Thanksgiving dinner will cost American families more in 2011, by about 13%, according to the American Farm Bureau Federation. This is a much higher inflation rate than what the Consumer Price Index (CPI) would lead us to believe. The most recent CPI rate showed an annual inflation rate of 3.5% for all items in the index. The things with the highest inflation was housing or shelter, medical costs, and food. As we all go shopping at the grocery store to get the turkey dinner fixings, our receipts will confirm that costs are higher.
This 13% increase in the traditional turkey dinner costs includes a meal of the following for 10 people:
- 16 pound turkey
- Bread stuffing
- Sweet potatoes
- 1 lb relish tray of celery and carrots
- Pumpkin pie with whipped cream
- Milk & coffee
Writing this post is already making me hungry, I’m not sure if I can wait until Thursday for the feast!
But in all seriousness, this rising inflation should sound an alarm to everyone out there. Costs of the things we use every day are increasing rapidly while many Americans are unemployed or underemployed. Inflation has historically averaged about 3.5% over the last 75 years or so. But there have been periods of time where it was much higher than that. Most of you remember the 80’s when mortgage interest rates were well into the teens. In fact, a 12% interest rate on your mortgage would have been very good at one time. I only mention mortgage rates because they do tend to be tied to overall inflation rates in general. Mortgage rates right now are very low. In fact, mortgage rates are now much lower than the inflation rate of food, medical care, and housing.
One of the important aspects of personal financial planning is diversification. Everyone knows that you should diversify your retirement assets into various classes to protect yourself from everything going down at once. Diversification also protects you from missing out on an investment class that grows at a rate far greater than other classes. If you have part of your assets in that class you’ll be able to take advantage of that increase.
Buying insurance is another way to diversify your assets. Putting part of your money into an insurance policy to protect you from a significant loss makes good sense. I’ve always supported buying insurance for the big things that could creast a catastrophic loss.
I want to suggest today another way to diversify your assets, and protect yourself from major losses. This may seem crazy to some of you, but to many who are already doing this, it makes perfect sense. I think every family needs to put some of their assets into buying extra food and other household consumables. Having a supply of food daily consumables will protect you against rising inflation. In fact, if you were able to use food today that you bought 1 year ago, you would have essentially earned 13% on the money you invested into that food. I’ll bet you didn’t make that in the market last year.
Now I know that not all food items can be stored that long before use. But there are a lot of ways to store food for much longer than a year. Many canned goods and dry food items are packaged in a way that they can be used well over 1 year later. Powdered milk and powdered eggs can also be purchased and stored for well over a year. Wheat, which can be ground into flour can be stored for up to 25 or 30 years. There’s a ton of information on the web about building up a food storage for your family.
You could also invest some of your assets into food and aggriculture stocks. But if food becomes difficult to get, you can’t eat your shares of stocks.
We are experiencing food shortages in many parts of the world right now. This could continue to affect food prices going forward. Food costs rose by 13% this last year, how much will they go up this next year?
Now I’m not say to go dig a bunker in your backyard and prepare for the end of the world. What I am saying is to just buy a little extra each time you go to the store. Find things on sale and buy a few more of them than you normally would. Turn an extra closet into a food storage pantry and start filling it up. Gradually build up a storage of food and household supplies as an easy way to protect yourself from rising costs. And if inflation really gets out of hand down the road, you’ll be glad you did.