This is the twenty-sixth part of Money360 Book Club reading of Your Money or Your Life. Want to know more?
A lot of people find this final chapter of Your Money or Your Life to be somewhat controversial because of the rather unorthodox investment advice contained within. However, regardless of your financial stance, most of the advice here does make a lot of sense, even if it is extremely conservative advice.
First of all, the book makes the astute point that you should be your own investment advisor, something I strongly agree with. Most financial advisors and brokers are seeking mostly to make a profit on doing things that you can quite easily do yourself, especially in the era of the internet where most investment houses allow you to directly invest in their products with next to no fees.
A much more interesting part comes when the book argues that inflation doesn’t necessarily affect the life of the individual all that much. This argument has raised a lot of controversy over the years, and it’s not hard to see why when our grocery bills appear to be constantly escalating.
Given that, I do think there’s merit to their argument. Take an honest look at the stuff you buy today – it’s not the same stuff that you were buying fifteen years ago. In theory, you’re buying “better” stuff – or at least stuff that’s marketed to seem better than the stuff of fifteen years ago. For that “better” factor, you’re paying more.
Take a walk down the produce aisle. For the most part, the prices aren’t all that much different than they were twenty years ago. They’re somewhat higher, sure, but the interesting part is that some items are far higher while others are at the same price or lower than they were twenty years ago. Why? Production has changed. Potatoes, for example, are often cheaper now than they were thirty years ago (per pound). Until rather recently, corn was very cheap compared to historical prices.
Dominguez argues that a rational buyer will continually look for bargains and switch purchases in response to such price shifts, but most people don’t do that. They buy the same things on a regular basis, and occasionally dabble in whatever the “new” version of the product happens to be at the moment. Even more importantly, they focus on convenience foods, which are priced without any real relationship to the underlying ingredients. The end result? Their grocery bill does go up over time.
Is this irrational buying? I think it depends on how you look at it. Convenience foods have appeal because they’re easy to prepare, and so people often buy them looking for a quick and tasty meal. What they’re really paying extra for is time, and it’s the value of time that has really changed over the years – it’s become more valuable.
As for me, I like cooking from scratch and I know how cheap it can be. Regardless of the relationship to inflation, buying staples is far cheaper than buying prepared foods, and buying simpler versions of items is always cheaper than the “new and improved” version.
Tomorrow, we’ll continue the ninth chapter, “Now That You’ve Got It, What Are You Going To Do With It?” starting with the header “Three Pillars of Financial Independence” and continuing on to the header “Cushions Make For Smoother Landings.” This section appears on pages 305 through 318 in my paperback version of the book.