As investors, you are probably asking, “What is going on with this market?” We find the answer is simply, there is nowhere else to put your money.
We are not concerned that the market is overpriced. We think inflation is coming; therefore, we do not want to tie up long-term money in bonds. The Federal Open Market Committee has shown in their minutes that there have been discussions on tapering back on their bond buying. When the Fed slows their buying, we expect interest rates to rise.
Additionally, in a bull market, the markets are experiencing the lowest price to earnings ratio they have seen at 15.5. Historically, the market sells for around 16 times earnings. Companies are earning more than they have ever. The S&P 500 yields about a 2% dividend, which is better than most Treasury bond rates—even the 10-year bond, yielding 1.72%. Therefore, we believe the stock market is the place to invest your money.
We see that gold funds, money market funds and bond funds all going down. With that, the only places left to invest are the stock market and real estate. Unfortunately, most investors find the real estate market outside their financial wherewithal.
We believe the markets have room to grow as well. Earnings are predicted to increase by 6% to 7% for the year. While not red-hot, companies are still growing and earning a profit. If the markets increase by 6% to 7%, the PE of the companies essentially stays the same.
The recession cut the fat from companies. Businesses learned to do more with fewer employees, and were able to increase profitability to survive. Only recently have we seen an increase in employment. We think companies are still scared to hire, because of the coming regulations surrounding health care. It costs a company a fixed amount to hire an employee with benefits, health care, retirement plan, etc. Those costs are also increasing. When an employee makes between $20,000 and $30,000 those costs are a higher percentage of the cost of hiring an employee, including salary, than that of an executive earning $80,000 to $100,000. We believe this is why companies are hesitant to hire.
At Henssler Financial we believe you should Live Ready, which includes understanding why the stock market is likely the best place to grow your investable assets. If you have questions on your money, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.