I love parties. Bigger isn’t better, but more elegant certainly is. Of course, that means I need a new dress each time, which isn’t cheap. Meanwhile, every date and every husband I’ve dragged to these parties wears the same suit he’s had stashed in the back of his closet, sometimes for decades.
That’s no great revelation to any woman who’s been married for a minute. Their husband only wears a new suit when their wife buys them one. But I mention it because it’s Exhibit A for this simple fact: Inflation hurts women more than men. Mostly because we need to buy more stuff to stay socially acceptable. It’s not fair, and I don’t like it, but I also don’t make the rules.
The Lipstick Index
Here’s what made me think about this: Debt.com did a provocative study and asked me to comment on “the link between increased cosmetics spending and the troubled economy.” Basically, Debt.com looked at the cost of cosmetics and compared it to the risk of a recession. It’s not as silly as it sounds.
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Back in 2001, the chairman of Estee Lauder noticed something interesting: He sold more makeup when economic times were terrible. That sounds backwards, right? Wouldn’t women cut back on makeup if they were facing a recession?
Turns out no.
That chairman, Leonard Lauder, guessed that women were really cutting back on clothes and shoes. They bought more makeup to literally “make up” the difference in their appearance.
Debt.com polled 1,000 beauty-product buyers, and more than 6 in 10 called makeup “an affordable luxury.” That might be why more than 7 in 10 will also give cosmetics as gifts this holiday season.
When Debt.com asked me what I thought of these and other results, I replied…
“I know from firsthand experience that fast, flashy content, FOMO, and worrying about other people’s business can cause you a lot of heartbreak. Unfortunately, it can also break your bank account. This holiday season, count your blessings before you cross items off your gift list. This will help you put the important things into perspective, like financial wellness.”
Here’s what I didn’t say, because it didn’t really fit at the time…
Women need to think about inflation, recession, and holiday shopping differently than men do. Men can get away with spending less. Women can’t. If men cut back this holiday season, both men and women will forgive them. If women cut back, both men and women will blame them.
Women vs. men vs. money
Earlier this year, there was a great story with this headline: “Here’s Why Women Spend $526K More Than Men Over Their Lifetimes.”
Again, it’s nothing most women don’t already know: Even when women buy the same products that men do, they cost more. That goes for small items (“women’s shampoo costs around $9 while men’s shampoo costs close to $6”) and major ones (“single women pay 2% more than single men when buying homes, and sell their homes for 2% less”).
And don’t get me started on clothes. There’s no reason a woman’s plain Gap T-shirt costs $22 and a man’s plain Gap T-shirt costs $15.
Then, of course, there are the expenses men can avoid entirely. From feminine care products to beauty supplies, we have whole categories of expenses we need to account for.
So next year, I’m going to ask Debt.com to do a follow-up study: The Jockstrap Index!
This article originally appeared on Debt.com and was syndicated by MediaFeed.org.
More inflation tips
Inflation can be hard to navigate on your own, but these tips could help you stay financially stable even during soaring inflation.
Additionally, a financial advisor can help you navigate inflation. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. (Sponsored)
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How to invest and profit during inflation
The inflation rate, or the rate at which prices are increasing, is going up in 2021, with the core U.S. inflation rate up to 5.4% in mid-2021. That’s a fairly big number, given the U.S. inflation rate stood at 1.4% only last January.
That has an impact on both consumers and investors. When inflation rises, consumer prices rise with it. Common goods like lumber, gasoline, semiconductors and grocery items like bacon and bananas have seen prices soar this year as a result of rising inflation, meaning that consumers’ paychecks might not go as far. If wages are rising at the same time as inflation, the impact on consumers is much less severe.
Rising inflation can also affect the stock market. Traditionally, rising inflation has tempered stock market growth, as consumers have less money to spend and the Federal Reserve may step in to check rising inflation by making loans and credit more expensive with higher interest rates.
What’s an investor to do when inflation is on the upswing? Often, it means adjusting investment portfolios to protect assets against rising prices and an uncertain economy.
Related: How can I invest $1,000?
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Inflation is largely defined as a continuing rise in prices. Some inflation is OK– historically, economic booms have come with an inflation rate at about 1.0%-to-2.0%, a range that reflects solid consumer sentiment amidst a growing economy. An inflation rate of 5% or more can be a different story, with higher rate levels associated with an overheated economy.
Inflation rates often correlate to economic growth, which is not always bad for consumers. When economic growth occurs, consumers and businesses have more money and tend to spend it. When cash is flowing through the economy, demand for goods and services grows and that leads food and services producers to raise prices. That triggers a rise in inflation, with the inflation rate growing even more as demand for goods and services outpaces supply.
Conversely, when demand slides and supply is in abundance, prices fall and the inflation rate tumbles as economic growth wanes. In 2021, however, the US economy is heating up after muted growth in 2020, and the inflation rate is on a significant upward trajectory.
In the United States, the main barometer of inflation is the Consumer Price Index (CPI). The CPI encompasses the retail price of goods and services in common sectors such as housing, healthcare, transportation, food and beverage, and education, among other economic sectors.
The Federal Reserve uses a similar index, the Personal Consumption Expenditures Price Index (PCE) in its inflation-related measurements. Economists and investors track inflation on both a monthly and an annual basis.
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Historically there are two types of inflation: cost-push inflation and demand-pull inflation.
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This type of inflation is an economic condition when goods and services are limited in supply, and where demand “pushes up” prices on those same goods and services. Take the cost of lumber in the first half of 2021, which was up substantially. Any increased price of lumber for building and construction leads to a lower lumber supply. With demand for lumber both sustained and intense, the price of lumber rises – or is “pushed” higher. Cost-push inflation also often occurs following a natural disaster (i.e., like when a hurricane closes oil refineries, leading to a lower supply of oil and gas, which leads to higher prices for both commodities.)
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This type of inflation occurs when prices rise in the consumer economy. When jobs are plentiful and consumer sentiment is high, or the government has pumped a large fiscal stimulus into the economy. People tend to spend more money on goods and services. Yet if the goods consumers are limited (such as smartphones or used cars), competition for those goods rises, and so do the prices for those goods.
Demand-driven inflation is often referred to as “too many dollars chasing too few goods,” meaning the competition among consumers for specific goods and services drives prices significantly higher.
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Inflation impacts both stock and bond markets but in different ways.
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Inflation has an indirect impact on stocks, primarily reflecting consumer purchasing power. When inflation rises, that puts pressure on stock market returns to keep up with the inflation rate. Consider a stock portfolio that earns 5% before inflation. Add the 5.4% inflation rate U.S. investors have seen (on average) over the past year, and the portfolio actually loses 0.4% on an inflation-adjusted basis. Plus, as prices rise, retail investors may have less money to put into the stock market, reducing market growth.
Conversely, some inflation stocks can perform well in periods of high inflation. When inflation hits the consumer economy, companies boost the prices of their goods and services to keep profits rolling, as their cost of doing business rises at the same time. Consequently, rising prices contribute to higher revenues, which helps boost the price of a company’s stock price. Investors, after all, want to be in business with companies that have strong revenues.
Overall, however, rising inflation raises the investment risk of an economic slowdown. That scenario doesn’t bode well for strong stock market performance, as uncertainty about the overall economy tends to curb market growth, thus reducing company earnings which leads to sliding equity prices.
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Inflation can crimp bond market performance, as well. Most bonds like US Treasury, corporate, or municipal bonds offer a fixed rate of return, paid in the form of interest or coupon payments. As fixed-income securities offer stable, but fixed, investment returns, rising inflation can eat it those returns, further reducing the purchasing power of bond market investors
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Investors can take several action steps to protect and potentially outperform with their portfolios during periods of high inflation. You don’t have to worry about choosing the best investments during hyperinflation, because it’s highly unlikely that runaway inflation will occur in the United States.
Choosing inflation investments is like selecting investments at any other time – you’ll need to evaluate the security itself, and how it fits into your overall portfolio strategy both now and in the future.
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For instance, investors might consider stocks where the underlying company can boost prices in times of rising inflation. Consider a big box store with a global brand and a massive customer base. In that scenario, the retailer could raise prices and not only cover the cost of rising inflation, but also continue to earn profits in a high inflation period.
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Think of a consumer goods manufacturer that already has a healthy portion of the toothpaste or shampoo market, and doesn’t need excess capital as it’s already well-invested in its own business. Companies with low capital needs tend to do better in inflationary periods, as they don’t have to invest more cash into the business just to keep up with competitors – they already have a solid market position and already have the means to produce and market their products.
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Treasury Inflation-Protected Securities can be a good hedge against inflation. By design, TIPS are like most bonds that pay investors a fixed rate twice annually. They’re also protected against inflation as the principal amount of the securities is adjusted for inflation, based on Consumer Price Index levels.
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Precious metals, oil and gas and orange juice can all be good inflation hedges as well. Most commodities are tied to the rate of inflation and can capitalize in high inflationary periods. Take the price of gasoline, which rises as inflation heats up. Businesses and consumers are highly reliant on oil and gas, and will likely keep filling up the tank and heating their homes, even if they have to pay higher prices to do so. That makes oil – and other commodities – a good portfolio component when inflation is on the move.
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By investing in short-term bonds and bonds funds, you’re not locked into today’s low rates for the long term. When interest rates rise, you can purchase new investments that reflect more favorable rates.
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Investors should proceed with caution when inflation rises. While low inflation can indicate a healthy economy, high inflation can be a precursor to a recession. Massive changes to a well-planned portfolio may do more harm than good, and you shouldn’t toss out a long-term investment plan shouldn’t be deep-sixed just because inflation is moving upward.
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This article originally appeared on SoFi.comand was syndicated by MediaFeed.org.
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