January 2016

Bad Time for Creative Investing

The U.S. stock markets were characterized by volatility throughout much of 2015, and the trend has continued through the start of 2016. At least until the markets settle down, we at Peachtree Investments believe this is not the time to get creative with your investing. Instead, we believe the best approach is to stick to the tried-and-true.

First, let's look at some of the reasons for the volatility:

  • China. The Chinese indices have been all over the place this year, and that probably will continue as China works to bring its economy into the 21st century. Since the U.S. trades significantly with China, their economic woes will be felt here.

  • Oil. The price of oil has been dropping and remaining low. This is good news for many people, including carmakers and commuters. But it is very bad news in other areas, including the economies of states, nations and regions that rely heavily on oil production as a major source of revenue and growth.

  • Geopolitical concerns. The world is becoming a scarier place, and that makes investors jittery.

  • Certain economic indicators, including P/E ratios and the reluctance of companies to make capital investments, deciding instead to hold money on the sidelines.

  • The slow decline of the American middle class. Consumer spending represents about 70% of the U.S. GDP. Part of the reason that economic growth has been slower as the nation emerges from the recession is that consumers, particularly middle class consumers, are spending less because they have less to spend.

All these issues are complicated on many levels: economic, political, social. As a result, they are not likely to resolve themselves any time soon. And that means that volatility is likely to continue.

At Peachtree, we believe that the best defense against volatility is to follow a conservative investment approach. Our portfolios are made up almost exclusively of the stocks of well-known U.S. companies that pay dividends. Both parts of this strategy are important.

First, we focus on U.S. stocks because we know those companies. They have long track records, mostly transparent management and verifiable financials. They are subject to outside regulation and oversight. In short, they are comprehensible and accountable.

We focus on dividends because they can help to even out volatility by providing a regular, dependable return, regardless of what happens with stock prices. It is important to note that index investors get the performance of the stocks in the index -- without the addition of dividends. We also believe companies that pay dividends have a strong incentive to be responsible stewards.

We understand that this is a plain-vanilla approach to investing. There is nothing exciting or sexy about it, and talking about it won't make you a celebrity at your next cocktail party. But we believe that sometimes boring is good. It can be a valuable thing to keep your head down and focus on the old reliables – especially in times like these.

Garry K. Schaefer
Atlanta, Georgia
January 19, 2016

© 2024. All rights reserved. Peachtree Investment Partners, LLC™ | Privacy Policy / Terms of Use | Peachtree CRS Form | CLIENTS: Charles Schwab & Company Login

Go to top