Thanks to research by the world’s central banks, I can tell you that our personal cost of living is being influenced by factors and forces way beyond our control. Papers delivered at the recent central bankers’ conference in Jackson Hole covered the higher “sacrifice ratio” needed to control inflation.

Consider last year’s rise in oil prices, caused by growth in global demand, especially from China, and fear of supply interruption due to turbulence in the Middle East. Our cost of gasoline, home heating and electricity went up because of forces beyond our control. While oil has come back down, as I have predicted, it will likely remain above where it was two years ago. In other words, we are going to have to live with higher energy costs.

The cost of living in one region affects the cost of living around the world. For example, as China grows and prospers, wages will rise and so will the price of the goods we buy from China. Emerging economies must keep creating jobs at a rapid pace.

Therefore, we should prepare for a life-long challenge of keeping our income growing at least as fast as our cost of living. Inflation rates may never rise to alarming levels, but 3% inflation over a long time means a significant rise in the cost of living, and a 5% annual increase leads to a 63% jump in the cost of living after just 10 years.

Investors have few good options when it comes to providing growth in income. The best solution for most of us is investing in good businesses. Buy stocks in companies that pay dividends and have the ability to raise future dividends. The scary part is that stocks often go down. Individual businesses can make terrible (Enron-type) mistakes. Investing in stocks is risky. However, if the fundamentals are positive, then we can and should take that risk.

Even if you make some mistakes, the gains on your winners will be so significant you can forget your losers. Rising profits always lead to higher stock prices. The Dow Jones index is over 11,000 because Dow earnings have grown over 10-fold since 1966—when the Dow first broke 1,000.

A Nation of Investors

Last month, President Bush signed into law the most sweeping reform of our nation’s pension system since the ERISA Act of 1974. Under the old defined benefit system, a corporation promised a certain retirement income, based on years of service and average salary. Employees relied on those promises. But in a highly competitive world, companies were not able to set aside enough money in their pension plan. Uncle Sam tried to ride to the rescue with a pension insurance scheme. But a massive rise in under-funded pension plans overwhelmed the federal system.

The new law will force companies to properly fund their defined benefit pension plans, which means there will be fewer defined benefit pension plans. The old idea that a big daddy—a company or the government—will take care of your old age is dead. In the new world order, your retirement will depend on the value of investments you make while you work. Playing it “safe” won’t work.

Money markets and government bonds don’t deliver enough income to build up a meaningful retirement account. Americans have to take some calculated risks. We are slowly awakening to that fact. We have become a nation of investors. This means we will see a long-term trend toward “buy-and-hold” stocks.

This is positive for the Investor’s World portfolios. Of course, we must be vigilant. We don’t want to get caught owning too many stocks if the background turns truly negative for business.

In the meantime, I will keep looking carefully around our world and will alert my subscribers to any and all changes in the macro-economic environment. So far, the environment remains positive for business, which is why I am telling my Investor’s World subscribers to stay invested in my recommendations—like the following:

This company is clearly taking advantage of the housing slowdown to gain market share at the expense of weak competitors and grow earnings. Plus, the dividend is well above average rates. For this year earnings guidance remains at $5.00-$5.40. The stock is trading at eight times the low end guidance, and with a nearly 5% yield, is a very attractive buy right now.