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!