The Federal Reserve does great damage to the economy by controlling the money supply and distorting interest rates.  It is primarily responsible for the boom/ bust cycle.

Without the Fed, there would still be companies that go bankrupt.  There would even be certain sectors that would have downturns based on supply and demand.  But we would not see recessions or depressions where companies and sectors virtually across the board experience a downturn all at the same time.

Perhaps there would still be bubbles without a Fed.  Even Austrian school economists can argue this point either way.  But there is no question that we would not see the major bubbles (stocks, bonds, real estate) in today’s world without the central bank.

This is not to say that the government should be in charge of money either.  In fact, if Congress were in charge of the supply of money, that would be a sure road to massive inflation or hyperinflation. Instead, we should have a free market in money, where the market determines what gets used and supplied. Traditionally, the market has chosen gold as the best form of money.  In today’s world, if left to the market, we would probably see some form of digital gold.

Luckily for Americans, inflation in the United States tends to not be as bad as many other countries. We certainly have nothing like a Zimbabwe or Venezuela situation, and for that we should be thankful. Still, if we go back to the 1970s, there was double-digit price inflation.  Even today, if price inflation really is about 2% as claimed by the government statistics, that is still 2% per year.  It means the value of your money is cut in half every generation (about 36 years).

Planning for retirement is extremely difficult when you have to factor in inflation.  Maybe you are earning a great return of 8% every year that is compounding.  You seem to be well on your way to being wealthy for retirement.  But what if your nominal returns stay the same at 8% and price inflation goes up to 6%?  When you start drawing down some of your savings for retirement, things can get tight really quickly.  You almost don’t even know it is happening until after it has happened.

How are you supposed to plan without knowing what inflation will be a decade or two from now? How much do you really need to save to comfortably retire?  And what are you supposed to invest in to protect yourself from the inflation? Stocks can sometimes benefit from inflation, but the distortions in the economy from inflation can hurt corporate profits, so this is no guarantee.   There were periods during the 1970s when stocks did not do well, despite high price inflation.

Gold is obviously a good hedge against inflation.  But there are problems here as well.  Gold often does not do well during times when inflation fears are tame.  Gold also does not pay interest or dividends.  You are basically relying on the depreciating currency to get any gains. So while gold is good in many respects, you are not protected just by putting all of your money into gold.

This is why I recommend investing in a permanent portfolio, as described by Harry Browne in his book titled Fail-Safe Investing.  The permanent portfolio can give you peace of mind. You don’t have to worry about high inflation or stock market crashes.  You can protect your portfolio from virtually any economic environment, while still making a decent return over the long run.

There is an inflation bias in the permanent portfolio.  It will tend to do better during times of higher price inflation.  But this should be considered a good quality of the strategy.  You want higher nominal returns during periods of higher inflation.  In real (inflation-adjusted) terms, the returns tend to be more stable.

This also makes it much easier to plan for retirement.  If you put most of your financial investments in a permanent portfolio setup, then you will be protected if price inflation suddenly jumps to double digits.  And if that doesn’t pan out and we have something closer to a deflationary depression, then you are also protected.

The permanent portfolio probably won’t make you rich by itself, but it will help protect the money that you have saved, and it will give you steady and more predictable returns.  There are fluctuations with the portfolio, but they are much smaller than if you were to invest in one asset class such as stocks.

You can get a more stable return by buying an annuity or bonds, but this is in nominal returns. This will not protect you in the case of a massively depreciating currency.

I have written a short e-book on how to set up a permanent portfolio and possible ways to tweak it to fit your personal situation.  It is available on Amazon for just $7.99. If you take away one piece of advice from this book, it could save you thousands of dollars or more over the years.  Better yet, it can save you from a lot of anxiety about stock market crashes, or massive inflation, or other events.  That is why I sometimes refer to it as the “Sleep-at-night Portfolio”.

I just released this e-book late in 2018, but I have not promoted it up until now.  If you are reading this before January 31, 2019, I am running a discount where you can get this book for just $2.99.  Again, this is a miniscule price to pay for less anxiety and possibly saving your portfolio many thousands of dollars over the years.  It will probably save you a ton of time too, as setting up a permanent portfolio is not difficult.  You don’t have to study the financial markets to implement the portfolio.

Pick up this e-book while this discount lasts.  You don’t have to continually worry about the rate of price inflation next year and next decade.  Don’t go into retirement in the dark without a flashlight. The permanent portfolio can help guide you into a more peaceful retirement where you don’t have to play guessing games on what the next move will be by the Federal Reserve.