What's your inflation plan?

 
Wealthy Retirement

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Editor's Note: Today, Chief Income Strategist Marc Lichtenfeld reveals the secret for beating inflation and building the retirement you deserve: investing in stocks that consistently grow their dividends.

This strategy can be so powerful that Marc likes to call it the "Perfect Retirement Income Generator."

While Treasurys earn investors practically nothing - and while even your average "junk" bonds don't earn enough to beat inflation - the Perfect Retirement Income Generator can show investors how to earn 11% yields within 10 years or 12% average annual returns in 10 years with dividends reinvested.

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- Mable Buchanan, Managing Editor

How Are You Going to Keep Up With Inflation?

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

It's been a long time since anyone has had to worry about keeping up with inflation.

As you can see from the chart below, the recent 5.4% reading of the consumer price index is the highest inflation reading since 2008. And other than a short blip in 2011, inflation has been mostly nonexistent for more than a decade, spending most of the time below 2%.

U.S. Consumer Price Index
 

That has changed suddenly as the world reopens. As fast as an uncoiling spring, people are opening their wallets to begin living the lives they've been denied for the past year.

Inflation is on everyone's mind today, and that 5.4% figure doesn't begin to tell the story. Prices are higher in nearly all walks of life - and in some, they're up considerably. Have you ordered from a restaurant lately, considered buying a car or booked a hotel room?

Wall Street experts and economists are all talking about inflation today, yet almost no one was when I warned readers of my Oxford Income Letter last year that "inflation will be here sooner than most expect" and when we started positioning our portfolios accordingly.

Fed Chair Jerome Powell doesn't share my concern, as he has vowed to keep interest rates near zero. Great news if you're looking for a mortgage. Terrible news if you're hoping your investments keep up with inflation.

Treasurys - a staple for conservative investors - pay nothing. The 10-year Treasury yields just more than 1.3%.

But even more aggressive bonds aren't keeping up with inflation.

The average high-yield (junk) bond yields less than 4% today, down from nearly 6% two years ago (before the pandemic).

So where can an investor obtain a relatively safe yield that will keep up with inflation?

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In 2012, I wrote the first edition of my book Get Rich with Dividends to answer that question - and the following year, I launched The Oxford Income Letter (we just celebrated our 100th issue).

The strategy behind both is my 10-11-12 System, which is focused on dividend growth for the exact situation we find ourselves in today. It shows investors how to earn 11% yields within 10 years or 12% average annual returns in 10 years with dividends reinvested.

(Click here to learn more about my 10-11-12 strategy and The Oxford Income Letter.)

We want our recommendations to not only keep up with inflation but also increase our buying power.

If, in 2013, you'd bought one of my first recommendations - Texas Instruments (Nasdaq: TXN) - and were still holding today, aside from seeing your stock go up by nearly seven times, your yield would be 11.9%, more than double the current rate of inflation.

Or consider Eaton Corp. (NYSE: ETN). It currently yields just 2%, but due to dividend raises, investors who bought it in 2015 when I first recommended it and still hold today are enjoying a 5.9% yield - again above the inflation rate.

If you're relying on your investments for income, that income needs to be able to grow. There aren't many safe investments that will do that.

And while all stocks carry risk, dividend growers outperform over the long term and have never had a down 10-year period as measured by the S&P 500 Dividend Aristocrats Index.

By investing in stocks that raise their dividends every year, you're boosting your buying power.

Whether inflation drops back down to 2% or goes up higher from here, if your dividends are growing by 7%, 8%, 10% or more, you won't have to worry about rising prices because your dividends should have you covered.

As inflation continues to rise (as I expect), dividend growth stocks will help you beat it.

Good investing,

Marc

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