After Years of Market Uncertainty. It Might Be Time to Take a Breath
The last three years have been very difficult for investors, starting with the huge drop during the pandemic and then the rebound of 2021. Since then, the market has been volatile as inflation, rising interest rates and political issues continue to batter investors. Now it might be time to take a breath.
First, it is important to look at the underlying economic indicators, which are showing a halting recovery from COVID. GDP was down significantly in 2020 over 2019, but it rebounded in 2021 and since then it has trended mostly upward. Inflation rose significantly in 2021, but it has been dropping and most experts believe it will continue to drop to historical norms. Unemployment is decreasing, and consumer spending is gaining strength as supply chain issues ease. In other words, the economy in the United States and elsewhere is continuing to come online.
But there is no crystal ball. And if 2020 taught us anything, it is that it is possible to be slammed by something you never saw coming. So as an investor, this is a good time to think about four things:
- Where are you now in terms of your financial situation?
- Where do you think you need to be?
- How soon do you think you need to be there?
- What is your tolerance for risk? Does the worry that you might lose money keep you up at night?
We usually focus first on your tolerance for risk. Generally, the more aggressive you are with your investments, the more likely you are to get higher returns, at least in the short term. But you also are more likely to experience more extreme highs and lows in your portfolio.
If you choose a more conservative approach, you might not get the returns you could get with more aggressive investments. But you also have a better chance of avoiding some of the risk.
If your risk tolerance is very low or your timeline is short, we can help you invest in fixed-income and other conservative investments that look to preserve capital.
For most clients, though, we focus on the stocks of large, established American companies that are well-positioned in their industries and have a tradition of strong and experienced leadership. We look for companies that have a consistently good return on investment and a long history of revenue and earnings growth. We choose companies that have weathered many cycles of change – economic, political and social – and that have avoided most of the market’s extreme highs and lows.
We also believe strongly in stocks that pay dividends. Dividends suggest that a company has a strong cash flow from which to pay those dividends. Dividends also provide a shield against market volatility because all your return does not come from an increase in the stock price. Finally, choosing to reinvest your dividends can help to grow your portfolio significantly over time.
Of course, there are no guarantees in investing. But our experience over many market cycles has shown us that this approach can help maximize long-term returns while minimizing volatility – and stress.
We are happy to talk with you at any time about your investments, your concerns and your plans. Just give us a call.
Garry K. Schaefer
April 25, 2023
Peachtree Investment Quarterly may offer general financial, insurance, tax and business ideas. However, due to the ever-changing tax laws as well as the complexity of the financial industry, you should seek professional advice before implementing any of the ideas contained in this newsletter. Peachtree Investment Partners, LLC (TM) assumes no liability whatsoever in connection with the use of this newsletter.
