Inside the Economy with SH&J: A Focus on the U.S. Economy

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On this week’s Inside the Economy, we discuss many facets of the U.S. economy, including the consumer, manufacturing, and debt situation. The average U.S. household holds less debt versus the historical average. What are consumers doing with the extra cash? As the global economy continues to slow, what effect does this have on U.S. exports? What does the decline in global car sales tell us about the broader world economy? We also take a look at the breakdown of U.S. government debt and its sustainability. Tune in to hear about all of this and more!

 

Value vs Growth Investing

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Value vs Growth

When it comes to investing in stocks, there are many different approaches. Two popular styles are value and growth investing. While both styles seek to take advantage of capital appreciation over time, they go about finding which stocks to buy in a very different manner.

There are many methods to determine the fair price of a particular stock. When you buy a stock, you are buying a share of the future earnings of that particular company. One metric that is often used to analyze stocks is called the Price-to-Earnings (P/E) ratio. This ratio tells us how much a shareholder is willing to pay per dollar or earnings for a company. A higher PE ratio means a more expensive stock, and a lower PE ratio signals a cheaper stock.

Growth stocks typically have higher PE ratios than their peers. The reason is they have exhibited higher-than-average earnings growth, and are expected to continue on this high growth trend. Growth investors believe these stocks have higher earnings potential, and are willing to pay more for them. Growth stocks are more volatile than the broader market, meaning they are more sensitive to market shocks.

Value stocks typically have lower PE ratios than their peers. Value investors seek stocks that have experienced poor price performance, but still have strong fundamentals. The goal of value investing is to buy stocks cheaper than the broader market, and experience capital appreciation once the market realizes the fair value of the stock is higher than when it was originally purchased. Value stocks are typically less volatile than the broad market.

Which is Better?

Whether you are a value investor or growth investor, you can always find a timeframe where your particular strategy is advantageous. Since the Great Financial Crisis in 2008 and 2009, however, growth has been king. In the 10 years prior to September 2019, the Russell 1000 Growth index gained 14.72% per year, compared to 11.26% per year for the Russell 1000 Value index. The reason for the outperformance of growth has to do with being in the longest economic expansion in U.S. history, as well as one of the longest bull markets. Value investing tends to outperform when the economy starts to contract and enter into a recession.

At Sharkey, Howes & Javer we implement both styles of stock investing. If you want to learn more about these types of equity investing, please get in touch with us today for a complimentary consultation with a CERTIFIED FINANCIAL PLANNER™.

Inside the Economy with SH&J: Consumer Spending & Global Debt

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On this week’s Inside the Economy, we discuss the recent patterns of the U.S. consumer. More than 70% percent of the U.S. economy is driven by consumer spending. How have lower interest rates this year impacted our spending habits, especially when it comes to housing? Debt seems to be a common four-letter word in the media, but if we break down global debt, is the situation as bad as it seems? Previously we mentioned the transition to alternative energy, but hydrocarbons are not a thing of the past, quite yet! Tune in to hear more!

 

Inside the Economy with SH&J: Interest Rates

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On this week’s Inside the Economy, we discuss the latest decision from the Federal Reserve to cut rates in October. Is the latest cut a mid-cycle adjustment or has a new trend emerged? How do 30 year mortgages and HELOC’s compare and contrast over time to the fed funds rate and what does it all mean? The yield on the 10-year U.S. treasury is trending towards all-time lows, but it remains much higher than other country’s debt. How can bonds have a negative yield and what are central banks trying to encourage businesses and consumers to do? Lastly, will there be a recession in 2020? Tune in to find out!

 

ESG Investing 101

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What is ESG Investing

Many people think that ESG investing is simply investing in companies that are more environmentally friendly than a typical company. ESG actually represents more than just sustainable environmental factors. ESG is short for Environmental, Social, and Governance. Companies are assigned scores based on how well they implement policies that excel in these three areas. 

The environmental factor is straightforward. A company with a high environmental rating will display sustainability practices as to not harm the environment, as well as being proactive on issues such as climate change. A company that scores well in the Social factor would exhibit diversity throughout the company, as well as be outspoken on social issues such as human rights and animal welfare. Corporate governance is probably the least well-known factor of the three. Corporate governance reflects how a company is structured. A company that scores well on this factor would exemplify responsible executive compensation and/or above average employee compensation.

Socially Responsible Investing; How do they Differ?

Many people often think ESG and SRI investing are synonymous, but there are some key differences between the two investing styles. First, ESG is a scoring system. Companies are graded on how well they embody the three factors that were discussed in the prior paragraph. SRI uses screens to filter out companies that exhibit certain qualities. For example, if you wanted to own a fund that didn’t own any companies that relied on fossil fuels, this would be an SRI fund. SRI funds can also screen-in companies that engage in a variety of ESG and SRI factors, such as environmental sustainability.,

 How to Invest in an ESG Portfolio

According to the 2018 Report on U.S. Sustainable, Responsible and Impact Investing Trends, there was over $12 trillion invested in SRI and ESG strategies in the U.S. alone. This number is only expected to grow over the next decade. The easiest way to implement an ESG portfolio is by using mutual funds and ETFs. Mutual funds that are dedicated to ESG investing have an ESG mandate, meaning they can only select companies that score highly on the ESG scale. These ESG mutual funds typically have higher expense ratios than non-ESG funds due to the extensive screening process. ETFs are a more cost-effective way to invest, as they track various indices. There are now over 1,000 unique ESG indices. 

Sharkey, Howes, Javer has ESG portfolios available to clients. If you would like to learn more about ESG investing and how you can implement a socially-conscious portfolio, please contact us or call 303-639-5100