Inflation Worries, Declining Currency, and the Tooth Fairy – Episode 245

What does the amount the tooth fairy pays kids have in common with your portfolio?

On this episode of the Dentist Money™ Show, Reese and Ryan discuss how inflationary forces can lead to a declining dollar—something that’s on a lot of people’s minds right now. Inflation is a constant. So how do you make adjustments for it? What types of investments should you be looking for, especially during a monetary crisis like we’re living through? 

National Tooth Fairy Day is around the corner and Reese and Ryan use tooth fairy inflation as an analogy for how to think about the dollar.

 

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Podcast Transcript

Ryan Isaac:
Hey, Dentist Money Show listeners, thanks for tuning in. What does the tooth fairy and inflation have in common with your portfolio and your investments? If you’re worried or anxious about upcoming inflation or devaluation of currency, this episode’s for you.

Ryan Isaac:
Thanks for joining us, thanks for tuning in. If you have any questions, go to dentistadvisers.com, click on the book free consultation calendar, and let’s have a chat soon. Thanks for tuning in, enjoy the show.

Announcer:
Consult an advisor or 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, Reese Harper.

Reese Harper:
Welcome to the Dentist Money Show, where we help dentists make smart financial decisions. I’m your host, Reese Harper, here with my trusty old cohost, Sir Ryan Issac.

Ryan Isaac:
Ah, yes, thank you for the royal intro as always, I appreciate that. Happy to be known as sir.

Reese Harper:
Happy summer to you, son, green here in the hills, rolling hills, blue skies ahead, and nothing but that.

Reese Harper:
Nothing but just plenty of… We’ve had some beautiful rainfall, my grass is even green.

Ryan Isaac:
Oh yeah?

Reese Harper:
This is a good life right now.

Ryan Isaac:
The desert is not green right now, but-

Reese Harper:
The desert is blossoming as a rose.

Ryan Isaac:
Is a blossom.

Reese Harper:
In July.

Ryan Isaac:
She’s a blossom. Question for-

Reese Harper:
What’s the hottest temp you’ve been up to this year?

Ryan Isaac:
Oh, you want to go hottest temps? I think we’ve hit… I don’t know if we’ve hit 120 yet or not, we might have. We probably have.

Reese Harper:
We’ve been flirting with it [crosstalk 00:01:33].

Ryan Isaac:
It’s like when winter hits in Salt Lake City, you’re kind of just like, “Yeah, it’s going to be 19 for the next three months. I don’t really care. I’m inside.”

Reese Harper:
Duck and run.

Ryan Isaac:
You’re inside or you’re skiing, so you’re inside of your swimming in your pool here, that’s all right. Got a question for you though, you old miser.

Reese Harper:
Just one?

Ryan Isaac:
You old penny pincher. When one of your kids last lost a tooth, do you remember how much you gave them?

Reese Harper:
This is a difficult story, but yes, I remember a lot of [crosstalk 00:02:06].

Ryan Isaac:
Did you Venmo? Does your tooth fairy Venmo in your house, or how does this work?

Reese Harper:
Well, there’s this little bag, we have a small bag. It’s like a tooth fairy bag, and it’s this cute thing that somebody gave us and its got a pillow and you put stuff in it, and it’s a little thing.

Reese Harper:
Anyway, it’s been a rough year, so when my kids are like… I’ve got two kids that are losing teeth right now. And my son loses his tooth, puts it in a tooth fairy pillow, real excited about it.

Ryan Isaac:
In the pick up bag? Okay.

Reese Harper:
I actually pulled out his tooth with a really creative strategy. That was fun.

Ryan Isaac:
Let’s hear it, that’s very Idaho of you, what did you do?

Reese Harper:
Just hooked it on to-

Ryan Isaac:
A tractor? John Deere? [inaudible 00:00:02:54]?

Reese Harper:
Well, I was just trying to see if I could use pulling down, instead of pulling out. Sometimes I’ve put it on the door. Just kind of for fun. Hook into the door, shut the door. That’s a classic.

Ryan Isaac:
I hate… I can’t. I cringe so hard. I can’t do that.

Reese Harper:
Anyway. I was trying to use a little bit of weight to just pull down and just dropped a pull down with it and worked. Anyway. My son was excited about it. This is not the point of the story, right?

Ryan Isaac:
Yeah, it’s deviation. It’s okay.

Reese Harper:
He says… Anyway, I’ve been busy. Got a lot going on. It’s COVID, PPP loans. Dentists need help. They need support. I’m working 18 hour days right now. Okay. I don’t really think about much else besides work right now.

Ryan Isaac:
It’s fair.

Reese Harper:
I just totally spaced it. [crosstalk 00:03:40]. And-

Ryan Isaac:
[inaudible 00:03:42] How much did the… [crosstalk 00:03:45].

Reese Harper:
He comes downstairs and he’s like, opening up. He’s like “Dad, tooth fairy didn’t come.”

Reese Harper:
I was like… I just said, “Sometimes, it doesn’t happen.”

Ryan Isaac:
Yeah, I’ve used that before.

Reese Harper:
So, you get busy. Life gets crazy. Two or three kids flying around. I’m like, “Do it tomorrow, and it’ll work out.” And, anyway, I didn’t forget the second night, ended up working out.

Reese Harper:
My daughter has the same thing happen a week later. She… So excited, first tooth out, and puts it in the package. And I told my wife… I tell Barbie, I’m like, “Hey, we got to get this done. It’s big tooth fairy night, no one forget.

Ryan Isaac:
It’s in the pillow.

Reese Harper:
Next morning. We wake up. Guess who forgot? Daughter comes crying downstairs like, “Tooth fairy didn’t come. I’m so bad. I know she didn’t come for me.

Reese Harper:
Like, “Oh no.” So anyway, tooth fairy delivered the next day. A couple of dollars instead of $1, I think I went to $2.

Ryan Isaac:
So you’re around a couple bucks, for the [crosstalk 00:04:44].

Reese Harper:
I did no $20 kind of deal. This is a couple of dollars and a couple of spare coins that are in my jeans pocket. I wonder if anyone listening has ever snuck into your child’s room and taken money from them, to give to them for their tooth fairy, under the pillow.

Ryan Isaac:
Mother of Pearl, something’s telling me this is a low blow. What are you-

Reese Harper:
It’s a very personal story. I’ve done that multiple times. I’ve got a $5 bill. I’m like, you’re not getting a five. Or you got a 20, if I even have cash. And so you go in… Because the kids always have dollar bills. That’s their biggest denomination of currency.

Reese Harper:
Grab a couple of their own pile. They don’t know. And just give it to them and be like, “Oh, I’ll hit you back.”

Ryan Isaac:
That’s a low blow.

Reese Harper:
Desperate times, that is pretty low.

Ryan Isaac:
You’ve done that before? I don’t want to poke or shame-

Reese Harper:
No, it’s due.

Ryan Isaac:
Or guilt you out over this, but [crosstalk 00:05:31].

Reese Harper:
It’s low. It’s not good.

Ryan Isaac:
That’s starting to approach a zone of personal ethics. Questionable ethics, okay. I get it. I totally get it. I’m not judging.

Reese Harper:
Well, a little bit.

Ryan Isaac:
I’m suggesting there maybe… You felt bad at least, right?

Reese Harper:
Kind of. Yeah. You feel bad until you-

Ryan Isaac:
Yeah you’re good. You felt a little dirty.

Reese Harper:
Until you take them to the store the next day and have to buy them all kinds of stuff. You guys just cost me money, hand over fist. So I-

Ryan Isaac:
It’s the ethics of the thing. You can’t steal from the child.

Reese Harper:
I justified it, stole from my children.

Ryan Isaac:
You do. It’s a slippery slope, bro.

Reese Harper:
It is slippery.

Ryan Isaac:
That’s how people start stealing from the government, not paying their taxes next thing you know.

Reese Harper:
Next thing that’s what’s coming. So okay, I-

Ryan Isaac:
You think, steal the kid’s tooth fairy money, next thing you know you’re not paying taxes.

Reese Harper:
Sure. The next thing you’re in jail. One minute, you’re stealing from the kids-

Ryan Isaac:
What do they say about tooth fairy? It’s the gateway steal.

Reese Harper:
It’s the gateway steal every time.

Ryan Isaac:
The gateway steal.

Reese Harper:
But it’s kind of sad. The tooth fairy is the one that has the least reliable arrival schedule. Every other fictitious animal or character, whether it’s the leprechaun or the bunny or Santa or whatever else is dropping by the house. Or even the… What’s the Halloween one where it takes the kids candy and trade them for money? The sugar ghost or something.

Ryan Isaac:
Sleepy Hollow?

Reese Harper:
Maybe. Those have an arrival date. They have a schedule that they follow.

Ryan Isaac:
Death?

Reese Harper:
The tooth fairy is the one who is not reliable. Here’s where we’re going with this. We’re going to talk about… This coincides really well. August 22nd. Yeah, the 22nd of August.

Reese Harper:
So around the time of this episode comes out is National Tooth Fairy Day. And it coincides really well, this episode with this… We’re going to talk about inflation. And I wanted to hit the prices of the tooth fairy inflation.

Reese Harper:
Like, how much money people have been giving. You and I both are well under the curve, I think of where we’re at today, by the way. But we’re going to talk about inflation. And I’m going to bring up a couple of questions for anyone listening later. We’re in end of July 2020. Of course, 2020 was the start of the big COVID stuff.

Reese Harper:
And a lot of government programs and shutdowns and, stock market volatility, recession.

Ryan Isaac:
NBA basketball season just been destroyed. If you’re listening in the year 2023, this episode, it’s going to be really interesting to see what followed this.

Ryan Isaac:
But anyway, so some of the questions that actually coincide with this, that I’ve been getting from clients recently, are kind of some worried about what’s going to happen with inflation, or… I’m going to read actually some direct quotes.

Ryan Isaac:
But let’s get to this tooth fairy index. So Delta Dental, the insurance provider, actually started a poll back in 1998. And they survey… It’s like a thousand parents about how much they give to their kids for the tooth fairy.

Ryan Isaac:
So, the official number started coming in in 01, and now we’re in 2020. So back in 01, when the first official survey result came out, it was about $1.75, $1.70, somewhere in there.

Ryan Isaac:
That was the average survey response. I don’t know who’s got… Maybe that’s the loose change you were talking about. A dollar and then you go scrounge up some ashtray change from your-

Reese Harper:
This is in what year?

Ryan Isaac:
01. This is 2001.

Reese Harper:
Sound like really cheap. Sounds like…

Ryan Isaac:
Inflation has not hit the tooth fairy in the Harper home. Fast forward-

Reese Harper:
They’re going to work for their money. We’ll put them to work to get their tooth… if you can get a job, the tooth fairy might come.

Ryan Isaac:
That’s what I’m talking about.

Reese Harper:
Okay, carry on.

Ryan Isaac:
2020 survey. The average was $4 per tooth.

Reese Harper:
Okay.

Ryan Isaac:
So, that’s where we’re at with the inflation rate of the tooth fairy. When this episode comes out, if we can remember, maybe we’ll post this in the dentistadvisers.com/group, it’s our Facebook group. And we’ll see what everyone’s paying. Maybe start a little survey.

Reese Harper:
Okay, so this was… Was the first one 2000? [crosstalk 00:09:41].

Ryan Isaac:
2001, the $1.70.

Reese Harper:
So call it 19 years. Is that what you’re saying?

Ryan Isaac:
Yeah, 19 years, you’re going to run the inflation.

Reese Harper:
So, if we’ve got 19 years. We started at $1.75, that’s-

Ryan Isaac:
Ending at $4.

Reese Harper:
Present value $4 is our future value, 4.45%.

Ryan Isaac:
It’s not too bad. You’re talking about inflation, it seems reasonable. It seems the folks are kind of tracking inflation.

Reese Harper:
They’re kind of… Yeah. Inflation’s tracking around 3%, historically.

Ryan Isaac:
Think people are doing that math? Or do you think that’s just like… Oh, this is a great… This is what I was thinking the other day. Inflation partially has to do with people’s-

Ryan Isaac:
Expectations?

Reese Harper:
Normal feeling of what things should cost as time passes. And so it’s not just this artificial thing. It’s like, “Well, it makes sense that life should cost this much more.”

Ryan Isaac:
Yeah, how do you get a kid pumped up 20 years ago? You give him a dollar. Today, the kids are going to be like, “A dollar? Give me four.” And I think that… Yeah, I can kind of, all right.

Ryan Isaac:
So, today we’re going to talk about inflation and I want to frame the discussion specifically around a couple of comments. I’d be curious, Reese, if you’ve received some of these, I’m just going to read some anonymous feedback over the last… This just the last two weeks.

Ryan Isaac:
Again, a lot of this stems from just all the stuff that’s happened from COVID and the economy. One of the texts is a… I was out of town, this text chain I was on with a client. And he was just saying, “Hey, I’m, I’m hearing a lot about the dollar potentially collapsing. What do we do to hedge about against that?”

Ryan Isaac:
So dollar collapse, how do we hedge against that? Another one from about that same time, it was a few days later. “Economy’s really making me wonder, what’s your thoughts on having cash on hand? What should I do because of inflation and the devaluing of the dollar?”

Ryan Isaac:
So we’ve got the… What did the first one say, the dollar collapsing and then the devaluing of the dollar. Basically in both of these statements, they’re talking about inflation, which is that the value of a dollar isn’t the same tomorrow as what it was yesterday.

Ryan Isaac:
And the prices of things go up just like the tooth fairy used to leave us $1.70 and now he, or she, or they, are leaving a $4 under the proverbial pillow or basket or the pouch that the Harper’s have. I don’t know… The pouch.

Reese Harper:
Well, I think we got to define… Let’s define inflation a little bit. You’ve defined it in one sentence, which is things cost more as time passes.

Ryan Isaac:
There you go. Yeah.

Reese Harper:
Right. Things get more expensive. Things cost more money. Why do things cost more? Well, things cost more because… Things wouldn’t cost more. If we were just paying for things with gold. Okay, like they did in the good old days, quite the same as they do now.

Reese Harper:
But what ended up happening, where people… When currency started, okay, when you start saying instead of changing for bread or for guns or for gold, we’re going to make up a pile of money.

Reese Harper:
Say there’s $10. And that is what everyone in the whole country has to live off of. And everyone gets a few pennies here and there. And you’re going to trade in all of your stuff for that. I’m going to start creating a system to exchange stuff for these dollars.

Reese Harper:
That’s when a lot of these conversations really started picking up about inflation. Because when a government or a central bank… Central bank is what a government creates to manage the cash or manage the currency.

Reese Harper:
When they kind of control how much money is in the system. So like, America just… In the last three months, has just increased their monetary base by 1.7, I think trillion dollars. So like-

Ryan Isaac:
Little bit.

Reese Harper:
$1.7 trillion to just inject into the system, essentially adding currency into circulation by… In the US’s case, borrowing money from themselves or selling bonds to themselves saying, “We can’t get other countries maybe at the demand that we want to give us all this money and lend it to us. So we’re going to just lend it to ourselves. We’re going to create a bond that we then buy.”

Reese Harper:
And that is also happening in Europe. It’s never… In the history of the world, there’s never been this much expansion of a monetary base or the amount of currency that governments have put into circulation.

Reese Harper:
And in Europe right now I think they’re up to maybe 800 billion, something like that. It’s 850 billion. So the U S has done two times that, but it’s a lot of money. There’s never been a time where this has ever happened before.

Reese Harper:
So a lot of people really worry about, “Hey, what’s going to happen when you put all that money into the economy, the money I used to have is now worth less than before, because you’re just putting more money into circulation, and that makes what I have worth less. It makes my dollars be worth a little bit less.”

Reese Harper:
Consequently, the fear is that that will make the cost of things like houses and cars and food go up. Because if you just put money into circulation or just put money out there, we all kind of have a little bit less than we had before. But these companies, they want to make the same as they did before. They still got to eat.

Reese Harper:
So they have to charge more. And typically the time that that happens is when you have more people working. When the labor market, or when people are not unemployed at the rate they are today. It’s unlikely that you would see inflation kick in when people still are largely unemployed relative to where they were, let’s say back in January or February.

Reese Harper:
But, that’s kind of the big debate right now that people should maybe just be aware of. When governments inject money into their economies and they don’t keep their monetary based similar to what it was before, that affects the value of all of our dollars that we have, either making us have our dollars be worth more as they remove money from circulation or make our dollars worth less if they put more money into circulation.

Reese Harper:
And then it also affects the price of things that we buy, especially if people are working and we’re really employed well, but if people aren’t working and there isn’t a demand for vacations and not a demand for entertainment, and there’s not a demand for new cars and there’s not demand, then typically you don’t see inflation during that kind of a period.

Reese Harper:
But that’s a big… You should be confused a little bit by that, because this is not an easy thing to process, but maybe gives you a little bit more information than maybe you had before.

Ryan Isaac:
Yeah, I think that’s great. Let’s take a quick break here. And then I thought maybe just to give some context to this, we could just answer some of those questions that came in, hear your take on that and what you would tell people that are feeling the same thing, devaluing the dollar, collapsing dollar, all that kind of stuff. So we’ll take a break. We’ll hit that when we come back.

Ryan Isaac:
Like what you hear on the Dentist Money Show?

Reese Harper:
I do.

Ryan Isaac:
Then set up a free consultation. There is no obligation. And let’s chat about how we can help you make a better plan for your future. All you do is go to the website at dentistadvisers.com, click the big green button, book free consultation, or call us at 833 DDS plan.

Reese Harper:
Let’s kind of hit this from the angle of these questions that came in. And I’m sure Reese, you’ve probably had people reach out about the same stuff. This is on people’s minds.

Ryan Isaac:
Totally, big time.

Reese Harper:
With all the things that are going on. So I’ll just kind of recap a couple of the statements here. One person said, “Hearing a lot about the dollar potentially collapsing. What do we do to hedge against that?”

Reese Harper:
The other person said, “What do I do with cash because of inflation and the devaluing dollar?” So those are two of the things I’ve heard recently. What have you heard from clients or just people you’ve talked to and how would you respond to that?

Ryan Isaac:
Let’s answer that.

Reese Harper:
Let’s do it.

Ryan Isaac:
Yeah, answer the first question there. Repeat the first one though.

Reese Harper:
First one, “I’m hearing a lot about the dollar potentially collapsing. What can we do to hedge against that?”

Ryan Isaac:
So what this question, I think is meaning is, “I’m worried that the government, by continuing to put more and more money into circulation, especially when the government’s borrowing it from themselves, essentially adding to our national debt. Eventually the dollars are going to crash.”

Ryan Isaac:
That will happen if the government takes quantitative easing, that’s the name of the… That’s the strategy that they’re using when you kind of buy your own debt. If they take it too far and continue to do this, let’s say they did it again in the fall, COVID returns and sadly enough, we have to do it again.

Ryan Isaac:
That will put more pressure on the dollar. And maybe enough to… Collapsing dollar is maybe not the right way to describe it, but a de-valuing dollar would be more rational. The dollar will continue to decline in strength if the government doesn’t take care of it.

Ryan Isaac:
And if we just keep adding money to our monetary base or adding money into circulation, without paying down our debt and eventually growing our national gross domestic product. So that’ll happen, and we’ll be-

Reese Harper:
Let’s define a couple of those. Let’s just, for everyone listening, what would a collapse mean? When someone’s thinking of a collapse, they’re envisioning what in your mind, when you hear someone say that?

Reese Harper:
When I hear that word, I just… Usually people that say collapse are kind of fear-mongering. That word is a little bit of an exaggerated term. Collapsing would be the destruction of a currency. “Collapse,” when I hear that I’m like, it falls apart. Like, the dollar no longer has any value at all.

Ryan Isaac:
It doesn’t exist.

Reese Harper:
It doesn’t exist. It’s collapsing. Declining dollar would mean it’s… Or depressed dollar.

Ryan Isaac:
[crosstalk 00:21:07].

Reese Harper:
That’s what we’re seeing now. We not actually seeing that as much as we probably… Just because we’re still in a better position than a lot of other countries.

Reese Harper:
The government’s trying, I think, to take the right balance of between seeing the dollar decline a lot and maybe a little, or giving it some pressure. Because part of the balancing act here is, these economic events actually have significant impacts to the longterm health of our country.

Reese Harper:
So maybe a little bit of a short term, quantitative easing is the right strategy, given all that’s at stake. That’s what the government chose to do in 08 and 09, during the financial crisis.

Reese Harper:
And so, when I hear “Collapse,” I hear “Dollar falling apart,” and I don’t really hear anyone talking about that. This week there’s articles in the Wall Street Journal, articles in the Economist, articles in New York Times on fears about inflation, and fears about a de-valuing dollar due to this. And that’s very reasonable.

Reese Harper:
Unfortunately that’s just the nature of what happens when you go through a crisis and you’re trying to avoid, a deeper recession or even a depression. It’s a risk you’re willing to take. You’re like, “I’ll handle a little bit of currency depression or currency decline.” Maybe relative to other countries, our dollar won’t exchange for as many dollars.

Ryan Isaac:
That’s what I was going to say, yeah. If you want to point that out, when they talk about devaluing, they’re talking about… It’s in contrast or comparison to other currencies around the world, which affects our trade, our exports, the goods and services that we as consumers in the United States can acquire or participate in.

Ryan Isaac:
So that’s what makes things more expensive or less expensive for us to acquire. So de-valuing, compared to other… So, all right. That’s part of the thing they’re saying is that devaluation or a collapse. I think that’s a good breakdown.

Ryan Isaac:
The other question is then, what do we do about it? And the two cases I gave you, the two examples. One was, they said specifically, “How do I hedge against it?” The other question is… Well, the other question I think is a whole other beast, because I’ve heard some of the feedback when people are scared about this.

Ryan Isaac:
It’s almost counterintuitive, like, “Oh, there might be a devaluation or a currency might collapse. Therefore, should I stop investing for a while? Should I hold cash?” It’s kind of a counterintuitive… That’s the gut reaction, but that wouldn’t make any sense if the cash is becoming less valuable over time. So let’s hit those two things.

Ryan Isaac:
Number one would be, “How do I hedge against something like that?” What does that even mean when someone says hedge against it? We’ll get really basic with that. And then, what’s the implication of holding too much cash, maybe inefficiently?

Reese Harper:
Ryan and I don’t believe in hedging as a short term strategy. We believe in hedging-

Ryan Isaac:
Which is what hedging is. It’s a short view. It’s a short term thing.

Reese Harper:
Yeah, generally when people say hedging, they’re thinking, “What do I do over the short term as this thing happens?”

Ryan Isaac:
“That I wouldn’t ordinarily do over the longterm normally.”

Reese Harper:
Yeah. And I don’t want to say there’s no circumstances in which we wouldn’t recommend a change to our current investment thesis, but hedging just means you… Well, diversification is another word for hedging.

Ryan Isaac:
I think that’s fair.

Reese Harper:
The way we are from these things. So for example, Europe is very different from the United States in terms of how it performs.

Reese Harper:
And if you own the European stock market and the United States stock market, that’s going to be a very different outcome than if you just own Europe or just own the U S.

Reese Harper:
So in that sense, you’re hedging against what happens in the United States, especially the US stock market by owning the European stock market. And the same thing would happen with Latin America.

Reese Harper:
They move very differently. And I think that’s one example of… This isn’t a year where things are up really high in any market, but there are very real hedges that occur by just being broadly diversified in as simple of a way as the US versus the European equity market.

Reese Harper:
Now, I just don’t think that the other way that this person’s probably thinking that is more common is… Or a common line of thinking is, there are certain things that historically have done really well while the dollar is falling apart.

Reese Harper:
So when a dollar falls apart, sometimes things like silver or gold or other metals or energy resources, natural resources, sometimes these natural resources, raw land, farmland, gold, these things typically… During a time where dollars are becoming worth less and less, these real raw assets tend to increase in price more.

Reese Harper:
And so sometimes people will shift out of one asset class and jump into another when they anticipate a decline in something. There’s a risk in that, this morning I was talking to somebody who told me that in the middle of March, they decided to hedge essentially against the US dollar, by leaving their stock portfolio and buying into a bond index.

Reese Harper:
A bond index is another way to diversify in a portfolio, right? And in this case, this person was using it as a hedge or a short term move. They pulled out of their stock portfolio and moved into a bond portfolio and are still in that bond portfolio till right now.

Reese Harper:
They sold out at over, or close to a 30% decline. Right. And then haven’t been able to experience the upside of the market’s recovery from, April and May and June. And I’ve heard that story 10 times, maybe in the last month.

Ryan Isaac:
Well, didn’t you look back during the financial crisis, I can still remember quite a few people going to gold specifically during that time. And now looking back on it, how many of the…

Ryan Isaac:
And the thing that’s hard about what you’re mentioning, which is these short term strategy shifts to things that perform only when there’s a lot of fear and uncertainty, is that, it’s baked into it. There’s so much uncertainty about the magnitude and when it actually offsets the declining, whatever else you were invested in.

Ryan Isaac:
And then when that switches back, that’s just so difficult. So looking back…

Reese Harper:
Totally.

Ryan Isaac:
And you could probably think of the cases where people switch to… A lot of them to gold or other energy resources back then, too. And then looking back, what did you find? Did it pay off, did it work out? Was it a hard bet? Anyone get lucky?

Ryan Isaac:
Well, it’s kind of sad, to look at how when you pick one item to hedge with, or when you over invest in one area, you can end up losing your shirt, or at least having poor performance. If you look at how gold has performed in the last… Well just take the last five years.

Ryan Isaac:
The last five years, the US stock market, even where it’s at today is probably close to 11%, depending on the timeframe that you’re looking at. But if you look at Gold’s five-year return, it’s going to be closer to 5%.

Ryan Isaac:
And that’s half the return that equities have offered in the last five years. And that separation is even more severe when you go back further, to the point of 07, 08, 09, when gold really started, when gold really peaked.

Ryan Isaac:
But I still think it’s a normal question. You should have gold in your portfolio. You should have other things that hedge or diversify you. Some of the top things I think people really think about in this period of time are things gold, things like commodities. That’s your grains and oil, and your beef, and just basic stuff. Natural gas and even orange juice or rice.

Ryan Isaac:
These are things that… You can invest in these things through what are called futures contracts. And they do, in some cases, as the dollar decline, some of these things go up because it’s just costing more to buy this stuff.

Reese Harper:
Right.

Ryan Isaac:
Right? And there’s a limited amount of gold in the world. People kind of know, you can’t produce more of it. And so, because it’s a real physical asset and it is kind of a limited supply, it tends to hold its value for the most part. And as the dollar declines, sometimes gold tends to rise during that period. But it doesn’t have the same kind of return longterm as other asset classes. Real estate tends to-

Reese Harper:
You’re talking about a term called expected return, which is different than what you get from buying a company.

Ryan Isaac:
Yes. And, real estate tends to do pretty decent during dollar declining periods. So real estate investment trusts, which are a pool of real estate that pays out dividends to the owners. If during periods of time where the dollar is declining, it tends to rise pretty well.

Ryan Isaac:
Stocks offer a pretty good inflation protection. Historically stocks have actually done quite well during times where inflation has increased, or when the dollar is being devalued. Because people, when you’re buying a stock, you’re buying into a company that is trying to produce goods and services in an inflationary environment.

Ryan Isaac:
They’re trying to still make money, still grow, still make more. None of these investments should be looked at as an exclusive adjustment or a hedge to the declining dollar, in my view. They should just be looked at as tools in a healthy, broad, diversified portfolio that all work together to kind of create a more stable ride.

Ryan Isaac:
I don’t the idea of shifting just because of inflation. A lot of these things may not experience an upside during a time where the dollar’s declining.

Ryan Isaac:
Well, yeah. That’s what’s hard to do.

Reese Harper:
No guarantee that’ll happen, right?

Ryan Isaac:
Yeah. Well, when does something… Let’s take gold, when does gold… In the time of a crisis, what’s the pinpointed spot where it actually starts becoming the valuable hedge? And what’s the magnitude of that hedge? And then when is it over, when does it being a valuable hedge, and was it even gold?

Ryan Isaac:
Maybe it was beef or shout out to rice, white rice, brown rice, Spanish rice, yellow rice. I love all the rice. So yeah, that’s what’s tough, man. Typically those things are… People flock to them during times of uncertainty and panic and fear, and that’s what makes their expected return tough to predict. So I think it’s good. So if someone’s asking these questions, how do we hedge my simple answer over text?

Ryan Isaac:
When I was out of town to one of these people, was to protect against inflation, you just have to put your money in things that are going to grow more than inflation. And the things that are currently doing this client in particular, is building a very successful practice and investing in a globally diversified, low cost portfolio of equities with stocks and bonds.

Ryan Isaac:
And over time, historically, those have totally outproduced or outperformed the inflation rate, which has historically been like, 3%. So I don’t know, any parting words of something you would tell someone over a text or an email that’s like, “What do we do to hedge?”

Ryan Isaac:
What I’m hearing is, keep buying quality things that you’re going to stick to for long periods of time.

Reese Harper:
What about the cash question maybe, does this give rise to legitimate concerns of, “Should I hold less cash than I normally would? Do I pile up cash?” A little counterintuitive? Or what would you say about cash?

Reese Harper:
I don’t know that I would let inflation be the driver of whether I carry more cash or not, because if I’m in a diversified portfolio with my investments, I’m going to typically do better than if I’m sitting in cash.

Reese Harper:
If the dollar is going to get devalued, money sitting in the bank is going to get devalued the most. Because it has no appreciation potential, for the most part right now, at least, with where interest rates are at.

Reese Harper:
And so if it were me, I wouldn’t make the decision to keep more cash based on inflation. But I might make the decision right now as a dentist to keep more cash just because of business operational risk.

Ryan Isaac:
Totally.

Reese Harper:
Or during COVID in the fall. So maybe normally, if I was going to carry one and a half times monthly overhead in my practice check in account, I might carry two times overhead and not feel like I was being too aggressive about that.

Reese Harper:
And maybe if my personal emergency fund is normally a year, maybe I’m… Or normally six months, maybe I’m fine or prefer having a year’s worth of personal liquidity. Anything over three months, I would still invest on the personal side conservatively, but still invested. And then I just don’t think I would let inflation drive whether I did.

Ryan Isaac:
Yeah. More cash. I think that’s good, that begs that whole other argument, you can find at dentistadvisors.com about liquidity, and how much of your net worth should be considered liquid. And liquidity doesn’t always mean just cash sitting around. You can be very, very liquid and actually be efficient with your money. Not just sitting on cash.

Ryan Isaac:
So, if you want to hear some of the discussion about that, you can go to Dennis advisers.com and search under the education library for liquidity.

Ryan Isaac:
So, all right man, that, very helpful. Thanks for the tooth fairy packet under the pillow stories, may your children get more in the future.

Reese Harper:
Thank you. I’m excited.

Ryan Isaac:
Bump it.

Reese Harper:
Yeah, I feel kind of bad. Realizing how bad of a parent I am right now.

Ryan Isaac:
Well you didn’t steal from them. At least you just gave them money late out of your own pocket.

Reese Harper:
Just gave them $2.

Ryan Isaac:
Yes, you gave them something.

Reese Harper:
I didn’t take their dollars.

Ryan Isaac:
I didn’t just steal back from… Hey, someone back me up on this.

Reese Harper:
No shame.

Ryan Isaac:
Please someone just message me and tell me that they’ve done that to you. Okay? Just make me feel better.

Reese Harper:
Give Sir Ryan a little bit of confidence in the dentist advisors Facebook group.

Ryan Isaac:
Appreciate it.

Ryan Isaac:
All right, everyone. Thanks for tuning in. And thanks for joining us today. We really love and appreciate the support. And if you have any questions for us about your portfolio or what you’re doing with cash and any concerns you have about these topics, just chat with us.

Ryan Isaac:
Go to dentistadvisors.com, click on the book free consultation link, and schedule a chat with one of our advisors. You can go to our Facebook group that we’ve been talking about. It’s dentistadvisors.com/group, lots of great questions and answers heading in there. Or message us on social media anytime you want. So, thanks for joining us and we’ll catch you next time.

Reese Harper:
Carry on.

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