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Investor Insights Blog|How to Beat Inflation with Promissory Notes

Promissory Note Investing

How to Beat Inflation with Promissory Notes


The following guest post was written by Marco Santarelli of Norada Capital Management.

Milton Friedman once said that inflation is taxation without representation. That has never been as true as it is today. With inflation rates over 8 percent over the last two or more years, the purchasing power of our dollar has been eroding faster than ever before. In fact, we’ve seen a 41-year high in inflation this year.

Unless you’re achieving a rate of return higher than the actual inflation rate, you are literally getting poorer every year. Inflation shows itself everywhere in the form of higher prices. The intrinsic value of goods and services does not change, but the price certainly can and often does.

I often say that ignorance is expensive. You don’t know what you don’t know, and what you don’t know will often cost you time, money, and lost opportunities. And I believe that educating oneself about money, finance, and inflation should be everyone’s responsibility.

So how do you beat inflation?

Simply put, earn rates of return that are greater than the actual or anticipated rate of inflation.

In order to understand this, you need to understand the difference between nominal and real rates of return. When you make an investment, you typically earn a rate of return that is the nominal rate. That is, in name only. It’s essentially the face value of your return or yield.

With the right note investment, you can earn a high yield that can often exceed the returns found in other more traditional investments such as CDs, gold, bonds, treasury notes, the stock market, and even most mortgage notes.

Marco Santarelli, Founder, Norada Capital Management

For example, investing in a bond fund paying 5 percent per year, or a real estate mortgage note paying 8 percent per year, may look attractive at first, but let’s take a closer look.

Those returns are the nominal rates of return. It’s what you actually get paid each year holding each of those promissory note investments. However, when you consider that the Consumer Price Index (CPI) is officially at 8.3 percent at the time of this writing, you’ll realize that your returns are not so attractive.

When you subtract the actual inflation rate, in this case, the 8.3 percent, from your nominal rates of return you end up with your real rate of return. That is your true net return on investment.

Let’s take a look at that mortgage note as an example. If you’re earning 8 percent per year from the investment, but inflation is eroding the principal in your investment by 8.3 percent, then you can quickly see your real rate of return is a negative 0.3 percent. What if your nominal rate was less than 8 percent?

It amazes me how many investors are surprised by this when they stop to think about it in this way. They quickly realize they are not getting ahead. In fact, they’re falling further behind financially each and every year.

So how do you beat inflation? I’ll share my four favorite investment vehicles that I invest in personally.

4 Investments that Could Beat Inflation

My favorite investment is a viable business. One that generates profit that exceeds the real rate of inflation. Businesses have virtually no income or profit limitations and therefore can scale to create a large amount of wealth given a large enough market.

My second favorite is income-producing real estate. It’s where I started long ago and have built one of the largest turnkey investment real estate companies in the country over 19 years ago.

My third favorite is far less well-known but catching on. And that is crypto assets such as Bitcoin. Not for the faint of heart, but certainly a proven inflation hedge.

Last but not least are high-yield promissory notes. Possibly one of the simplest and easiest investments one can make, and ideally suited for a self-directed retirement account.

What is a promissory note?

Simply put, a promissory note is a legal agreement between a borrower and a lender. These come in various flavors, but they’re essentially the same thing. And you’ve probably signed a promissory note many times in your lifetime.

Common examples include student loans, car loans, mortgage loans, and business loans, all being transacted multiple thousands of times a day.

A promissory note simply defines the terms of the loan, specifically the interest rate, and start and end date of the loan (also known as the maturity date).

Returns on promissory notes can range from as low as 3 or 4 percent to as much as 15 percent or more. This is what makes them so attractive: The fact that you can earn a high rate of return that beats the rate of inflation, with a simple and easy-to-understand asset class.

In addition, because of their simple and passive nature, they are ideal for self-directed accounts where your tax impact is either deferred or eliminated altogether (such as a Roth account).

With the right note investment, you can earn a high yield that can often exceed the returns found in other more traditional investments such as CDs, gold, bonds, treasury notes, the stock market, and even most mortgage notes.

Keep in mind that some promissory note investments require you to be an accredited investor. As always, do your due diligence and understand the party or fund you are investing with.


About Marco Santarelli

Marco Santarelli is a serial entrepreneur, investor, author, Inc. 1000 entrepreneur, and the founder of Norada Capital Management and Norada Real Estate Investments (the largest nationwide provider of turnkey cash-flow investment property). He is also the host of the top-rated podcast – Passive Real Estate Investing – with over 500 episodes to date. His mission is to help 1 million people create wealth and passive income and put them on the path to financial freedom.

Norada Capital Management provides investors with promissory note investments that generate predictable monthly income and double-digit returns between 12 and 15 percent per year. The fund’s portfolio is made up of thriving companies that continue to grow. Their note offerings are ideal for passive investors seeking to increase and diversify their income streams. Interest payments are paid monthly by direct deposit, making it a truly hands-off passive investment opportunity.


Norada Capital Management is not an affiliate of Equity Trust Company. Opinions or ideas expressed by Norada Capital Management, their affiliates, and employees are not those of Equity Trust Company nor do they reflect their views or endorsement. This material is for educational purposes only, and should not be construed as tax, legal, or investment advice. Equity Trust Company is a directed custodian and does not provide tax, legal, or investment advice. Investing involves risk, including possible loss of principal. Whenever making an investment decision, please consult with your tax attorney or financial professional.

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