With inflation rates rising and interest rates on the decline, regular income is decreasing in its actual worth. While there is nothing to do about inflation itself, investors can give earning potential a boost with inflation-busting passive income. Foundation Capital offers investment opportunities in the soaring medical, construction, and transportation industries that can help investors earn money with little maintenance, great security, and excellent returns.
Raging Inflation Leaves You With Less Spending Power
Inflation is making headlines around the world as it has risen from 6% to 9% in more than half of the economies. Rising prices in core areas of budgets and the consequent devaluation of the currency have left investors with a significant granted financial hit in the last two years.
Take Greece for example, inflation has risen to a record high of 12% nationwide and is expected to rise even higher in the upcoming months. Consequently, the income there is losing real-world purchasing power even as wages are reported to be rising at the fastest rate in years. As the Consumer Price Index continues to soar, if your regular income has not adequately increased, you are losing money.
For example, if you have €10,000 in your bank savings and inflation is at 12%, one year from now, your €10,000 will be worth €8,800 or less.
How Inflation Reduces Your Spending Power
Capital
Less Inflation (decreasing your capital by 12%)
Your Net Spending Power
Year 1
€ 10,000.00
-€ 1,200.00
€ 8,800.00
Year 2
€ 8,800.00
-€ 1,200.00
€ 7,600.00
As a result, if inflation goes unchecked, your capital reserves will inevitably be depleted. There are levers you can pull, in terms of jobs or spending, in order to diminish the impact of inflation. Nevertheless, most of these require major changes and cutbacks that are risky or excessive. Yet, when you find a sustainable stream to generate passive income from your capital, the problem can be managed.
Rising inflation creates global financial pressure.
How Passive Income Can Solve The Inflation Problem
There is a reason why the concept of passive income has gained significant traction of late. As a low-effort solution to investing, it generates an effective stream of income with little or no maintenance. Thus, passive income can assist you in keeping inflation and its impacts at bay.
In particular, in order to preserve your capital and protect it from being lost to inflation, you can use it to produce passive income, thus protecting and maintaining your spending power. For example, if you invest your capital in an income-producing vehicle delivering over 12% then you protect your capital and make a profit, thus increasing your spending power.
Capital
Less Inflation (decreasing your capital by 12%)
Plus Rental Income (19%)
Your Net Spending Power
Year 1
€ 10,000.00
-€ 1,200.00
+€ 1,900.00
€ 10,700.00
Year 2
€ 8,800.00
-€ 1,200.00
+€ 1,900.00
€ 11,400.00
Hence, income will not only provide you with liquidity for basic monthly essentials, such as food, energy, and fuel, it will also protect your capital and preserve it, and is therefore of the highest importance during this inflationary time. If you have passive income, your net spending power will be 50% higher than if you don’t.
How to Earn Passive Income with Foundation Capital
If you want to generate a sustainable passive income stream, industrial equipment for construction, transport and healthcare are the most reliable assets to invest in that deliver double-digit returns. Our process has been refined, perfected, and proven over the past 12 years of renting our clients’ assets to these industries.
For more detailed information on how to make a capital investment in construction with Foundation Capital, as well as the terms, conditions, and risks, refer to the following FAQs and guides:
Inflation has returned, and it is wreaking havoc. Surging economic activity, supply-chain disruptions, and soaring commodity prices combined in 2021 to push global inflation to its highest level since 2008(Figure 1). Among emerging market and developing economies, inflation reached its highest level since 2011. It now exceeds inflation targets in more than half of these economies with an inflation-targeting framework.
Figure 1. Consumer price inflation
Source: Haver Analytics; World Bank.
Note: “EMDEs” refer to emerging market and developing economies and “LICS” to low-income countries. The data is based on year-on-year group median inflation.
With the war in Ukraine, matters are going quickly from bad to horrid. Food and fuel prices have spiked, as Russia and Ukraine are big exporters of many commodities including gas, oil, coal, fertilizers, wheat, corn, and seed oil. Several economies in Europe and Central Asia, the Middle East, and Africa are almost entirely dependent on Russia and Ukraine for wheat imports. For lower-income countries, disruption to supplies as well as higher prices could cause increased hunger and food insecurity. And disruption to supply chains could broadly intensify inflation pressures.
For many households across the world, rising inflation poses a significant challenge. Higher prices can erode the value of real wages and savings, leaving households poorer. But these effects are not felt equally: Low- and middle-income households tend to be more vulnerable to high inflation than wealthier households. That reflects the composition of their income, assets, and consumption baskets. Inflation may affect the very poorest households living below the global poverty line less directly, however. That’s because the poorest households have minimal wage incomes or assets and tend to rely on nonmonetary income, such as subsistence farming or barter, which may be less vulnerable to inflation.
COMPOSITION OF INCOME
In advanced economies, low- and middle-income households tend to rely more heavily on wage income and transfer payments than wealthier households (Figure 2). Price inflation often outstrips growth in wages and transfers, while self-employment income and investment income may be more likely to keep pace with inflation. As such, inflation can reduce the incomes of poorer households relative to those of the richest. Among emerging market and developing economies, the picture is similar. In Brazil, for example, self-employment and investment income account for a larger share of income in high-income households than in low-and middle-income households. However, the very poorest households also rely on nonmonetary income.
Figure 2. Sources of household income
Sources: Brazilian Institute of Geography and Statistics, Family Budget Survey 2018; Federal Reserve Board, Survey of Consumer Finances 2019; World Bank.
Note: “Low” refers to the bottom 25th percentile of households, “middle” refers to the 25th to 75th percentile, and “high” refers to the top 25th percentile. Data for the United States is not directly comparable with Brazil due to survey differences. Percentiles for the United States are based on wealth, while for Brazil they are estimated based on income. Wages and transfers include wages, social welfare transfers, and pension payments. Self-employment and investment include self-employment income, interest income, dividends, and capital gains. Nonmonetary income includes income obtained via self-consumption, self-supply, or self-leasing.
COMPOSITION OF FINANCIAL ASSETS
Poorer households often lack access to financial products that can protect them against inflation, because these products can have upfront or ongoing costs and therefore be unaffordable. In the United States, for example, almost all households have a transaction or checking account at a financial institution. However, far fewer households have savings or investment products. The distribution, moreover, is highly skewed: The wealthiest quartile of U.S. households is five times as likely as the poorest to hold certificates of deposit, six times as likely to hold savings bonds, and 12 times more likely to hold investment funds.
High inflation, in short, tends to worsen inequality or poverty because it hits income and savings harder for poorer or middle-income households than for wealthy households. Households that have recently escaped poverty could be pushed back into it by rising inflation.
COMPOSITION OF CONSUMPTION BASKETS
Poorer households may actually experience higher rates of inflation than wealthy households. Consumer-price inflation measures are calculated using a basket of goods that is representative of the average consumer. But the actual composition of spending varies significantly by income group. For example, the lowest-income households in emerging and developing economies spend roughly 50 percent of their income on food. For the highest-income households, the amount is just 20 percent (Figure 3). The recent increase in food and energy prices could disproportionately impact the poorest households. High-income households can easily switch from higher-quality goods to lower-quality goods in times of economic crisis. They can also take greater advantage of discounts on bulk purchases and sales. Poor households ordinarily don’t have those options.
In some emerging and developing economies, rising food prices do hold the potential to benefit a sizeable segment of the poor. In the average developing economy, more than one-fifth of households around or below the poverty line are net food sellers, so higher food prices could be good for them. Nevertheless, the vast majority of the poor in developing economies remain net buyers of food, so food-price spikes tend to increase poverty overall.
Figure 3. Composition of consumption expenditure, by income group
Source: World Bank.
Notes: Sample consists of 90 emerging market and developing economies, including 24 low-income countries. “Housing” includes energy and other utilities. “Transport” includes purchases of new vehicles, as well as motor fuel. “Other” includes furnishings, personal care, and finance and insurance services. The lowest consumption segment corresponds to the bottom half of the global distribution, or the 50th percentile and below; the higher consumption segment corresponds to the 91st percentile and above. See World Bank for more details.
WHAT POLICYMAKERS CAN DO
Governments have been turning to subsidies to dampen the impact on households. In some cases, subsidies can be an effective transitional tool to ameliorate the impact of shocks. But they tend to be left in place for too long, leading invariably to adverse effects. Subsidies can quickly detract from spending in infrastructure, health, and education. Energy subsidies tend to go to wealthier households more than poorer households and encourage excess consumption.
Worryingly, many governments are considering the use of trade restrictions and export bans to protect domestic supplies of food. They should desist. Policies such as these that seem appropriate at the country level tend to have terrible global consequences. During the 2010-11 food price spike, trade restrictions amplified the increase in world prices and pushed millions of people into poverty, though they dampened domestic price increases.
Policymakers should instead use social welfare policies to protect the poorest from rising prices. These policies could include targeted safety nets such as cash transfers, food, and in-kind transfers, school feeding programs, and public works programs. Calculating inflation indexes for different income groups provides better information on inflation actually experienced by the poor and should inform the design of social safety nets. International cooperation and communication will be needed to avoid tit-for-tat measures.
Central banks in emerging markets and developing economies have also moved swiftly to curb inflation. In deciding what to do next, they should keep in mind the potential effects on poverty and inequality. Governments can also improve their access to financial products that might protect the real value of the assets of poor families against inflation—spurring greater competition in the financial sector will help to achieve that outcome.
How to Earn Passive Income with Foundation Capital
If you want to generate a sustainable passive income stream, Foundation Capital is one of the most reliable organizations to invest in. Our process has been refined, perfected, and proven over the past 12 years of renting our clients’ assets to the construction industry.
For more detailed information on how to make a capital investment in construction with Foundation Capital, as well as the terms, conditions, and risks, refer to the following FAQs and guides:
I used to scoff at the mention of ‘The Great Reset”, or the idea that a handful of elites are running the global show behind the scenes. Needless to say, on the other side of the pandemic, I have warmed up to the idea in a big way. I can’t help but feel as though some often talked about conspiracy theories are in the process of unfolding right before our very eyes, whether via premeditated means or just from plain old dumbass incompetencefrom global politicians and Central Banks.
As anybody who is harshly critical of the idea of a “Great Reset” will tell you, one of the key tenets of a post-apocalyptic, Klaus Schwab-run world is the idea that we will no longer have private property rights. This comes from a statement that Schwab made, predicting what life would be like in the year 2030:
“You’ll own nothing” — And “you’ll be happy about it.”
And while today’s lesson is rather elementary, it’s worth noting that this conspiracy theory not only isn’t too far from the truth, it could very well be in the midst of taking place right before our eyes.
I had to look no further than my own personal circle to find recent examples of grown adults who were having difficulty making ends meet due to rising prices. These people had some money saved up, but still could not keep up with the price of rent and housing, and ultimately wound up giving up on having their own place and moving back home with their parents.
When I was discussing this example on my most recent podcast, I had the revelation that, as is true with anything economic, this same situation was playing out millions of times over, with millions of other Americans, every day. In other words everyone is having the same problem: they simply can’t afford things anymore and, with inflation at between 8% and 9%, the value of their savings is collapsing.
In just 3 years, things cost between 15% and 20% more than they did when many savers were putting away a majority of their money – before the pandemic. The purchasing power of the dollar is down by about 20% over the same time.
USD Purchasing Power (5 Years) via TradingEconomics.com
Those who are still working on a wage that isn’t 20% higher than it was just 3 years ago are losing significant ground. Those who have stopped working and are either on a fixed income or are living off savings have been hit even worse (especially if you’re living off a pension managed by some of the absolute worst managers to ever step foot in front of a Bloomberg terminal, like this one and this one).
This financial pressure is widely talked about when it comes to people paring back their discretionary spending. We hear the news talk about a slowdown in spending all the time when economic times get tougher – it’s one of the dynamics that creates recession and de-leveraging cycles. But what happens when it’s the cost of shelter (i.e. rent and housing) and real estate that are also getting too expensive for everyday buyers. This is talked about far less, so let’s quickly think about what it could mean for the future.
We are all Spaulding
In Klaus Schwab’s future, borrowing the words of Judge Smails, “you’ll get nothing and like it!”
It’ll be this way because everything will be communal and shared. The focus will be taken away from private property and private property rights.
Inflation helps this narrative greatly. If you have less purchasing power to buy discretionary items then, by proxy, you have less private property.
The scary thing is when this dynamic starts to extrapolate itself over people’s real estate and land ownership. In other words, a future where nobody can afford a second set of golf clubs doesn’t seem that post-apocalyptic, but a future where fewer and fewer people own land and house, and where the geographical distribution of the world’s livable area starts to fall into the hands of the richest few and state backed entities – well, this seems extremely post-apocalyptic.
While I admit this is a bit “fringe” at the moment (hey, it’s what I do), I now can’t help but think of inflation as a way to help strip away people’s individual private property rights. When you take away a person’s private property, private property rights don’t hold the same meaning to them. Do people that don’t want to own guns care about the right to own guns? Probably not as much as those who are avid sportsman or want to own guns for personal protection.
If you haven’t yet, I would encourage you to listen to my most recent podcast with Andy Schectman, where he lays out the de-dollarization path we could be on and how the global economic landscape is shifting before our eyes. In his estimation, everything that needs to be happening for ‘The Great Reset” to take place on or ahead of schedule is already happening.
And as I said to him, while I may have laughed at the idea a couple of years ago, I found myself with my jaw agape by the end of the interview – because as much as I didn’t want him to, his post-apocalyptic scenario was making a whole lot of sense.
I know this is somewhat of a basic lesson in economics, but the next time you hear the Biden administration refer to inflation at 0% sequentially, despite the fact that it was up more than 8% from the year prior, take it personally. Remember that every positive CPI print we see represents the percentage of things you can buy less of with the same money you had a year prior.
If you could afford 8% more “stuff” last year with the same dollar, what type of mental gymnastics do you need to perform to convince yourself that your rights to private property aren’t being whittled away and taken out from underneath you?
How to Earn Passive Income To Tame Raging Inflation with Foundation Capital
If you want to generate a sustainable passive income stream, Foundation Capital is one of the most reliable organizations to invest in. Our process has been refined, perfected, and proven over the past 12 years of renting our clients’ assets to the construction industry.
For more detailed information on how to make a capital investment in construction with Foundation Capital, as well as the terms, conditions, and risks, refer to the following FAQs and guides:
The article was written by Samuel Rhee and was originally published on The Strait Times.
With inflation at multi-year highs, investors are on the hunt for regular streams of passive income to supplement their take-home pay. The most common choices are dividends from stocks and yield from fixed-income bonds, while some will swear on real estate and seek out rental income or try to hunt down inflation hedges. But there is an inherent risk that people may not initially see.
There are nuances behind the passive income strategies that require further due diligence. Not all investments that seem to provide an inflation hedge can deliver it in this environment of both slowing growth and high inflation. Passive income portfolio strategies that suit others may not suit you. Investing is a deeply personal endeavour.
Hunt for passive income
Core inflation in Singapore in June rose to 4.4 per cent, breaching 4 per cent for the first time since the end of 2008. Naturally, our first instinct is to find ways to protect and preserve our purchasing power and investors are already on the prowl for more income.
However, we are in a unique situation of not only higher inflation but also slowing global growth. The International Monetary Fund expects global growth to further slow from 3.2 per cent this year to 2.9 per cent next year. China’s economic slowdown is on investors’ minds while scorching inflation has been driven by cost pressures resulting from the persistent spread of Covid-19 around the world and the Russia-Ukraine war. With recession looming, simple inflation protection strategies may not always work.
For example, high-flying commodities did well in the early stages of inflation spiking but growth concerns have seen prices collapse in recent months. Often in this type of environment, investors pile into fixed-income bonds due to their relatively defensive qualities and the relative protection they provide over more volatile assets like stocks and commodities. To be clear, bonds have gone through several difficult months but the rout is largely behind us.
Rising interest rates and slowing growth probably warrant a second look at fixed income, especially if you are a long-term investor. In a rising interest rate environment, investors can buy bonds through a laddering strategy. This effectively allows investors to earn income from high-quality credit and use the income and money from maturing bonds to reinvest into fresh bonds that will pay a higher coupon.
With rising interest rates, you can generate better yield from similar or better-quality bonds without taking as much risk. Professional bond investors do this systematically and they can also use tools such as hedging to spread out risk and reduce cost.
Bond funds also allow for greater diversification benefits by giving investors exposure to hundreds of bonds from different countries and sectors, while managers are able to reinvest the proceeds from redeeming older bonds into new instruments with higher coupon rates or better prices.
Investment amounts in such unit trusts tend to be small enough to lower the hurdle for all retail investors, whereas a single corporate bond in Singapore is typically priced in a large denomination of at least $200,000 with costly transaction fees.
In this trying time, simple strategies for passive income may not always work.
The other popular form of passive income is from dividends. IHS Markit data shows a projected 6.5 per cent growth in global dividend payouts this year. Investors have continued to pour money into dividend-linked funds because companies with a consistent dividend payout are meant to have defensive qualities. Large companies dominating with pricing power or the ones that are able to grow in an inflationary or slower growth environment stand out. Those who do well have a strong balance sheet to withstand the growth downturn while maintaining cash flow and keeping dividends stable. Because they do not need to borrow more, they are less affected by rising interest rates.
Again, being selective in this environment is key to securing steady passive income. As an example, both Singapore real estate investment trusts (S-Reits) and global Reits have been sold down amid inflationary pressures, rising interest rates and growth concerns. Reits are listed equities so when the market comes down, Reits will not be protected and will trade down together.
While they may have some defensive qualities like other dividend stocks, the sector may not do as well as some people think, especially if property prices also start coming off. Reits pay out distributions from collecting rental income and rely on both strong business activity in their specific real estate sectors and low operating costs to sustain distributions. The rapid rate hikes have hit Reits particularly hard due to the much higher interest costs. Past acquisitions were funded by cheap debt, so they will slow acquisition momentum.
Reits also face higher operating expenses for their portfolio assets due to inflation, so it is a double whammy. These may pressure some Reits to cut their distributions, especially those that did not adequately hedge their costs of borrowing to fixed rates or cannot improve their operational efficiency.
While physical real estate can potentially hedge against inflation when rents rise, similar to Reits, they will see higher interest and rents rarely keep pace with high inflation rates. Maintenance costs will also rise.
The Endowus Global Real Estate Portfolio – one of Endowus’ satellite portfolios that make up a core-satellite strategy – is invested in diverse global real estate and infrastructure companies, offering an effective hedge against inflation. It enjoys strong pricing power or even explicit long-term pricing contracts to pass the impact of rising prices to its customers.
Life stage matters
Individuals at different stages of life will have different financial priorities and goals. Retirees may prioritise more stable payouts to supplement their retirement income. But if you are part of the sandwich generation, you may be balancing more family expenditures while saving for retirement. Investors in this life stage can look for a balanced portfolio of long-term fixed income holdings and dividend-paying counters, such as the Endowus Income Portfolios managed by some of the leading global fund managers.
As for young investors, the earlier you start investing, the more time you have to grow and accumulate your wealth. Looking for passive income in this investing environment is no walk in the park. Rather than trying to find the best single stock or bond to buy, seek out diversified portfolios or funds, then commit to a regular investment plan through a dollar-cost averaging strategy. Sitting on your hands will only result in inflation eating quickly into the value of your money.
How to Earn Passive Income with Foundation Capital
If you want to generate a sustainable passive income stream, Foundation Capital is one of the most reliable organizations to invest in. Our process has been refined, perfected, and proven over the past 12 years of renting our clients’ assets to the construction industry.
For more detailed information on how to make a capital investment in construction with Foundation Capital, as well as the terms, conditions, and risks, refer to the following FAQs and guides:
With inflation rates rising and interest rates on the decline, regular income is decreasing in its actual worth. While there is nothing to do about inflation itself, investors can give earning potential a boost with inflation-busting passive income. Foundation Capital offers investment opportunities in the soaring construction industry that can help investors earn money with little maintenance and great security and excellent returns.
Rising Inflation Leaves Investors with Less Real Income
Inflation is making headlines around the world as it has risen from 6% to 9% in more than half of the economies. Rising prices in core areas of budgets and the consequent devaluation of the currency has left investors with a significant granted financial hit in the last two years.
Traditional savings also fail to protect investors as banks have been pressured to boost spending in a post-COVID world. In fact, the European Central Bank has even set a negative interest rate, meaning that account holders across Europe are paying their banks to hold their money.
There are levers investors can pull, in terms of their jobs, investment, and spending, in order to diminish the negative financial impact of inflation. Nevertheless, most of these require major changes and cutbacks that are either risky or excessive. Switching jobs, extreme tracking of expenses, and high-risk investments with little guarantee… might not work for everyone in a world where certainty remains far-fetched.
How Passive Income Can Fill the Gap
There is a reason why the concept of passive income has gained significant traction of late. As a low-effort solution to investing, it generates an effective stream of income with little or no maintenance. Thus, passive income can assist you in keeping inflation and its impacts at bay.
Passive income can help curbing inflation.
Passive income refers to the money you earn that does not require active effort in terms of money, time, and resources. For example, stocks that pay out dividends, a spare room for rent, a space on your website for selling advertisements, royalties from books… The initial level of effort required varies with each scenario, but the results are the same: a stream of the steady income that builds security over time.
While earlier, the options were limited, there are now various investments to choose from that deliver respectable income streams. Nevertheless, the increasing number of options also comes with challenges in choosing the right stream of investments. Modern options, such as shares, Initial Public Offering (IPO), cryptocurrency, or microcap shares might seem attractive, although they are risky but because they are speculative and might generate better returns, yet the risk is too high and requires more research and monitoring than one might expect for a passive income. Meanwhile, investing in tangible assets offers much more secure and stable returns. In short, Shares, IPOs, and cryptocurrencies are all speculations that deliver no stable income whereas tangible assets are income-producing investments.
Construction Investments as Reliable Passive Income
The global construction industry is currently more coveted for its explosive growth potential. It is expected to reach an estimated USD 10.3 trillion by 2023, and it is forecast to grow at a Compound annual growth rate (CAGR) of 4.2%. The demand for construction equipment is also continuing to increase, and is anticipated to reach USD 228 billion by 2026. Thus, investing in construction equipment is and is continuing to be a reliable option, in both terms of security and returns, for passive income. In fact, it is expected to offer an exponential growth of 23% by 2023.
As promising as the industry becomes, finding a viable investment opportunity might not be that simple. While access to megastructure construction projects ensures secure and stable income as they are backed by Government funding. taking part in small projects promises less desirable returns.
Foundation Capital enables a passive income stream for investors by offering access to the construction industry.
Foundation Capital is one of the more unique organizations that enable investors to take part in this highly lucrative opportunity. Established in 2007, Foundation Capital specializes in giving investors access to the construction industry by means of investing in and owning the machinery and technology needed for megastructure builds. As the organization leases equipment to businesses managing the projects, investors earn monthly income with returns of up to 26% per annum. Not only are the assets secured and insured, but investors are also ensured of simple exit strategies with no hidden terms and conditions or fees. For instance, at the end of five-year contracts, investors get their money back by selling assets at the initial purchase price.
How to Get Started with Foundation Capital
If you want to put your money to work, Foundation Capital is one of the most viable and secure ways to do so. For more detailed information on how to make a capital investment in construction with Foundation Capital, as well as the terms, conditions, and risks, refer to the following FAQs and guides:
