I wasn’t actually planning to write this, but I decided to quickly put this piece together as an addendum of sorts to my recent article exploring the possibility of being able to retire in Thailand with $200,000.
A few questions in the comments section prompted a discussion about whether or not inflation is a problem or concern for someone living off of passive dividend income in Thailand.
I would say the comments insinuated that some people believe this is a legitimate concern – perhaps even more of a concern than it would be for someone living the same lifestyle in the United States.
Well, I’m here to assuage you of these fears using old-fashioned math. And I’m also here to point out why I’d be more concerned about inflation if I were living in the States.
But first, as I’ve noted numerous times in my comments to readers, it doesn’t behoove me in any way to convince anyone to move here, as it would only likely serve to increase my costs over time (actually making inflation a real problem).
However, I feel it’s my responsibility to present an honest and accurate view of my thoughts and experiences as a 35-year-old living off of passive income in Chiang Mai, Thailand. The whole reason I write is to help, inspire, and motivate others to become more free, wealthy, and happy versions of themselves.
The fact of the matter is, moving abroad as a dividend expat almost completely eliminated my inflation concerns. While it’s something I think Americans may have to think about, I’ve practically eliminated the word inflation from my lexicon.
So let’s work through why I don’t think it’s worthwhile to be concerned about inflation if one were to retire in Thailand (and why I personally worry about inflation about as much as I worry about getting struck by lightning).
Dividend Growth Investing
As we wind our way through this discussion, the first thing to note is the very investment strategy I personally use as the foundation of my financial independence via my six-figure dividend growth stock portfolio. It’s also the strategy I enthusiastically write about most days of the week.
That strategy is dividend growth investing.
I won’t get too crazy here, as I’ve already written countless articles about why the growth in dividend growth investing should offset most inflation concerns, but one’s passive dividend income, assuming they’re a dividend growth investor, should grow at least in kind with inflation.
This is the bottom line:
Most high-quality dividend growth stocks are increasing their dividends annually at a rate that exceeds US inflation.
For perspective, the average 10-year dividend growth rate for the 115 Dividend Champions on David Fish’s Dividend Champions, Contenders, and Challengers list is sitting at 7.0%. And that average is actually higher for Contenders and Challengers.
Seeing as how annual inflation in the United States has been sitting in the low single digits since at least 2007, one’s passive dividend income should be increasing at a rate faster than their overall expenses are increasing, all else equal.
Now, inflation isn’t a perfect metric. It’s localized to to a large degree. And it can be quite specific to one’s spending habits. Plus, personal lifestyle inflation is probably a bigger issue for someone than economic country-wide inflation.
But the point remains that dividend growth investing is an excellent long-term investment strategy in terms of combating rising expenses over time due to the very nature of growing dividends.
The Increase In Purchasing Power Achieved By Moving Abroad
The next point that’s critical to this discussion is the massive increase in local purchasing power that’s achieved when one takes advantage of geographic arbitrage.
My purchasing power (in local terms, using the dollar as my earning currency and the Thai baht as my spending currency) has been tripled, effectively turning me into a millionaire almost overnight.
What this means is that, on an apples-to-apples lifestyle comparison, my lifestyle here costs me approximately 1/3 of what it would cost in the States.
A great example of this is the $420/month luxury one-bedroom apartment I live in.
I have not a doubt in my mind that a similar apartment (with the same amenities) in a similar location inside of a similar city in the United States would cost closer to $1,500 per month. It’s not even arguable.
So when moving abroad to a much cheaper country, it’s almost like jumping into a time machine where you’re able to go back in time and experience costs from the ’50s or ’60s, all while earning in 2018 dollars.
As such, it’s not inflation that I’m dealing with at the outset. It’s deflation. And massively and wonderfully so.
Inflation In Thailand
Now that I’ve lowered my costs rather substantially, it’s important to take a look at the actual inflation rate my new home has.
After all, if Thailand had 20% annual inflation, my purchasing power would be eroding rather quickly, even after factoring in ~8% annual growth on my five-figure dividend income.
Fortunately, Thailand doesn’t have anything close to 20% inflation. And it’s not actually even close to 8%, meaning my purchasing power is still yet increasing each year in a place where I’ve already experienced a massive improvement in my purchasing power right off the bat.
What is annual inflation here?
It’s currently below 1%, according to the The World Bank.
Better yet, inflation is arguably a more accurate metric in Thailand, due to it being a much smaller country with less variance (compared to the US). While inflation in Tulsa is naturally quite a bit different than inflation in San Francisco, Thailand isn’t quite as big or diverse. And so I’d say that the spread between these two rates, in real life, when thinking about a city that’s personally desirable to live in, is even more advantageous for me.
But I can tell you that I wouldn’t fear it in the least if this were to increase by 500 or 600 basis points, as I’ll show.
Inflation Is Simply A Rate Of Change, Meaning One Has to Discern Between Relative And Absolute Growth While Simultaneously Considering The Base Upon Which The Growth Is Occurring (Which Affects Aggregate Costs Over The Long Run)
This is the crux of the issue.
I sort of thought this was fairly straightforward and widely understood, but recent comments have led me to believe that some are looking purely at growth rates in the relative sense and comparing them only on that level.
What you don’t want to do is look at growth rates in a comparative sense without considering the difference between the absolute and the relative and how this affects aggregate costs over a long period of time.
Now, Thailand actually has an inflation rate that is lower than the United States. So if anyone should be worried about inflation, it’s people living in the US (not me).
But let’s just spot the US a huge advantage for the sake of argument and assume that Thailand’s inflation were much higher than what the US sports, because it’s possible that Thailand’s inflation could increase to a much higher level (and higher than the US) at some point in the future, although this is anything but certain.
Using my above example of my real-life apartment, on an apples-to-apples-basis, we’ll assume (for the sake of this argument only) the US has an inflation rate of 2% (which is fairly accurate right now) and Thailand has an inflation rate of 5% ( more than five times its actual number).
So I’m giving the US a big advantage here just to prove a point.
This advantage is actually massive in real life, as any city in the US that’s desirable to live in is in reality seeing its rent increase at a rate much faster than the overall country-wide inflation rate. For example, Portland, Oregon (which reminds me of Chiang Mai in some ways) has experienced annual rent increases near or past the double-digit mark over many years now. And so goes the cost of almost everything else. A similar situation is playing out across many high-quality cities in the US.
But just so people can see what an increase in inflation might actually look like here, let’s use old-fashioned math.
A $420/month apartment that’s inflating at 5% annually over 10 years would end up running someone approximately $63,770 in aggregate rental costs over that time frame. The annual rent would be under $8,000 in the 10th year (or $657/month).
A $1,500/month apartment that’s inflating at 2% annually over 10 years would end up running someone approximately $175,580 in aggregate rental costs over that time frame. The annual rent would be right about $21,100 in the 10th year (or $1,758/month).
An initial spread in costs of $1,080/month grows to $1,101/month at the end of this decade.
See, what’s happening here is that even though the relative growth rate in the first example is higher, the absolute growth in expenses in the second example is still greater due to the much larger base upon which the growth is occurring.
Even though the second apartment is growing at a slower rate in relative percentage terms, it’s actually becoming more expensive in absolute terms over the long run, which is all that matters in real life. This can be extrapolated across my entire base of expenses, as that base is about 1/3 of what it would be in the States.
And even if I were to push Thailand’s rate well past 5%, it’d be hard to think of any realistic scenario in which my aggregate costs over my lifetime, on this lifestyle, don’t come out (significantly) less over here.
What’s really unfortunate is that any $1,500 one-bedroom apartment in any nice city in the US is probably going to see its rent increase at a rate that’s quite a bit higher than 2% annually, making the numbers/comparison that much more egregious.
Even if Thailand’s inflation rate became outrageous, I’d still probably come out way ahead in terms of lifetime aggregate costs across my spending, on an apples-to-apples basis.
But this doesn’t seem likely to occur.
And my passive income is steadily growing anyway, providing a fantastic buffer against such an unlikely occurrence.
Lastly, one has to believe that it’s just as possible that the inflation rate in the US picks up at some point in the near future, keeping the numbers in my favor.
Conclusion
Geographic arbitrage is a powerful thing. And it has frankly neutralized inflation for me in practical terms.
Maybe Thailand returns to higher inflation in the future. Maybe it doesn’t. Maybe the US returns to a higher inflation rate in the future. Maybe it doesn’t.
The reality is that the inflation rate in Thailand as it sits now is actually lower than what I can see in the States. And the real-life costs (rent, food, etc.) in the area I live in over here are exactly the same as they were in May 2016, back when I first visited the area.
Even if Thailand’s inflation were to exponentially increase, my aggregate rise in absolute costs wouldn’t be that great due to the much lower base upon which the growth/change is occurring.
And Thailand doesn’t exist on another planet. The inflation here doesn’t happen within a vacuum. If Thailand’s inflation jumps to 7% annually or something crazy, it’s likely that a lot of other places are also experiencing a high level of inflation. And that likely means that my dividends (funded by profit, which is affected by prices/inflation) are growing at a faster rate, too.
Moreover, the very nature of dividend growth investing means any advantage I’m currently experiencing (the current difference between my portfolio’s dividend growth and Thailand’s current inflation rate) provides me a hell of a near-term tailwind to make the long-term average/spread look very nice.
The bottom line is that I’d much rather experience a Thailand inflation rate that’s 300 basis points higher (or even 500 basis points higher, for that matter) than what you might have in the United States due to the advantageous spread in aggregate costs over my lifetime.
But what’s fantastic about it is, I’m actually witnessing firsthand an inflation rate that’s lower than what’s transpiring in the States – and that’s on a much lower base.
I also keep in mind that my worst-case scenario with all of this is very limited. If Thailand’s inflation rate were to increase to insane levels, one can simply move to an area of the country that’s potentially experiencing that in a less direct manner. One could also adjust their lifestyle accordingly. Or one could acquire a cheap plane ticket and go elsewhere. Fear doesn’t hold me back.
But if I were to ever fear inflation, it’d be the inflation in the United States.
What do you think? Do you worry about inflation? Why or why not?
Thanks for reading.
Image courtesy of: Sira Anamwong at FreeDigitalPhotos.net.
P.S. If you’re interested in becoming financially independent at a young age, or if you’re interested in moving abroad to take advantage of the concepts I just laid out, check out some resources that I’ve personally used to achieve financial independence in my early 30s.
When you’re engaged in geographic arbitrage, any inflation is going to be a distant concern. Even living in a first world country, inflation is not a concern because I invest my money in things that increase in value, not just hold it. Thanks for tearing this issue apart and giving us your opinion!
LD,
Agreed. 🙂
I was actually surprised to see inflation pop up as a talking point at all when discussing geographic arbitrage, which is why I felt compelled to write this article and dispel any concerns over inflation within the construct of geographic arbitrage.
Best regards!
Jason, I think we here in the states have been drilled to consider inflation in our long term financial planning. I would fear very high inflation like we had in the 70’s, but moderate inflation would be good. It would likely lead to higher interest rates. I lend much more than I borrow, so I would like higher rates. If one’s income exceeds expenses and inflation effects both equally, that creates a positive spread. Kind of an inflation arbitrage, if you will. Those who spend more than they make and increase their debts during a time of inflation and higher interest rates would probably not fair well. Tom
Tom,
I didn’t really worry about inflation back in the States, but that was largely because I was investing in companies that benefited from rising prices – which meant I was benefiting from rising prices. And I did that while simultaneously keeping my own personal expenses quite low (thus positively affecting the base). So that was kind of an arbitrage in and of itself. But if it was a situation where I “didn’t really worry about it” before, it’s more of a “I forgot what inflation even means” kind of thing now. 🙂
Cheers!
How do you mean that Thailand’s inflation even matter to you?
You earn your passive income in US dollars right?
Even if Thailand had an inflation of 100%, then you would still be able to cover the rent with about the same amount of US dollars (which have an inflation of 2%)
The only inflation you need to care about is the inflation of the currencies you hold and get your income in.
Am I missing something here?
Martin,
I’m not sure if this is a serious comment?
I’d go through the math with you, but I think you may want to step back for a few minutes and think about why the currency one is spending in matters (and why geographic arbitrage is such an advantage in the first place).
Cheers.
What I was thinking was that inflation affects the exchange rate.
So if Thailand had an inflation of 100% then after one year you would get approximately twice as many baht per USD.
Maybe I’m wrong and inflation does not affect the exchange rate that much.
Martin,
I mean no offense, but I’d recommend reading through some books to get a better sense of how economics, money, inflation, etc. works. 🙂
Cheers.
Not to say that inflation and exchange rates are directly related, they are not and several other factors also weigh in, but inflation in the US is a devaluation of the US dollar. Over time, if Thailand continues to experience lower inflation than the US, you would expect dollars to be worth fewer Baht. That hasn’t been consistently been the case over the last ten years however. In 2008, Thailand’s inflation rate was around 8%.
As Jason points out, this is not likely to be a concern due to the large current spread in costs. Higher inflation in the US likely also means that his dividend income will likely grow in excess of the US inflation rate.
Exchange rates do matter, over the last year the USD/THB rate has dropped by about 12.5%. That doesn’t mean that trend will continue, just that had he been in Thailand the last 12 months, Jason’s effective inflation rate would have been greater in USD terms because he has to convert his dollars to baht. Again, this isn’t really a concern, it only introduces another variable and some uncertainty in the USD cost of his living expense. If the dollar strengthens, he will see further deflation in his costs.
If hyperinflation were to occur in the US, then there could be a problem, but we’d all be in trouble. Not worth worrying about until it happens however.
Bottom line, Jason is correct in not being concerned about his local inflation rate.
Steve,
Thanks for adding that.
I really prefer to avoid academic discussions on the hypothetical, instead going about things in a tactical and practical manner. While others endlessly and breathlessly debate withdrawal rates, numbers, and retirement strategies on forums/sites/boards, I’m out here living a wonderful life. I think the debating is often in lieu of actually taking action. It’s easy to armchair quarterback things while arguing over pointless stuff. It’s a lot more difficult to do everything I did. If it were easy, everyone would be doing it.
That all said, I agree with your bottom line. The odds of some kind of massive and negative economic issue (inflation, exchange rates, etc.) befalling me and putting me in a bad position is highly unlikely (considering how I’m approaching this), which is why I worry about it as much as I worry about getting struck by lightning. 🙂
Best wishes.
Hey Jason, I always welcome an opportunity to say hello. When I saw the email about this post, I started chuckling, because I knew exactly why you were writing it. Lo and behold, I was right, and I have to admit it has seemed a little strange the energy behind some of the comments made challenging you on your choice to move to Thailand, or defending their choice / fears / limitations not to. On top of that, the simple math that you are presented seems to be confounding people, and I completely understand why. Lately, as I continue to ramp up my desires to live life differently, and talk about it, I am finding that people have a hard time looking at things outside of the perspective that they already have through decades of engrained experience. They literally can’t understand that public transportation will cost a lot less than having their own car, and the gas bills, insurance costs, maintenance costs, etc… all paid after tax. My word of the day is equanimity, and I wish more people would practice it. I work on it all the time.
All that aside, I want you, and all of your readers to know, that I have solved this fiscal crisis that seems to be plaguing them regarding the apples to anvils comparison of inflation in the US vs Thailand, or anywhere else you move to that has a long lever of international arbitrage. In order to fight inflation, and the rising cost of living in Thai Baht, I am moving in with you, and everything, including inflation, will be cut in half! LOL.
Andrew,
Haha! I’ve actually run into a few entrepreneurs over here who are doing the roommate thing. You wanna talk about low COL…
Yeah, people have a hard time seeing beyond their own limited perspectives, which are bound by psychological biases. But that has never bothered me. I’ve never set out to convince anyone of anything. I’ve only aimed to show the light to a select few who seek illumiation. The last thing I’d want is a bunch of Americans (especially typical Americans) moving over here.
Thanks for dropping by!
Best wishes.
I totally hear you re: Americans / typical Americans. Having been lucky enough to travel the world, almost everywhere I have gone, even some of the most remote places, when someone is getting loud, boisterous, cantankerous, etc, it has been an ‘ugly’ american. They do not appear to want to embrace the local culture so much as to inflict our / their culture on the people / surroundings they are in. Of course, there were the random drunken Canadian / Swede here and there, but that is a story for another time. At least the swedes put hockey helmets on before smashing bottles over their head… I do not make this up. Ahhh, Ios Greece.
All that said, I believe you should shift the name of your blog, and the tone of your articles to reflect the incredible dangers (physically, emotionally, and financially) that lurk for unadventurous Americans who dare to leave the good ole US of A for life abroad. More of them here means more goods and services being bought by great companies who are happy to provide them, and pay increasing dividends year in and year out. Onward and upward! Into the fog… And the side of a mountain.
I just have to say that while I will always poke fun at the things I see and experience here, I love the US, the opportunities that exist, and how beautiful it is. Keep up the great work Jason!
As always, a quality article where you certainly show the fear of “normal” inflation is totally unwarranted. Connecting back to your previous post and the comments I had no doubt the inflation in Thailand was low and I did the math myself and it would take more than 50 years for the aggregate costs to be the same even for the fictive scenario of 1%/5% inflation of the a $1500/420 apartments. Some other comments may have been more concerned about inflation but for me personally I was interested in knowing how prices had changed in Chiang Mai in particular over the last, say decade (not just the last 2 years where prices were pretty much the same). This was not out of fear or judging anybody having made or wanting to make the move but rather for my own personal interest in gathering as much knowledge about these kind of places before making the move myself. I admire anybody who have made the leap and I am working on getting there myself.
All the best!
SF,
Thanks for dropping by!
Prices for goods and services in Thailand will certainly change over time, just the same as anywhere else. But if you’re taking advantage of geographic arbitrage properly, the aggregate long-term costs should still be quite advantageous. I find it unlikely I’ll ever come out behind, and that’s just looking at the money side of things. Living over here also offers many wonderful non-financial benefits.
Best regards.
Hi Jason, I agree with you at the moment that inflation is not an issue in most places in the world right now. But as a foreigner, the bigger risk is in exchange rate fluctuations assuming your investments and/or income is in USD, but that you pay your expenses in the local currency. For example, the USD to Thai Baht rate has declined by 10% over the last year.
Another example of is in the Czech Republic, the USD to Czech koruna rate has declined by 20% over the last year, housing prices are up 30% in Prague over the last 2 years, but yet the official inflation rate for 2017 was only 2.4%.
The other big challenge as a foreigner who doesn’t speak the local language and looks different is to understand what the “normal” prices for things are (and how to obtain them) since many people assume most foreigners are rich, afraid to bargain, and don’t know local prices. I am sure this is easier if you stay in one place for awhile and become more familiar with the area and make friends with locals and long-time expats.
I think one of the biggest keys to being a successful early retiree anywhere in the world is flexibility and adaptability. If you are open minded with some combination of relatively low expenses, conservative withdrawal rate (or dividend yield), and perhaps some passive or part-time income, it is easier to adjust to whatever challenges that life throws your way.
scrunr1,
The exchange rate is something to be aware of, although this, too, is of minor concern, due to what I just laid out. For perspective, a dollar buys roughly the same amount of Thai baht today as it did a decade ago. Said another way, it’s about flat over a decade, with ups and downs along the way.
As for different prices, that isn’t an issue here. Perhaps it’s an issue in other countries, but prices are listed pretty much everywhere you go here. No confusion. Moreover, even if that were the case, I’d rather spend 10% more (as some kind of “foreigner tax”) on something that has a base cost that’s, say, 60% less than what you’d find in America. Worrying about possibly paying more than locals on a particular good or service would be a very myopic way of looking at costs, missing the big picture.
But I do agree that having the right mindset is extremely helpful, if not necessary. I discussed that a bit in the article going over retiring here on $200,000.
Best wishes.
Thanks for the post about inflation. I think you’re very right.
I’ve actually been curious about your status of residence ever since you moved to Chiang Mai. Do you have any plans to legalize your stay?
I get the impression you are doing the ‘revolving tourist visa’ thing at the moment, which kind of works but doesn’t really follow the intent of the law. As the US, EU, and Japan currently do, it is possible that Thailand could crack down on this in the future by denying entry to people entering several times concurrently on tourist visas.
Any thoughts? Something I’ve wondered about when considering Thailand for mid- to long-term stay.
sendaiben,
This isn’t at all relevant to inflation in Thailand, but I’m staying on an ED visa. There are a lot of visa options (including the tourist visa in/out you speak of), but one has to figure out what works for them (based on age, nationality, means, length of stay, etc.).
Cheers!
Ah, cool! I considered that as I want to learn Thai properly. Thanks for the reply 🙂
Hi Jason,
I think inflation doesn’t have much of an effect with the way you planned your life. If costs were to somehow go haywire (extremely unlikely) then you would be able to pick up and move on somewhere else that offered the best intersection of value for money and quality of life.
In Bangkok the inflation is targeted to specific areas. Commercial rents have gone up so local shops tend to charge a lot more for food and services. Chiang Mai by comparison is still cheap and I was up in Chiang Rai a week ago and that was ridiculously cheap.
This totally doesn’t apply to you but international school fees are very expensive and going up every year by 5% or so. Medical costs have also been jacked up (the cost of delivering a baby has doubled relative to 6 years ago, so more than 10% YOY) although the base is still very low relative to the USA so it’s not felt as badly.
Inflation scares are more for when people retire on fixed or semi-fixed income and expect to be parked away for several decades without doing any paid work or projects. Basically this is the opposite of your mindset. If you are caring for children and have to deal with school fees or elder care, then the concern of inflation of expenses also magnified.
Have a great time up in Laos and enjoy the great food when you come back to CM.
-Mike
Mike,
Right. One has an opportunity to make choices and live a lifestyle that might be more directly and heavily impacted by inflation, or one could make different choices and live a lifestyle that is really difficult for inflation to threaten very much. I’m going the latter route.
But as I noted in the article (and as you’re pointing out) inflation isn’t a perfect metric. There are certain areas of the economy that grow faster than others. And certain cities within any country (here in Thailand, just like the States) will see faster inflation than others. I’m actually planning on visiting Bangkok next month with the girlfriend, which I’m excited about. I’ve never seen anything there that would entice me to live there, but it’ll be an interesting experience. A friend of mine just got back from a trip down there. He didn’t like it all, but it’s always nice to broaden one’s perspective and reinforce their appreciation for where they’re at.
I’m actually in Bangkok as we speak. But I’m at the airport. I can tell you it feels very good to be back in Thailand. 🙂
Thanks for dropping by!
Best wishes.
Good post Jason. But inflation matters to all in a different way. You are now enjoying a massive “base effect” as your baseline expenses massively deflated after your move from US to Thailand. This gives you a long runway even if Thai inflation is twice as US inflation.
I have a different math to deal with in India. Currency (INR) is slowly appreciating in the last 12 months against USD. Inflation is 6-7% here, nearly thrice of US inflation, so counting only US equity assets and dividends alone wouldn’t be a sustainable strategy for long-term retirees in this country. This is a highly country-dependent and contextual issue, so there is no real simple answer to inflation. Investing in local equity markets or in appreciating investment real estate in the country should be considered for expat retirees in such markets.
TFR,
It’s a tougher go in India, with inflation being just one of the ways in which it is. But I still personally wouldn’t be too upset if Thailand had a similar inflation rate to that of which you speak of (~6%). My dividend income should at least keep up with that, but the low base (which is really the crux of the issue) ensures that my long-term aggregate costs would still be far lower over here relative to the States. If that’s all Thailand had to offer, it’d be pretty nice. But the non-financial benefits are numerous and wonderful. Feel like I’m living in a dream. 🙂
Hope all is well in India. That’ll be a super unique experience. And it’ll be fun to see those changes occur in real-time. I think they’ll be a powerhouse of a country/economy within the next couple decades.
Best regards!
I’m living in Philippines and living on dividends, in my 30’s. I don’t worry about inflation at all or currency rates. I have a hedge against both. Almost half of my portfolio is philip morris, if the dollar weakens PM’s earnings strengthen. Tobacco has historically always beaten inflation since smoking is an inelastic demand.
Also I keep relevant so I could renter the workforce at any time if the need arises.
Frank,
Right. Same here. If someone were to worry about inflation in a place with a cost structure that’s 1/3 or 1/2 of where they’re coming from, they’re being extremely myopic.
Best regards.
Good analysis. Thanks for this. It looks like you’ll be fine whatever happens. I think lifestyle inflation is the big part of the equation for Thai people. For you, that’s not a factor because your lifestyle is already at a very comfortable level.
Joe,
It was fun to run through this on paper, even though I already kind of figured it out in my head. 🙂
Lifestyle inflation seems to more or less be part of the human condition, for better or worse. I simply take advantage of that as an investor while minimizing my own personal exposure to it.
Thanks for dropping by!
Best wishes.
You make some very interesting points Jason. It would seem that as long as thai inflation stays “reasonable” you’ll be in fine shape.
As others have mentioned, the floating exchange rate can actually have a more powerful effect than inflation, if things move in the wrong direction.
Now, I can’t predict what the exchange rate is going to do, but I think you’re right that inflation is the least of your worries.
mrtako,
The exchange rate is something to be aware of, but the dynamics proposed above translate very well to the exchange rate as well. As long as things don’t get too crazy (which I find to be unlikely), one’s aggregate long-term costs should be very advantageous relative to what they’d otherwise be if one were to live the same lifestyle in the States.
Moreover, the strengthening or the weakening of the dollar benefits me in some way. Either I get more baht for my dollar, or I get the benefit as an investor when overseas profits are translated into USD (thus improving GAAP earnings and dividend growth).
Thanks for dropping by!
Best regards.
Hi Jason, how about when you make your money in Thai Bath? For example, I live in Indonesia and inflation here can be between 5 and 10%.. I make my money here and get paid in Indonesian Rupiah (equivalent to 40000USD per yr) I invest in index funds, but inflation kicks in with 7% returns and 5% inflation. How does this work with the 4% rule?
Cheers Daan
Daan,
Well, it doesn’t really matter all that much what currency you’re earning in. What matters is purchasing power. If a local Thai worker is able to pull down, say, the equivalent of $30,000 in Thai baht per year (which would be about 950,000 baht), they’re doing quite well. Likewise, you’re earning the equivalent of $40,000 in local currency, which is a hell of a lot of purchasing power in Indonesia. As such, most of the concepts I laid out above translate pretty well for your own situation.
Cheers!