Season 1, Episode 15: WTF is inflation and WTF should I do about it?
Inflation, inflation, inflation, and why it's more important than ever to put your money in the right places
This is the last episode of Season 1, in which Caitlin asks Sara if gas will soon cost $15 a gallon, what is the point of anything?
Sara explains how inflation typically works in the US, and shares the bananas cure for high prices: EVEN HIGHER PRICES.
How the F are we supposed to pretend we’re saving for our future if it seems like we’ll never be able to afford a hamburger again, much less retirement?
Sara shares a few strategies to keep our eyes on the prize, even if we're gonna be grasping our suspenders for a while.
Oh and there’s some stuff in there about how you really need to know about finances even if you’re married and your spouse takes care of it all.
This week, the one thing Women on the Verge of a Financial Breakthrough can do TODAY to take the first, or next, step towards building a strong financial future is taking a hard look at how much cash you've stored up so you’re not losing more value than you have to with high inflation.
Ask us your dumb investing and finance questions for Season 2 on our Ask Us page!
Music by Bad Bad Hats and Devmo.
Transcript for Episode 15: WTF is inflation and WTF should I do about it?
Music intro by Bad Bad Hats
Caitlin Welcome to Women on the Verge of a Financial Breakthrough where we are figuring out finance, one dumb question at a time. My name is Caitlin Meredith. I'm a coach and mediator based in the Bay Area and this is
Sara I'm Sara Glakas. I'm an investor advisor and founder of Black Barn Financial and the Austin Women's Investment Group, which can be found on Meetup.
Caitlin So after I took Sarah's Investing for Beginners class in 2014 2015, I had known nothing about it. And then I became a total evangelist and I came up with this idea to have a one page explanation flier to hand out to bouncers in Austin that was like you. Anybody can open a retirement account, anyone, even you. So here's how to do it. And I got really excited and spent many, many evening happy hours with the bouncers instead of my friends in Austin outdoor bars because I just thought, like, everybody needs to know this so that one page flyer has developed now into this podcast. And so here this is an invitation for you to learn along with me what the hell financial I best doing. Anything grown up with money really is, so welcome.
Music transition by Bad Bad Hats
Caitlin OK, before we start, this is our last episode of season one, episode 15, and we really, really want to do a second season, and we need your help. If you can please leave a rating and or a review wherever you listen to us. That would be amazing. And if you could share with three women in your life that you just met, have known forever, or you see when you do school drop off every day, and just let them know about our podcast in case there's someone who's been afraid of finance just like me and needs a little support and education, we would be so thankful. And Sara, you want to tell them what we want to do for next season?
Sara Yeah. And if you have any questions or any topics that you know that you want us to cover in season two, go ahead and check us out at womenontheverge.com and send us an email with your ideas. We want this to be a podcast for you. So if you have something that you definitely want to know, let us know and we'll try to get it done in season two.
Music transition by Bad Bad Hats
Caitlin OK, so Sara, here is my question for you, and it's about finance, but it's a little bit more about you. I'm so thankful that I know you and I'm so thankful that we're friends. And also, I spend a lot of time thinking, why the fuck did Sara choose to become involved in finance? Like, how is this possibly her specialty in investing? I know you probably ask yourself that somedays, too, but we were on a podcast together for Meetup.com and the host, the CEO asked you, like, how did you get into this field, Sara? And I was. So I think it was the first time I had ever heard you answer that question. And so I want to steal the question for our listeners so they can hear what your path was because it is so connected to what we're doing right now. So tell me, Sara, how did you become interested in a career in finance and investing?
Sara My gosh, I hope I get this. I hope I get this right. I hope I remember what I said on that podcast.
Caitlin I'll correct you.
Sara Thank you. Why don't you just tell? Why don't you just tell our readers what I said?
Caitlin Yeah, yeah. OK, so I'll just do this.
Sara I'm sorry our listeners what I said.
Caitlin You go.
Sara OK, well, when I first got out of college and moved to Austin, my first job was as a legal assistant at a family law firm here in Austin. So family law is a nicer word for divorce law. And so, you know, through my experience at the family law firm, I would just see people come in like during the very worst, most vulnerable time in their lives. And many, many, many of our clients were discovering for the very first time how much money they had or didn't have, how much they were going to end up with end up with after a divorce or not end up with. And it was just like this horrible crash course and personal finance that people were being forced to undertake during the most stressful part of their lives. And that just it really affected me, right, I really saw how. The person, the spouse or the partner who had the financial acumen was in just such, a superior position to the person who didn't, and I didn't want that for those people going through it. And so I just thought, well, OK, if you know, if I can become a financial adviser or, you know, just someone who has some expertize in this field and is willing to share that with people, even just the basics. It's just the type of knowledge that can really change someone's life. So I went to business school, I had taken one business class really as my undergrad. It was the second semester senior year. I finally took a class in the business school and it was personal finance. And some like the things that I learned in that class. I I took with me, you know, as soon as I got out of college, I started contributing $2,000 a year to my Roth IRA, which was the limit at the time in what, 2001. And I was interested in the stock market, and I just wanted to learn more. I kind of read all of the classic financial books, and while I was at the law firm, I just it just kind of solidified, I don't know, just my my vision for what my path would be. So I went back to school, ended up not staying on the personal finance track. I ended up on the corporate finance track. But either way, I ended up learning a lot about a lot, about finance, a lot about investing, a lot about the capital markets. And that kind of took me down the path where I am now.
Caitlin I love the idea that you got to take a personal finance. There was definitely no personal finance class in my college like high school college anywhere, and I love that it sparked this interest that initially was personal to you. And then you were able to connect when you worked at the law firms like how many people didn't get that personal finance class and how you could make an impact by sharing your knowledge. Another thing that came up in our interview. So, you got the answer right. You are correct. Sara.
Sara Yes.
Caitlin And got points for that. And that's exactly what I was looking for. You also connected it in our previous interview with women are emerging from marriages in the caretaker role and how that often whether they're divorced or married or mothers or not. How that sort of gendered caretaker role often is at the expense literal, the literal expense of their financial health. Am I getting that part right?
Sara Yeah. I mean, that's that's really common, or it was, you know, when I was at the law firm to see. You know, the spouse that had been out of the workforce taking care of the kids. Right? And, you know, when you get divorced in Texas, you basically just kind of split up what you've accumulated. But oh, and in Texas, there isn't really a substantial amount of spousal support or alimony that women receive when they're in this position. The idea is that when you get divorced, you might receive some type of alimony or spousal support on your way back into the workforce. Right, so the the the women, mostly there were there were men, but, you know, mostly women who had taken on these caretaker roles, either for children or for grown grown children or parents were being were expected to return to the workforce pretty much no matter how long they've been out of the workforce. And so, you know. Everyone makes that decision in real time to the best of their knowledge, and I don't know if that many people make that choice expecting to end up divorced, you know, 15 or 20 years down the road. But it definitely had a disproportionate impact on the women that came to the office because they were most often the ones who had taken on that caretaker role for no money. And now were being told that that experience that they had gone through had no monetary value or had very little monetary value, and they needed to get back in the workforce and they needed to know how to manage the money, even if there had not been a role they had taken on until that point.
Caitlin That's what I was thinking is that there's so many factors that complicate and make that a really pressured situation is, one like having to reenter the workforce and not just get any job at a job that can support yourself and your kids. Like maybe you get child support, but still you have kids for whatever percentage of time. So getting, you know, not an entry level position that a young person can get, but like a job that a parent that has a family needs to get. But the other side of it is just if your partner managed all of the retirement savings, the investments and everything, even if you get a hunk of money just knowing what to do with it, you're starting so far behind. And I can imagine if I was in that situation and I was offered like half of the retirement cap accounts or the equivalent amount in cash, I'd be like cash. Yeah, definitely cash that safe, like that's real money. And now knowing what I know now, I hope I would do it differently. But I'm wondering if you saw that too, just that natural inclination to be like a physical object like the house. Whereas what the more savvy soon to be ex-partner would choose are the things that would balloon over time through the cycle of compounding interest, which I'm still learning what is.
Sara Yeah, I mean, absolutely the thing is that the non financial spouse almost always wanted where the house, and the cash, right? And you totally get that right, like a totally makes sense, like if you don't have an income or you have a much lower income. Going forward on your own, you need something to pay the bills, right?
Caitlin Right. You need that cash.
Sara Works itself out, but certainly like the idea of keeping a giant illiquid asset like a house for the good of your children, is from a financial perspective, almost never going to work because almost all of these houses come with a mortgage and someone has to pay the mortgage and the house is illiquid, and it's if it just, you know, going through a divorce isn't the moment in time when most people have the space to do long term planning.
Caitlin Mm-Hmm.
Sara And loop someone in to do some of that. But it's almost the time when when they really should. And there are financial planners out there who are certified divorce planners and do kind of specialize in this type of thing. But certainly, you know that certain assets look more valuable during that period of time. But maybe if you're trying to put together a long term plan for yourself, aren't the ones? Aren't the assets that you choose with a long term perspective versus a short term perspective.
Caitlin Yeah, and you need that education, and I want to do a whole episode on this, just like divorce, financial planning and how to find those people that can help you navigate because you're doing a million things at the same time. So navigating the financial aspect of what to ask for, what to, you know, what kind of plan to come up with with your soon to be ex partner?
Sara Yeah.
Caitlin So that your biases don't handicap you in the long run for your financial future.
I'm wondering about the tendency that you talked about where women in the scenarios we're talking about want liquid assets on hand, because they're they want to be prepared for a bunch of what if scenarios. Oh yeah. And that that totally makes sense. And then it might be hard to get out of that mode. You know, so if your adult children need something, you want to be able to provide it. And so sort of like on the airplane that you're supposed to put on your own oxygen delivery system first and then your kids, that our tendency as parents could be the opposite in in other ways. And we've talked about this too in college saving for college, like how to make sure you prioritize your own financial long term health as the first priority before other people's. And I guess I'm pointing to just being in that caretaker role in and of itself is something that would lend you to a bias to taking care of other people first.
Sara Yeah, yeah, I think that's true. That's something that that I hear all the time, right? Wanting to maintain a lot of flexibility in the short run, and maybe it's, you know, not, you know, when you're when you're sitting on a lot of cash, just in case, I think that most people go into that assuming it's a short term decision. Right? I'm going to I'm just going to keep this cash just to be safe for now, but eventually, whatever uncertainty is. You know, are happening are going to clear themselves up and then I'll be ready to invest. Right? You know, the problem with that and with investing in general, is that the uncertainties never stop. Right? So you can always kind of go through and seek out and identify any number of short term risks and uncertainties forever for your whole life. Right? Because they're never they're never, ever, ever going to stop. So if you take upon yourself to be the backstop for everyone, you're never going to get a chance to. Take that cash out of the, you know, the short term emergency fund that maybe isn't just for you, but for your kids or your parents or your siblings or your business or whoever and get it into those higher return assets over time. Because once you start, you know, committing to that to kind of being the emergency fund for everybody. I think it's really hard to to change that course over time. You know what I mean?
Caitlin Yeah. Well, and you're tying in this really depressing yet real idea that like the uncertainties go on forever, that is life ties in perfectly with the next thing that I wanted to ask you about that is, what the fuck is inflation? Like, not really, because I remember sitting through lectures about inflation and inflation and social studies and seventh grade or whenever they teach you like, the very basics of the economic model and just being like someone kill me now. This is so boring. It's not so boring today, as it turns out.Where I live, gas is over $6 a gallon. And the only word I know how to describe that other than holy shit, is inflation. And, you know, milk prices, inflation and everything. And so I feel like I need to, you know, my usual approach is just ignore because it's too complicated or scary to learn about it. I'm not sure and also a feeling of helplessness, like even if I understand it, I can't do anything about it, so therefore just let it be. Is that a rational approach to inflation? And also, it's ridiculous, like everyone I know is worried about inflation. So like my bury my head in the sand, can't do anything about it anyway, approach isn't super helpful, maybe to our listeners. So I was wondering if you had something a frame of reference that you use when thinking about inflation.
Sara Yeah, so when I think about inflation, I just think about the phenomenon of prices for things going up over time. At some rate, right? So it's March of 2022. You know, the first quarter of this year and really since then since Russia invaded Ukraine. But the price of oil and gas and gasoline and other raw materials has really skyrocketed, right? And so there's. No one at no one really has a really, really great understanding of how inflation works over long periods of time. But in the short run, it can be relatively easy to understand as there is not enough supply to meet the demand. For whatever reason. And so when you think about a shock like the war in Ukraine, you can think, OK, well, this is pretty straightforward because Russia and Ukraine are both big producers of the types of things that we all need food and energy. And so if we can't get those things from that part of the world, where are we going to get it right? There's no additional supply that can come online really quickly. So the demand is probably roughly the same as what it was three or four weeks ago. But now the supply is a lot less.
Caitlin And so prices go up where it isn't yet, but it's in jeopardy. So everyone's freaking out, and the people who own those things can charge whatever they want because people like me are free. I mean, a I need to drive places. Anybody. You know, most people that work, whatever have shipped jobs need to drive places to work and we need to eat food. So we're going to do that. So they're in a pretty good situation to leverage that fear, to charge whatever they want. We don't really have a choice about doing it or not.
Sara Yeah, I mean, there can be some price gouging, certainly that that happens and hoarding. And so kind of, you know, now inflation is at the forefront because it was happening kind of slowly and then quickly. And now it's on. Everybody's now is on everybody's radar. One of the things that the Federal Reserve does is they try to project how high prices can go before the high prices themselves start to affect our demand for those things. Did that make sense at all?
Caitlin Yeah. So right now, gas is six dollars a gallon where I live. OK, like I still have to drive when it goes to 10. I will make very, very different decisions about where I drive my car. Right now I'm on the borderline like I'm, you know, I produce that my time is 10. I'll be like, You can keep your gas like, I'll figure something else out. Yeah.
Sara So one of the things they say about inflation is that the cure for high prices is high prices, right? That at some point, while people will only pay so much for stuff and then they'll change their behavior and they do that, like, you know, based on lower prices, you might consume more because the price is low, but you also do it with higher prices like I'm going to consume less because I just don't want to pay these prices. And so that phenomenon over time is really complex and really, really hard to project. I mean, if you think about what's going on now and the price of gas is going up, especially, you know, some there's some cushion that people have to just absorb that cost as of now. But like you said, like at some point people are just going to cut back on driving right, they're just not going to pay it anymore, and they're going to change their behavior and not consume as much gas. And then you kind of think of like the second and third order effects, like, what about the people who? Are out shopping for a car and choose an electric vehicle over a gas powered vehicle.
Caitlin Yeah.
Sara Those people are choosing to not consume gas in that way anymore. Right. Or at least for like some extended period of time while they have this electric vehicle. And if you think about all the fleets of vans and delivery trucks that maybe are making those same decisions, you can see that this like these inflation projections, become less predictable the farther out you go because people do make decisions that impact what they consume. You know, certainly in the short term, but over the long term, too. So, you know, if you know if. You know, one of the things I think is a it's a good idea to have a handle on inflation because the way that you experience inflation is related to the types of things you consume, right? If you don't have a car, maybe you don't experience the increase in gas prices the same way that the rest of us do. But if you, you know, have a delivery business, you are experiencing the increase in gas prices in a much more pronounced way in a much more severe way than than other people might. So having some idea as to how the price of different things increases over time is a good idea when you're doing long term planning. I mean, generally speaking, the price of education and the price of health care, like in the recent past, has gone up faster than inflation in other stuff.
Caitlin Hmm.
Sara Right. So if you have if you're planning on paper and education for someone, for yourself or someone else, or if you're planning on getting older and maybe having some, there
Caitlin It's up there in my top five considerations.
Sara Then inflation becomes it becomes a real issue that you want to deal with in your investments because you want your your wealth to keep pace. And maybe, if you're lucky, even exceed the rate at which the price of stuff is going up. Does that make sense?
Caitlin Yes. Well, it's actually terrifying because, you know, I'll notice the milk prices and the gas prices on a Tuesday and those, you know, I'll be totally spinning, but it's another one of those things where, like health care costs, that's actually a much bigger impact on my financial health over a long period of time.
So I want to talk about this forever, but like, I am curious how I'm supposed to think about this in terms of how much I invest in my retirement funds and my investment for my future. Am I supposed to stop driving and put all that gas money in my Roth or my 401K to compensate for the inflation that will inevitably rise? Or do I just like have to plug along with my time value of money calculator and say this is how much I can afford to put into those over? Like, I can't do anything about the inflation that will go on between now and when I retire and therefore, close my eyes, plug my ears and sing my la la la.
Sara Yeah, I mean, you can't really do anything about it unless you're able to shift the types of things that you consume from higher cost stuff to lower cost stuff. Right. So that's taking a look at the budget and seeing if you have that flexibility in your budget. From an investing perspective, it's it's really, really tricky. At this stage too, March of 2022, it's a little bit ah, a lot of bit like you pick your poison, right, because if you think about kind of the four major categories of things that people can invest in, you have cash, right? Cash is still basically at zero percent rate of return. So you will definitely fall behind inflation if you are at zero percent and inflation runs out. Let's say it settles out at three percent per year.
Caitlin So that idea is the $10,000 I put on my under my mattress today, when I retire in 40 years will only be worth $3,000. And in that year's worth because of inflation.
Sara Right. It'll it'll be cut by 3% per year, every year. And bonds are the same thing. Bonds are very low risk, low return investment if inflation runs at 3% per year and your bonds, well, if your bonds yield three percent per year, which they don't right this very second, but they might eventually. If you can get bonds that yield three percent per year and inflation is a three percent per year high, then you're breaking them. OK, right? So you're at least like keeping pace with stocks over long periods of time. Stocks tend to have rates of return that are about the rate of inflation. Plus let's call it four five six percent per year on top of inflation,.
Caitlin OK.
Sara But that is, it comes with, as we know about the stock market, tons of volatility. So right now, first quarter of 2022, the stock market has just been rough. Just a rough place to be. The stock market is going down. Inflation is going up. All of these prices for different assets are adjusting to account for the uncertainty and the inflation that's coming through the system. So stocks have not offset inflation yet. You would kind of expect them to eventually be a pretty good long term investment in an inflationary environment. But in the short term, they have not been so far.
Caitlin When you say inflationary environment, that's like, you know, the environment, like, there's no environment, there's no economic environment like now, it's particularly extreme, but there's no version of our country that doesn't have inflation. It's just a matter of what the rate is at any given moment or over the time, over time, right?
Sara In the U.S., we tend to have inflation and an only relatively short periods of time with either disinflation where the inflation rates are going down or deflation is when prices are going down. So we tend to have deflation after asset bubbles burst and during recessions. But globally, I mean, Japan is the is the poster child for a deflationary environment. The prices of stuff in Japan. Don't really go up, they go down over long periods of time, so they've been in a deflationary environment for decades, and they're they're a mature economy, right? Just like the U.S. is a mature economy. So deflation is not unheard of. And deflation is a problem in and of itself, right, if you're in an environment where prices are continuously going down. People will wait to buy something right until the price goes down,
Caitlin which I was just thinking, I'll go to Japan then in 10 years instead of next year because it'll be even cheaper.
Sara Right. But you know, the Japanese economy could use your right. Right, right. But think of, like all the people participating in Japan's economy who are keeping a hold of their cash. Because the price of stuff goes down right, and you're either waiting it for it to go down more or you don't want to buy something because as soon as you buy something, it's going to go down in price, you know, going forward. That is not a great. Economic outcome, either, so I think most economists believe that having some reasonable amount of inflation in the economy is a good thing. It like keeps things moving right and it prevents you from hoarding cash.
Caitlin It's like the Metamucil of the American economic system. No? Is that not a tagline they've adopted? OK.
Sara That's pretty good. Yeah, you just got to keep things regular, right? You know, you don't want to tip too far one way or the other.
Caitlin No backups.
Sara Yeah. But certainly like coming out of the pandemic, you know. We're going through economic cycles really, really fast. We went through like recession, depression, expansion, inflation, like really fast. And so a lot of this inflation we're experiencing today, a lot of it can be attributed still to pandemic supply chain issues, right? That the supply chains, the workers, the factories, the producers aren't still at 100 percent because of COVID still. And like we all are coming out of the pandemic wanting to do stuff right, like we want to spend money and live life. And so there's a lot of demand for all sorts of stuff, but we're still not at the place where the supply is running smoothly, whether it's from, you know, pandemic related snarls in the supply chain that still haven't worked themselves out or now, you know, war related supply chain issues that nobody knows how that's going to work itself out. It's just it's just rough out there. So the only thing that can give is prices. Either you produce more stuff and get it to people that would bring prices down or you demand less stuff that would bring prices down. I mean, until those things kind of reach some better type of equilibrium, then the prices are just going to be really volatile, like moving up and down. Like with every with every new shot that comes into the system, it's not awesome.
Caitlin No. And what am I supposed to do about that as a woman on the verge of a financial breakthrough? OK, I mean, am I in retreat mode now or am I in mode like as normal as possible mode like cut back on consumer items, whatever I can. But like my what I'm worried about here is that it'll make me feel like what is the point? Everything's going to become so expensive. I can't pay for it anyway, so my measly little retirement savings account is a joke in the face of what inflation could be by the time I retire. So like, give up now, like, that's where I'm going with my thought process. Like, you know, Oh great, I don't have to worry about this anymore because it's just like too extreme. I have a feeling that's not the way that I should be thinking about it, but it doesn't feel like a place for a middle ground for me right now. Like it's either give up or plug away with my original plan as best as I can and just ignore the fact of inflation.
Sara Yeah, you're not the only one. It's a pretty intense right now. Interest rates cycle, just like everything else, cycles, so it's not. It's not most economists base case assumption that prices continue to go up by seven percent per year for a long period of time. Most people as of now think the rate of inflation comes down to a more reasonable, you know, two and a half to maybe three percent annual rate, which is manageable. But what it does mean is that, if you are worried about inflation, you cannot hide in cash for very long because you're locking in that negative three percent rate of return and you're not even giving yourself a chance. Right. So I think that instead o trying to forecast where inflation is going, what types of investments do best in a hyper inflationary environment, which is like really, really high inflation or. I mean, it's a diversified portfolio.
Caitlin Same damn answer, no matter what happens. Diversified portfolio.
Sara Right. Because like right now, the companies that are doing the best are the companies that produce that stuff that you need to buy, right? So it's the energy producers. Banks are doing pretty well right now because they as the cost of money goes up, interest rates go up. Banks tend to do better. Companies that make or mine or produce the raw materials that go into things are probably going to do OK. But again, like it's it's hard to know how long an environment like this goes on because people will adapt and the economy will adapt. So if you imagine, like the supply chain issues, the food security, energy security, cybersecurity issues that are now at the forefront. There's a lot of money to be made for the companies that can solve those problems. Yeah. And so still in the U.S., like the whole point of capitalism, is to incentivize people to come up with ideas on how to solve these problems. So, you know, what is the solution to high gas prices? It's probably a combination of technology in getting the, you know, getting the oil out of the ground, getting it to where it needs to go and, you know, getting it spread around to the people who need it. But it's also the technology that goes into making everything more efficient so that you just need less. And those two things are kind of working at the same time and they're not in balance, right this very second. But that doesn't mean they won't be in balance in the future. Or I mean, that's like what those are, the types of problems that someone is going to make a ton of money solving these problems. Right?
Caitlin You know, it's not going to be me, OK?
Sara I mean, it might be you if you're investing in those companies, though.
Caitlin All right. OK. So I'm going to extrapolate from all this explanation that my stance towards inflation sort of has to be my stance towards the day to day stock market that like, I can't look at it too seriously. I'm in the long term. I have to have some faith that all these crazy extremes will somehow even out over the long term. Stick to my strategy. And when someone says inflation, inflation, inflation just be like, that's just noise, I'm not hearing it because I have no other choice. Like if I get conservative, if I just do cash in bonds, I'll definitely lose out. Right? But if I keep in my index funds in my diversified portfolio, there's a much better chance that I will not only break even but continue to grow a savings account that will support me in whatever way at retirement.
Sara Yeah, I mean, I will say going back to one of the other things I think that you touched on before in this particular period, people's wages and incomes are going up more than they have for a long time. And so if you're still in the working income mode, you know, taking a look at your career and your job prospects and doing what you can to lock in higher income, whether it's changing jobs or getting a new certification or asking for a raise or whatever it is that can be a way to offset inflation to, you know, if you're able to if you're able to get a higher income, maybe adjust your spending a little bit to try to avoid the very high cost areas right now, and you can save a little bit more money. And you can save some more in your diversified portfolio over the long run and give yourself an even better chance of keeping pace with all of these things, but I think in this, like so far in this environment, people's incomes. Are adjusting upward, which is a positive for most people, especially people who have never invested before and don't have to, you know, have never had the wherewithal to to save any of their income. Those people disproportionately benefit when their incomes go up.
Caitlin Well, and I was going to say, if you had never invested before and you started today, that's like amazing because the stock market's so low, you're buying low and you have the only way you have to go up is up right now.
Sara Yeah, I mean, take your income, open your 401K plan at your new employer, put it in a target date funds. Get that, then go in to get your match. If you can get one and get it going, it's I mean, from that perspective, it's not a terrible time to be investing like as like someone who has been investing for a long time, especially if, you know, I'm not going to be forty three. So I was I was a child during the last like real inflationary periods. So going through the adjustment in prices in stocks and bonds during an inflationary period is is pretty stressful for people. But you know, this isn't this is probably not the way it's always going to be. There's going to be a period of adjustment, just like there always is in the markets. Everything goes through cycles of problems. Hopefully will get worked out as as time goes on. And as you know, new ideas come to the forefront as people change their behavior. But you've got to kind of stick with it through the cycle because you never know when that cycle is going to shift.
Caitlin Right. So the geniuses like, you know me, that are like, Oh, I'll cash out right now and wait till the inflation stops and get back in. Just like trying to do that with the stock market fall is impossible because the stuff we cannot predict how long the downs will be and when the ups will come, and we'll just have to white knuckle it
Sara Right and in investing, there are millions of people whose job is to start making adjustments before the actual data starts coming in. So a bunch of investors will be ahead of you. By the time you recognize that a shift has happened, the markets will have already reacted. So it's there's not like a, you know, they don't ring a bell at the top of the market or at the bottom of the market. The whole, you know, everybody in the market is trying to make these predictions about, you know, when to be in, when to be out. And if you get caught up in that, you're setting yourself up to be to be whipsawed, right? That just means like you're on the wrong side of these turns in the market. That's that's really it's really easy to have that happen to you and that it's more it's more of a risk when you start looking at shorter and shorter, shorter term time horizons and less of a risk if you really zoom out to where might we be 10 years from now.
Caitlin Sara for inflation. Is there any of the retirement accounts that we've discussed that do better or worse given inflation? So I'm thinking like a 401K or the solo 401k or self-employed, those all mean that I don't pay income taxes for the money I put in them this year. But I do for the year that I take the money out of them, a Roth. I do pay my income tax still for the money that I put into the Roth, but I won't have to pay any taxes on the money that comes out of the Roth. First, let's make sure I got that right. Is that right? Yeah, that's right. OK. So in terms of inflation, is there any is there any way that that would guide us about in this particular environment, where to put more of our money if I had to choose between five thousand and my four one K and five percent interest as inflation, in fact, that might affect that at all.
Sara I mean, probably not. Probably not in any like real straightforward way.
Caitlin Are there any investments that you're like? Hell, no. Right now in this inflationary environment,
Sara you're just not going to be able to sit in cash as long as you want to. Like during inflationary times, people want to hang on to cash because the inflation is causing other asset prices to fluctuate, especially the stock market. But over long periods of time, you're you're going to you're not even giving yourself a chance to keep pace with inflation if you're hiding in cash for too long. So I would just I would just be careful about that.
Caitlin OK, well, well, I can't say what you're telling me is super reassuring. From a global perspective. I can say it's reassuring in that I can't. I'm right in that I can't do anything about this. I mean, I can try to make more money. And so that I up my retirement, but I would. You would tell me to do that anyway.
Sara That's always the answer.
Caitlin Always, like, make it a priority. Yep, you've already said that. So I'm kind of right, like inflation, inflation, inflation, blah blah blah. Except that it affects real people's lives who like house cleaners. People that have known their entire wages depend on driving everywhere. Uber drivers and now those wages are being cut into so significantly. And, you know, people like me who would be like, Oh, I'll take an Uber instead of driving to save my gas prices while I'm just like shunting the problem to somebody else, then or they start charging a lot more to compensate. And I'm like, Well, I'm not going to take an Uber anymore, so they don't get work. Like there's some serious immediate consequences for people that are in the economy right now from this inflation.
Sara Yeah, absolutely. I mean, the economy now kind of goes from too much demand to too little demand. That's kind of what the economic cycle is and it's bad on either side. Right. You can have people have jobs right now, but the price of stuff is going up. Is that better or worse than a recession where people don't have jobs and don't have income, but the price of stuff is really low? It's. I need either one of those extremes is very bad. And so obviously, like the best economic times or when you're in between those two stages. But. You know, like that economic cycle tends to move between extremes over long cycles. So it is. It's not easy either way. Like, is it better to have low prices and high unemployment or low unemployment and high prices?
Caitlin Yeah, yeah. Wow, this capitalism is a real son of a bitch.
Sara Well managed economies, I don't think do it any better. So like what? Yeah, what do they say about about capitalism? It's.
Caitlin The worst of all options.
Sara The best, worst option for something like
Caitlin that is democracy also.
Sara Oh yeah, they're they're all. They're all the best, worst option or worst. Best option.
Caitlin OK. I feel like I've digested as much financial information as I am humanly possible. I know this is all too much. Let's pretend this never happened.
Sara Do not publish this this story. You not put this out and scare all of our listeners away.
Caitlin It's too much. OK, thank you, Sara.
Sara Thanks, Caitlin.
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Caitlin OK, so Sara, what is one thing a woman on the verge of a financial breakthrough can do today to within this inflationary environment to plan for her financial future?
Sara Yeah, I think one thing that you can do is take a look at how much cash you have accumulated either in your savings checking accounts or in your brokerage accounts. A lot of people have moved into cash because things have been so volatile in the stock market and the bond market. And if you are one of those people who has a lot of cash, I would think very carefully about your plan to put that money to work in a more diversified portfolio, whether it's doing it on your own DIY or sleeping in a professional if you are worried about inflation. Cash is not a good long term choice because it's going to just be death by a thousand cuts as inflation goes on. So having some sort of plan to get a positive rate of return from that money is going to be important.
Caitlin One And I love it because then if you happen to miss our previous episode of episode 14, what do I do with a chunk of money? Sara mentions a couple of different strategies with that. We also had one on Do I need a financial wing person? So that could be another episode to listen to because it also says the questions you should ask them to make sure that there's someone you can trust so you, you know, this is essentially what Sarah's been telling us to do from the very beginning, you know, and invest the diversified portfolio, not have it all in cash, etc. And then also, we did one. This is so fun being at the end of the season, we can refer to all the stuff we did want on how much money should I have and my high interest savings account. So to do some of these real calculations? Because of the inflation. Am I getting it right?
Sara Yeah, that's right.
Caitlin Again, getting it right. So I did well on my test. You did well in your test. We can end it now. Yeah. Bye.
Sara See you later. Bye.
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Sara Hey. Do you have any dumb questions about finance or investing? Send them to us at our website womenontheverge.com
Sara Hey, so many thank you's to Kelly West, a woman on the verge in her own right who took the amazing photos for our album, art and website, helped with our website design, music, audio editing, cheerleading, mental health, everything. Emily Kleinsoerge, our stylist that did our hair and makeup for our photos from Lucy Skyrocket. Lauren Gross and Taylor Gross, who helped us with our graphic design
Sara and our music is by Bad Bad Hats and Devmo.
Caitlin If your partner is making you ask for money, giving you an allowance, taking your money or not letting you know about or have access to family income. This could be economic abuse.
Sara Learn more at thehotline.org or call 1 800 799 safe.
Caitlin So Sara because you're a financial professional, when you have to read a disclaimer for this podcast,
Sara I would actually really love it if you could read the disclaimer in your legal voice.
Caitlin OK. Doing it. This podcast contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this podcast will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.
Music outro by Devmo
Devmo I know the first thing you notice is that I'm covered in gold, the flick of the wrist it could turn a hot bitch cold, to get what you want in life girl you gotta be bold. Now Imma die rich, and I know...