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Shop ‘Til You Drop!

We all spend money on stuff and services—that’s what makes us consumers. Once our basic needs are met, we may have some money left over to do with as we wish. This becomes our discretionary money. The businesses we frequent with this money all fall into the Consumer Discretionary sector.

When we go shopping at the mall, most of what we see for sale, to be honest, we really don’t need. These are the retail stores selling apparel, shoes, jewelry, and cosmetics. Want to fix up the house? Just run down to the nearest home improvement store. How about a vacation? Airlines, cruise lines, hotels, casinos and amusement parks are all too glad to help you get rid of that extra cash. Been waiting to buy that new car? Heck, why not? And don’t forget date night—restaurants wouldn’t survive without our discretionary income (and friends and loved ones to share it with).

The thing is, the companies in these industries are really susceptible to changes in the economy. When things are good—when we’re employed and have confidence in the future—these businesses thrive and grow. Their stock prices surge upward. But, when we’re forced to tighten our belts, we tend not to splurge on big purchases. Sales plummet, profit expectations decline, stock prices tank. That’s the cyclical nature of the economy, and only the best companies can survive the continual ups and downs.

We like to own positions in these companies outright (instead of in funds) due to the fluid nature of consumer trends.

(Some consumer discretionary companies include Amazon.com, McDonalds, Walt Disney Company, Comcast and Home Depot.)*

*Source: S&P Consumer Discretionary Sector Fund (XLY) Top 5 Holdings by Weight as of 1/20/2016. For example only - not intended as a recommendation.

NOTE: Maxwell Noll Investment Advisors is a fee-only advisor. Investment recommendations will be made only after a thorough review of current assets and risk tolerance, and a management agreement has been executed. Please refer to Form ADV-2 for fee structure and other important information.