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Know What You Own

"Know what you own, and why you own it."

--Peter Lynch, former Vice-Chairman Fidelity Investments

Peter Lynch famously offered this advice in the 1990's, prior to the Dot Com meltdown of the late 90's and subsequent three year bear market from 2000-2002.  He was also a colorful speaker as seen in this speech to the National Press Club.  His advice is just as relevant today as it was nearly 30 years ago.

Why Own Stocks?

Portfolios at Oxford Financial Partners lean heavily on the stocks of some of the world's best-run companies.  Stocks are a permanent and significant component of the Growth Bucket noted in our Power of 5 Investing philosophy.

Why do we own stocks?  Because history shows they offer long-term returns north of 10% annually.  Combined with a conservative 5-year Stability Bucket, retirees should expect to earn 7% annual returns over their 30-year retirement, allowing them to withdraw 5% or more per year to live on and leave a meaningful legacy to the people and places who have shaped them.  

How Do You Make Money on Stocks?

How have stocks been able to do this?  Because they represent an ownership interest in a profitable company.  As a shareholder, you make money two ways in the long-term:

  1. By collecting cash dividends, paid out of company profits
  2. By selling the stock (if you need to) for more than you paid for it

That's it.  Find good companies with long histories of making stuff people want to buy, who do that profitably, and who share those profits with their shareholders.  Buy enough of them (at least 20 stocks is considered the low end of a diversified portfolio) so that if one of them fails, the others will make up the difference.

Are Stocks Risky?

Have you ever heard of these companies?

  • Apple
  • Microsoft
  • Verizon
  • Procter & Gamble
  • Pepsi
  • Toyota
  • Nestle
  • UPS

I'd be willing to bet that you or someone close to you has done business with every one of those companies at one time or another.  You probably have some of their products in your house right now.  And while you may prefer one of their competitors (e.g. Coke instead of Pepsi, Ford instead of Toyota), you'd still respect why somebody might own one of these stocks.  Do you think any of them are going out of business?  Do you think any of them have at least decent future prospects for growth?  Did your parents know these brands?  Will your kids or grandkids know these brands?

When I'm meeting with someone the first time I like to ask if they think stock market is risky.  Most people will say that it is.  That may or may not be true depending on the time frame, but it's a fairly common response.

But when I ask them if Pepsi or Toyota is a risky stock, they rarely characterize it that way.  They probably have a favorable impression of the company or its products, and may even know someone who works there.

We currently own all of the stocks listed above.  And unless something dramatically changes with a particular company on that list, I expect we'll own these stocks for quite a while.  We do not consider the ownership of well-run dividend growing companies to be a long-term risk.

Knowing What You Own

There's a difference between knowing the facts and actually following through on the plan when things get difficult in the stock market.  On average, we know that stocks experience a 30%+ decline once every 5 years.  Sometimes those bear markets can last quite a while, as they did in 2008-2009 and 2000-2002.  Owning "stocks" can be challenging when the entire market is being dragged down.

We have found over time that it's easier to stick to the plan when what our clients own isn't just "stocks" but, rather, real companies.  Companies that make products you buy every day, companies that employ real people, companies with long histories of supporting the local economy.

We prepare detailed 5 year forecasts of our clients' upcoming portfolio withdrawals and then compare that to anticipated dividend income from our stock picks.  Because we focus on companies with long histories of growing their dividend stream, we often find that 1/3 or 1/2 of our clients' withdrawals are covered by dividends alone.  Any remaining needs are funded by partial sales (we call them "harvests") of stocks whose share prices have risen over time.  Much like pruning a plant in your garden, these partial harvests leave plenty of the plant behind to keep growing and produce more dividends.  Our clients love the simplicity of the approach.  Importantly, the approach works.

Do You Know What You Own?

We've been helping clients prepare for, and thrive in retirement for over three decades.  Our clients' continued financial success is exceeded only by their success at the game of life.

When we build retiree portfolios at Oxford, we seek a balance between Stability and Growth following the principles outlined in our proprietary Power of 5 Investing system. Our goal is to help clients achieve inflation-beating growth in their wealth, while managing through market downturns, ultimately helping clients leave a legacy to the people and places they love.  Our system has been battle tested in 25+ years of market ups and downs and is ready for whatever the market can throw at it.

Do you know what you own?  If you're not sure, we're happy to look over your portfolio with you and explain it to you.  If we think your portfolio can be improved, we'll let you know.  Click below to schedule a time to talk.

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