I got one response to yesterday’s TAX MATH post, which had less to do with taxes and more to do with a concern that, by taking my money out of the stock market, I was running the risk of watching that money lose value due to inflation.

Or something like that. The specific concern was not specifically articulated, except to note that investing is a hedge against inflation, and by removing that hedge I have put myself at a risk equal to (or greater than) the risk of losing money during a market downturn.

This seems like a false equivalence.

Whatever money I earn today is likely to have less purchasing power every subsequent year, sure.

And by investing in the market, I could average a 6% return (though it’s more financially prudent to assume a 4% return), which could give me enough additional dollars to offset the lost purchasing power of my original dollars.

If that’s the argument, then there’s another way out — which is to earn additional dollars.

You could also spend fewer dollars.

You could even come up with a number of dollars you anticipate needing between now and the end of your life and then figure out the most efficient way to collect those dollars, whether it’s freelancing or index funding or day trading or house flipping or getting yourself promoted to the C-suite.

To be fair, yesterday’s TAX MATH post did not directly address inflation. Instead, it assumed that I would spend an average of $25,000 every year between now and death — and if we define inflation as an automatic annual reduction of my purchasing power, also assumes that I will either be making fewer purchases every year, or will need to reallocate my expenses to accommodate an increase in consumer staple costs.

Is there anything wrong with that assumption?

L and I are both extremely frugal, after all — plus, the house’ll be paid off within the next ten years or so, which will free up some cash to purchase higher-priced food and gas.

I’ve also got enough in my HSA to more than cover any annual out-of-pocket healthcare costs without dipping into long-term savings — and I am going to continue making HSA contributions, so those dollars will increase over time (even as they lose value).

Since housing and healthcare costs have a much larger impact on long-term financial stability than consumer staples, getting those budget line items sorted as efficiently and effectively as possible seems like the primary concern.

The secondary concern, in my case, is directed towards you — or towards anyone who is worried that I am not worried enough about inflation.

I have read a lot of personal finance books. I have interviewed a lot of people about their financial habits and long-term goals.

Not one person has said “the thing that got me into financial trouble was inflation.”

What does cause financial distress, in both the short and the long term?

It generally comes down to expenses exceeding income, whether it’s a true case of profligacy or a more realistic case of not earning enough money to make ends meet.

It also, occasionally, comes down to the stock market reducing the total redeemable value of your accumulated savings.

I am not saying don’t invest — in fact, I’ve said before (on this very blog) that depending on your various opportunities to contribute and/or generate value in the (non-stock) market, the best way to increase your net worth might actually be through investing.

(I’ve also said that, in that case, you should set a WIN CONDITION and a MINIMUM LOSS CONDITION and sell when one or the other is achieved.)

But you shouldn’t invest simply because you’ve heard it’s a hedge against inflation. There are other ways to solve the problem of “ensuring you have enough dollars for your current and future expenses” — and many of them are well worth considering. ❤️