Coasting in Retirement – Episode 83
When most people think about investing, they focus on stock prices, interest rates, or the latest financial headlines. But according to Josh Null and Michelle Lee Melton-Null, understanding one fundamental concept can change the way you view every investment decision: how money actually works.
In this episode of Coasting in Retirement, Josh explains the history of money, how new money enters the economy, and why those concepts directly affect inflation, purchasing power, and long-term investment returns.
Money Is More Than Cash
Most of us think of money as the bills in our wallets or the balance in our bank accounts. But Josh explains that modern money is really a system of trust.
Historically, societies used commodities like gold and silver as money because they held intrinsic value. In 1971, however, the United States officially moved away from the gold standard, creating what economists call fiat currency: money that has value because governments issue it and people agree to accept it.
Today’s financial system relies less on physical cash and more on digital records that represent transactions, loans, and obligations throughout the economy.
Where New Money Comes From
One of the biggest misconceptions is the belief that every new dollar comes from a government printing press.
In reality, much of today’s money is created when banks make loans.
When someone takes out a mortgage, business loan, or other form of credit, the banking system creates new deposits that become part of the money supply. As loans are repaid, that money effectively disappears from circulation.
Because lending drives money creation, interest rates become one of the most powerful forces influencing the economy.
- Lower interest rates encourage borrowing, increasing the money supply.
- Higher interest rates discourage borrowing, slowing the growth of money throughout the economy.
This relationship helps explain why Federal Reserve policy has such a significant impact on markets.
Why Inflation Happens
Inflation occurs when the supply of money grows faster than the economy’s ability to produce goods and services.
Simply put, if more dollars compete for the same number of homes, vehicles, groceries, or other products, prices naturally rise.
Josh points to the dramatic expansion of the money supply during the pandemic as one example of how rapid monetary growth contributed to the highest inflation Americans had experienced in decades.
While inflation often feels like rising prices at the checkout line, it is also a reflection of how the purchasing power of each individual dollar changes over time.
Cash Has a Cost
One of the episode’s biggest takeaways is that holding large amounts of cash for long periods carries its own form of risk.
Since the mid-1970s, the U.S. money supply has expanded dramatically. As more dollars entered the economy, purchasing power steadily declined, making it increasingly difficult for cash alone to keep pace with inflation.
That doesn’t mean investors shouldn’t maintain emergency savings or short-term cash reserves. Rather, it highlights the importance of understanding the long-term role cash should play within an overall financial plan.
Why Productive Assets Matter
Josh argues that one of the best ways to combat inflation over long periods is through ownership of productive assets.
Businesses can often increase prices, grow earnings, and create additional value over time. Real estate also represents a tangible asset that generally benefits from long-term economic growth.
Historically, diversified stock ownership has significantly outpaced both inflation and money supply growth over multiple decades, illustrating why long-term investing remains such an important wealth-building strategy.
Rather than viewing market volatility as the greatest investment risk, Josh encourages investors to also consider the hidden risk of losing purchasing power by remaining overly concentrated in cash.
Headlines of the Week
The news segment covered several timely financial topics.
The first discussion examined the highly anticipated SpaceX initial public offering, highlighting the difference between investor excitement and independent valuation estimates. Josh emphasized that even exceptional companies can become poor investments if purchased at unrealistic prices.
The second article revisited the long-running debate between gold and stocks as inflation hedges. While gold can serve as a defensive asset and portfolio diversifier, Josh noted that productive businesses have historically generated stronger long-term returns because companies can continue creating earnings and raising prices over time.
Finally, Josh and Michelle discussed inflation and annuities, explaining that many products marketed as inflation-resistant involve tradeoffs. They stressed the importance of understanding exactly how inflation riders work before assuming they will fully preserve purchasing power throughout retirement.
Looking Ahead: The Challenge of Government Spending
The episode concludes with a discussion about federal spending and the structural difficulty of reducing government deficits.
Josh explains that the majority of federal spending is concentrated in entitlement programs, healthcare, national defense, and interest on the national debt. Because such a large portion of the budget is already committed, reducing spending becomes significantly more complicated than eliminating smaller discretionary programs.
He connects this discussion back to the episode’s central theme: understanding how government borrowing, debt, and money creation ultimately influence inflation, markets, and long-term investing.
Final Thoughts
Markets rise and fall, headlines come and go, and economic cycles change. But one lesson remains remarkably consistent: understanding how money is created and how inflation affects purchasing power can make investors more informed over the long run.
Rather than focusing solely on today’s market movement, Josh encourages investors to think about the forces shaping their financial future over decades, not days.
Ready to Build a Long-Term Financial Plan?
If you’d like to discuss your investment strategy or retirement goals, Gulf Coast Financial Advisors is available to help.
Call 251-327-2124, or visit gulfcoastfa.com to schedule a meeting.
Meeting options include:
- 15-minute introductory phone calls
- 30-minute Zoom meetings
- In-person meetings in Fairhope, Orange Beach, or Mobile
No pressure. No obligation. Just a conversation about building a financial plan designed for the long term.
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