
How dare you.

Ryan Isaac:
Yeah. All of a sudden, that $1,000 is now dwindling to $700 or $600 to $500, whatever. They lived through periods of time where they didn’t get paid more, but their lives started costing them more. I don’t know. This conversation reminds me of the spending conversation with high earning dentists. Sometimes when you have a really high income, you might not notice these things as much, especially if it’s a period of inflation or spike, that thing, where it doesn’t last for decades, right? It might be shorter period of time, maybe only a few years. Maybe you don’t notice it enough. But other people, it’s going to affect a ton if prices jumped that much. So, there’s the perspective.

Ryan Isaac:
What do you want to add on that? I mean, you talked about some people you know that are buying homes for the first time. Client questions, anything you want to add that clients are saying or clients are asking, you’re hearing from dentists?

Matt Mulcock:
Yeah, I think the biggest thing for me when people are bringing this up is A, we understand, it’s all over the media. I think the important thing to take away from this or the things that I think about, I think most people are getting their information about inflation being scary from the media. Is that pretty safe to say?

Ryan Isaac:
Yeah. Well, media nowadays, what is media to most of us? Social media.

Matt Mulcock:
Social media, right? Or they click the TV on or maybe their TV’s on at their office and whatever. They’re just seeing MSNBC. They’re seeing all these scary headlines come across, right? I think the important thing to consider here that I think about a lot with topics like this is number one, it is so much more complicated than the media gives it credit for, right?

Ryan Isaac:
What do you mean? Yeah.

Matt Mulcock:
Again, coming back to vantage points, the vantage point of the media. Their number one motivation is to get eyeballs on the screen, right?

Ryan Isaac:
It’s advertising, which is a funny thing, but it’s true.

Matt Mulcock:
Yeah, but you are their product. They’re trying to get more eyeballs on the screen. So, they’re going to do two things. A, they’re going to massively simplify the issue, because they’re not going to talk like a Harvard economist, because none of us, including us here, are not going to know what you’re talking about. So, they’re going to massively simplify the issue. And then number two, their headlines or whatever they’re talking about is going to be motivated by what’s going to make you watch or tune in or read their article or whatever.

Ryan Isaac:
Scary stuff, man.

Matt Mulcock:
Scare you.

Ryan Isaac:
That’s not for me.

Matt Mulcock:
This has been going on since the modern media was created, right? So why do I highlight that? The reason I’ll highlight that is because again, it is more complicated. That’s really important to understand that it’s more complicated than the media is giving you credit for. And then again, they’re never going to tell you something pragmatic or very prudent. They’re going to say, “This is the scariest thing ever since…” They’re going to use things like since 2008 or since runaway inflation since… They’re going to bring up those things to get you to watch.

Ryan Isaac:
Yeah. I mean, as a consumer of media and social media and news, I’m a junkie on that stuff. I got to really hold back. I totally tune in. I mean, you pull up a news page or whatever. I mean, if there’s crazy stories going on, you stick around. I always think like, “What if the news said, ‘Hey, there’s stuff going on, but honestly, if you just keep five or six good habits in your life for decades, you don’t really have to tune in. Maybe check back with us in a month or so’?”

Matt Mulcock:
Yeah, yeah, check back in later.

Ryan Isaac:
Wouldn’t be a good business for them.

Matt Mulcock:
They would be out of business.

Ryan Isaac:
Yeah. You and I were chatting about this, the conversation around how inflation will impact. In the conversation, we were mentioning this, vantage points and perspectives, but we were talking about how it arrives, right? In what areas does inflation get really ugly? When does it happen? So, we’re talking about the timing of it. How long does it last? So, duration. How bad does it get? Magnitude, right? In which areas of the economy…

Ryan Isaac:
Because it won’t be one of those things where you wake up one day and it’s a news bulletin, inflation started, like today’s the day inflation started across the board and everything is out of reach for people’s dollars anymore, because it doesn’t really happen like that. Some things will continue to get cheaper that we consume on a daily basis. My Junior Bacon Cheeseburger, no. My first plasma screen TV-

Matt Mulcock:
I was just going to say, a lot of areas of technology like TVs, they’ve actually had deflation. What I wanted to emphasize is it’s not to downplay the seriousness of possible issues that are happening in the economy, right?

Ryan Isaac:
Yeah, whether it’s inflation or a stock market crash or economy.

Matt Mulcock:
Yeah, or the amount of debt we’re taking on as a country and COVID. It’s not to downplay the things that are happening and not at all. We’ve had conversations with people recently that are like, “This is scary stuff.” I don’t downplay that. It is. There are some scary things depending on how they play out that could definitely be an issue. Again, not downplaying that, but I think to highlight and again, we’ll hit it in phase three.

Ryan Isaac:
Phase three.

Matt Mulcock:
That was my computer voice.

Ryan Isaac:
I like it. Yeah.

Matt Mulcock:
We’ll hit on it, but there’s only so much that you can do. Like you said, Ryan, this is no different. It’s like insert whatever topic you want to insert as to why the markets going to crash. The latest flavor of the month is inflation. But if you go back, if you’re really paying attention to headlines, last month, it was something else. The last year was COVID basically, insert COVID. So, there’s always something to make you think like you have control over these massive things when really you don’t. It always comes back to the foundational things you should be thinking about and nothing changes with inflation. We’re not going to change our viewpoint of what you can control and what you can’t control.

Matt Mulcock:
On The Dentist Money Show, we teach dentists how to make smart financial decisions.

Ryan Isaac:
You’re correct.

Matt Mulcock:
I mean, is that all it takes, Ryan, to make smart financial decisions, listening to our show?

Ryan Isaac:
Matt, it’s a good first step. But to put your financial future on the fast track, the next smart decision is to go to dentistadvisors.com. What you do there is you click on the Book Free Consultation button right in the middle of the home screen and then you schedule a time to talk with one of our very friendly, dental specific financial advisors today.

Ryan Isaac:
I like that, man. We acknowledge what it is. We’re not downplaying it, but we are also being realistic about what we control, which brings us to phase three, initiate phase three. We’re going to make this a thing. I like initiating phases. I feel like a rocket person, which is probably not what they’re actually called. They’re not even called rocket people.

Matt Mulcock:
No, I think the official term is rocket person.

Ryan Isaac:
Rocket person.

Matt Mulcock:
Yeah, the rocket person.

Ryan Isaac:
Which means there’s also rocket people. I love that. All right. I made a list of four things we have control over. We, I’m saying our audience, you guys listening, all of you-

Matt Mulcock:
Humans.

Ryan Isaac:
… dentists, humans who are dentists.

Matt Mulcock:
Dentists and humans.

Ryan Isaac:
Many of you whom own practices or willing to practice in the future. I made a list of four. I’m going to outline them really quick, Matt, in case you want to add one, and then we’ll just go back and run through a few of these and give some thoughts, okay?

Matt Mulcock:
Perfect.

Ryan Isaac:
But these are areas of thought that dentists actually have control over. This is an inflation podcast, but this stuff applies to anything that could be negative in the future and could occur at timing that’s hard to predict, magnitude, duration that’s hard to predict in ways that will affect us. It’s hard to predict, but it will happen, right? It’s just hard to know when and how and when not. So, number one thing that we have control over, you have control over is to run a good practice. That’s number one. Number two is to be a good investor. We’ll talk about what that means. Number three is not holding too much cash than you really need. That’s a real bad thing during inflation obviously.

Ryan Isaac:
And then number four is to build a high enough net worth, which is what someone mentioned in our Facebook comments. Is a 30 multiple of my spending going to be enough? So those are the four I came up with. Run a good business, be a good investor, don’t hold too much cash, and build a big enough net worth. So, let’s go to number one. Number one, run a good business. What do I mean by this? There are things you can control despite the fact that inflation will eat some of your profits, it will make you have to pay more money for your overhead, your staff, all the stuff you have to use as a dentist. You still have control over the way you’re running that business. If you’re running even 3% less of a profit margin, then you could be running.

Ryan Isaac:
Right now, now is the time to fix that, right? The reason you might be running a smaller margin than you should be could be dozens of things potentially, right? That’s where good coaches and good consultants come into play, why they have to be involved in your practice, and why as a business owner you should never stop thinking about improving your systems and your processes and going over your costs with people and making sure you’re paying enough for the right things. You get what you pay for sometimes, a lot of times in life and business, but not paying too much for other things that aren’t necessary, right?

Ryan Isaac:
So, this is marketing. This is what’s happening with your uninsured patients. This is what’s happening in your systems and processes of getting people back in to see you. This is the processes of getting people to accept your treatment plans. This is the way you treat and work with your team. I mean, this is so many things in a business you have control over that requires spending and it requires other people to come in and help you fix or maintain or build, but that is a piece of control that you have that can outpace any inflationary problems in the future or at least keep up with them, right? Because here’s one thing.

Ryan Isaac:
We didn’t even really say this, but this is the main thing that comes to my mind all the time when it comes to inflation whenever we hear about the predictions or guesses or the tactics or the worries or fears. The main principle to defeat inflation is you have to put your money into things that will grow more than inflation on average over time.

Matt Mulcock:
Yup, own assets.

Ryan Isaac:
You have to do that. Your practice is one of those things. Your practice, statistically, will be one of the highest growing, highest returning assets that you’ll own as a dentist. You have to make sure it’s worth your money and time.

Matt Mulcock:
What you’re hitting on is focusing on that process that is repeatable, and again, putting all your time and attention there. You’re going to be far better off than focusing on an outcome that in the end, when it comes to the details, you have no control over. You don’t know what inflation is going to do to your profits in the end.

Ryan Isaac:
Again, you don’t control it.

Matt Mulcock:
You can’t control that.

Ryan Isaac:
You don’t control it. Like you, I’m always amazed at watching clients and other dentists improve their income without adding chairs, without adding hours, without adding locations or more people. Sometimes it’s improved marketing. Sometimes it’s improved treatment planning, systems, processes, right? Sometimes it’s going back through patient bases and going, “Who’s not coming back?” or “Who doesn’t have insurance?” There’s all these resources in the dental world now too.

Ryan Isaac:
When I talk to people who do in house, the payment plans and how it can affect people who don’t come to the practice actually show up and accept treatment, there’s just so many little things you can do that you do have control over, but they’re tedious and they might be monotonous. They take time and they cost money and they require other people.

Matt Mulcock:
It is. It’s more fun to stew over what’s going to happen with inflation and markets over the last-

Ryan Isaac:
I guess.

Matt Mulcock:
… couple years.

Ryan Isaac:
It’s easier, anyway. Yeah, it’s sure easier. Okay. Number two, be a good investor. This isn’t the podcast for end-all-be-all investment habits, but here’s the other thing about inflation and investments. There’s big worries about stock markets declining. It does happen. Stock markets have lower returns during higher periods of inflation, but really also, the difference between the return you get in your stocks and inflation is something called a real return. That’s the real return. It’s the difference. So, if inflation is 3%, you got 10, your real return is 7. That real return is eaten up when inflation grows.

Ryan Isaac:
Some companies do struggle during inflation just like a practice might because profits can go down, right? Expenses go up. But this is absolutely a reminder that just like the nuance of inflation and the nuance of our lives, how diverse our lives are, not everything we do and consume and use will grow or be changed by inflation, the same rate companies are the same way. So, it’s not a blanket statement. Inflation hurts stocks. It’s not a blanket statement, because it’s not true. Historically, there are different types of stocks that perform better than others during high inflationary periods. What this means for you, what it means to be a good investor, is the thing we always say, which is to be a-

Matt Mulcock:
You know it’s coming. You know it’s coming, people.

Ryan Isaac:
… low cost globally diversified investor with a high savings rate, frequently rebalancing for many, many years decades over your life. The part of that, the globally diversified, it’s not only globally, but it’s the types of stocks that you own. Your portfolio should be diversified across all kinds of stocks, big and little, medium size, growth stocks, expensive ones, cheap value stocks, everything in between. That’s how you diversify your way around that general blanket statement that inflation hurts stocks. My stocks will go down. Some will. Not all of them will, though. You’ll be able to experience the upside of that if you have a diversified portfolio.

Ryan Isaac:
I want to bring up something. It’s a quote from Warren Buffett. This is a CNBC article that actually talked about… It’s called, “Warren Buffett explains how to invest in stocks when inflation hits markets.” He’s been investing for, I think, 1,079 years consecutively. So, he’s seeing a lot of periods of all kinds of conditions. Here’s something we see and this is reflected in the Facebook comments. People grasp on to whatever the thing of the day is that’s going to make their stocks go down, right? When we say thing of the day, we’re not mocking it as if you shouldn’t be worried about it. We’re just saying it’s common human behavior to just jump from thing to thing multiple times per year of, “This is going to cause it.” It’s just really common.

Ryan Isaac:
Buffett was saying… Okay, I love this little piece of this quote. The first part of it, he’s just talking about how inflation is real and it does affect your returns and being a smart good investor, consistent investor, sticking with things for a long period of time is your key there. We hear this a lot, okay? This is the thing people want to do. They want to say, “Well, this is the thing that’s going to make stocks go down. Therefore, I’m going to hold on to my cash. I’m going to wait to invest.” The reason for that waiting rotates throughout the year, all the time for some people.

Matt Mulcock:
Of course, insert whatever reason. Yeah.

Ryan Isaac:
There’s always any reason. But to that, he says, “If you feel like you can dance in and out of securities in a way that defeats the inflation tax, I would like to be your broker, but not your partner.” I love that because he’s saying, “Hey, I’ll sell you the stocks and make commissions to all you who want to jump in and out of stocks, but I don’t want to partner with you.” The lesson in that is what part of being a good smart investor is, is there is no way to say, “Inflation is going to hurt my stocks. Therefore, I’m not going to invest right now. I’m going to wait and invest when it’s better.” It’s not going to work out. Please don’t do that.

Matt Mulcock:
I just wanted to highlight that that was in 2018. The whole article is in response to all the talk going on about inflation. From that point on, inflation was… I’m just looking at my numbers here. … end of 2018, finished the year at 1.9; 2019, 2.3; 2020, 1.4. So, he’s just saying, “Everyone’s freaking out about it and then it didn’t come to fruition.”

Ryan Isaac:
It didn’t come to fruition, which is that’s the cycle of human predictions. I mean, that’s how gambling works.

Matt Mulcock:
Yeah. What’s the quote? Forecasters don’t give you an answer, because they know. They give it to you, because they’re asked.

Ryan Isaac:
Because they’re asked you. Yeah. I can hear the argument against what you’re saying, which is, “Well, Matt, in the last 15 years, we’ve seen unprecedented government spending. We don’t even know how this is going to affect the future.” It’s true. We don’t.

Matt Mulcock:
We don’t. I would say you’re absolutely right.

Ryan Isaac:
Totally right. The scary thing is we don’t know how many things are going to affect the future, but the point is what you’re making. I mean, this business started in ’07. I’ve seen a lot of these conversations come and go. The point is that it’s just hard to pinpoint, because they’ve been going for a long time and then we worry about things that don’t happen or we worry about things that don’t happen in the way that we think they’re going to happen and then they happen and they don’t affect us in the way that we thought they were. In the meantime, we actually don’t worry about things that we should be worried about that actually will affect us tremendously.

Matt Mulcock:
That is exactly my point.

Ryan Isaac:
Yes. Okay. Number three, we don’t have to dwell on this one, because we already did a lot of content on this. It’s don’t hold too much cash. Clearly, if your money isn’t worth as much tomorrow as it is today, then sitting on cash is not going to help you.

Matt Mulcock:
Is the fastest way to lose money.

Ryan Isaac:
Dentists, notorious for sitting on way too much cash than they should. I don’t say all dentists, but that’s a thing that happens. Okay. So, we did two pieces of content recently that outline, “How much cash should a dentist hold at any given time based on their situation?” One was a webinar. You can find all this at dentistadvisors.com. So, one was a webinar. I don’t have the date on this, but it’s called, “How much cash should you hold right now?” It’s a webinar we did just a few months ago. You can find this. It’s all free, dentistadvisors.com, just go search for it.

Ryan Isaac:
Or on The Dentist Money Show, it was called, “The Laws Of Liquidity Episode 280.” So, search for that. But there’s a formula for how much cash you should hold at any given time and you shouldn’t hold more than that, because that’s one of the biggest killers where inflation will get you. To go back to the principle, I’ve said it a few times, but to reiterate this thing, the way to “beat inflation”… Quotes, air quotes, “beat inflation,” right?

Matt Mulcock:
You’re going to beat it.

Ryan Isaac:
I got one hand air quotes.

Matt Mulcock:
[inaudible 00:38:33].

Ryan Isaac:
Or hedge inflation, because that’s the thing people say like, “How do we hedge for inflation?”, is you have to have your money and things that will grow more than inflation. That’s the general basic principle. What your money goes in that grows more inflation, it’s varied.

Matt Mulcock:
A topic for another day.

Ryan Isaac:
Another time. There’s a lot of things you can put money in that’ll grow more than inflation, but that’s the principle. You have to outgrow it, right? Cash will not do that. So, check out those pieces of content. Number four, have a high enough net worth. This is another topic for another time. On our website, dentistadvisors.com, if you search for the term ‘total term’, that’s our little measure of how much net worth someone should have before they’re ready to be financially independent for an indefinite period of time.

Ryan Isaac:
So, it’s a very conservative measure. Just to give a quick little bit of math and this high level, but we really try to help our clients get to a point where before they’re done completely working, they have a 30 multiple of their annual spending, which means if you spend 100 grand a year, I want you to be able to have $3 million at your disposal to spend.

Ryan Isaac:
The reverse math of this is something called a withdrawal rate. We hedge our withdrawal rate. Our withdrawal rate’s even more conservative than the historically, very well-debated and documented withdrawal rate of 4% that has been proven to be fairly sustainable for a lifetime. What that means is you can have a pot of money, pull 4% of it out a year, invest it in a mild conservative way and still be able to pull 4% pretty consistently.

Matt Mulcock:
The mild salsa, yeah.

Ryan Isaac:
Mild salsa.

Matt Mulcock:
The one my wife can handle.

Ryan Isaac:
That’s me too. I’m a mild salsa guy. In fact, I don’t trust anyone who… When we ask someone waiting a table, you’re like, “Is this pretty hot?” and they’re like, “No, that’s fine.”

Matt Mulcock:
I don’t trust you. Nope, nope.

Ryan Isaac:
I don’t trust you. So, you can invest your money in a mild salsa away and still get 4% out of this thing pretty indefinitely. That’s a long debated thing in our industry. The goals we’re trying to help our clients achieve, a 30 multiple they’re spending, that equals about a 3.3% withdrawal rate, more conservative. So, we’re already shooting for this point that might be a little conservative, but if there’s high amounts of inflation for a long period of time and if it just happens to catch your life when you’re alive and when you’re not working and you’re spending money out of your portfolio that you have zero control over, then hopefully, hedging a little bit on a 30 multiple or a 3.3% withdrawal rate, it should be enough.

Ryan Isaac:
From the way I’m looking at people getting towards or close to retirement and in it, oh, man, a lot of people are working a little bit longer because they choose to. They have income longer and it’s a big amount of money. I mean, having a 30 multiple of your spending is a big amount of money. I’m watching people go well past that 30 multiple. It’s happening, which will just give people options sooner or they’ll just have more money to pass along or those would be able to blow money like they never spent it before in their lives in retirement, which is super cool.

Matt Mulcock:
Yeah. You just said that and there’s people out there right now listening being like, “What? Really? You’ve got people blowing by it?” We also have people that are not. It depends.

Ryan Isaac:
Yeah. So, I thought that was just a good question, because we talked about this a lot. Thirty multiple spending is going to be a general high level equation for financial independence when your work is optional. The path to building a 30X of your spending of net worth, it’s years and years, decades path. It is very nuanced with hundreds of little decisions and tasks every year that have to be organized and discussed and talked about. It’s a difficult path that is not easily done. That’s why so many dentists don’t actually get there. That’s why the statistics show what they show about dentists in retirement unfortunately.

Matt Mulcock:
That’s exactly why we don’t call it a financial plan. We call this financial planning. It is a lifelong process that you have to be engaged in for your entire life and realize that, yeah, Plan A is not always going to work out. Is it possible that you’re getting ready to retire, live off of fixed income through whatever those means are and you’d have it all worked out your whole life? All of a sudden, runaway inflation takes off and you’re like, “Dang, I’m going to have to work a few more years.” Yes, that is very possible. You have to be willing to adapt and engage in the process of lifelong financial planning.

Ryan Isaac:
Dude, I’m so glad you said that, because what you just said was it is not a noun, but it’s a verb. Yes.

Matt Mulcock:
It’s an act of financial planning. It’s not a leather bound book. It’s not a thing. It’s a process.

Ryan Isaac:
It’s not a noun. It’s a verb. We’re ending with that. That’s beautiful.

Matt Mulcock:
Boom.

Ryan Isaac:
So, thanks, everyone, for being here. This is a longer episode. Maybe our producers can cut it down a little bit, but there’s a lot to talk about. It still obviously will leave many of you with a lot of questions. So, you can get your questions answered in a couple of ways. You can go to the discussion group that we referenced on Facebook, Dentist Advisors Discussion Group. Post your question. We’ll post an answer. We also love your feedback when we have polls in there. It’s really helpful. It informs our conversations like this. I think this was really helpful.

Ryan Isaac:
Or you can call us directly. We’ll get on the phone, we’ll have a chat. We’re always happy to do 15, 20 minutes, a little Q&A, and point you in the right direction, be good humans to you. Or you might be looking to actually hire a partner to work with you in the verb, in the action of financial planning for the next 50 years of your life. That’s why we exist. So, go to dentistsadvisors.com, book a free consultation. We’d love to chat with you. So, Matt, glad to have you back around.

Matt Mulcock:
Yeah, good to be back. Thank you.

Ryan Isaac:
Thanks, everyone, for listening and tuning in. As always, we really appreciate it and we’ll catch you next time. Thanks, everybody.

 

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