Laughing all the Way to the Bank

When the Bureau of Economic Analysis reports “The US economy advanced at an annualized rate of 1.2 percent compared to market expectations of 2.6” or “Real GDP increased at an annual rate of 1.1 percent in the second quarter of 2016”, we need to look at why and what strategy to take with our personal finances. And that’s no joke!

Managing and monitoring your own portfolio can be very time consuming and stressful and hiring a professional manager may reduce your stress level but will not guarantee better results.  Either way, consider controlling your risk with sector investments that have strong consumer demand and the potential for slow steady growth.

Sectorsare groups of companies that provide similar products or services, such as Financials, Transportation, Utilities, Energy, Manufacturing, Retail, Pharmaceuticals and Consumables. There are many more and these can be broken down into sub sectors.

Think for a minute about what your demands are and how that product or service is used by you and your family. Chances are, others have the same demands. Now divide them into two categories – the must havegroup and the luxury. Those in your must have group, like soap and food are more apt to survive a market downturn or recession than say a designer brand when a generic will do just fine, especially if you have to tighten your belt.

Consumer discretionary stocks will typically underperform the broader equity market when interest rates rise. Higher cost specialty coffee can easily be replaced with a store brand. Conversely, you will consume home heating commodities and electricity no matter what the rates may be. We saw this predictable phenomenon prior to and after the Fed’s rate-tightening cycles in 1994, 1999, and 2004.

Your final task is to research the providers of your must-have group and see if they have a strong history of growth and dividends. If they do, add them to your long term portfolio and reinvest the dividends. Utility companies are regulated but do provide strong earnings and dividends because you need and pay for their services. They are also required to maintain standards with upgrades and competitive services, which helps preserve their relevancy.

High demand items like smart phones and their service companies have become a necessity and can provide both growth opportunity and dividends. Moderate your portfolio based on your age and risk tolerance.

Bankers On A Ship

What’s the difference between a tragedy and a catastrophe?
A tragedy is a ship full of bankers going down in a storm; a catastrophe is when they can all swim.