Making Sense Of Your Investments

January is a great month to review where you invest and ask yourself why you own what you own. Dividends and interest are often credited at year-end providing investors with some choices in January. Will you keep your dividends in cash, re-invest them, or distribute for spending? Having a process to follow and understanding your choices helps make the most of what you have.

It’s easy to overlook dividends. Some companies issue them while others choose to reinvest earnings back into a product and/or service. Dividends are a part of company earnings that are distributed to shareholders. Looking back over the past hundred years, dividends from America’s best companies have compounded around 5% +/-. When you compare this to the rising cost of living, which has grown at 3% +/- over the same time frame, dividends make a positive impact. How?

By keeping your dollars relevant as costs rise, investors may continue spending on essential needs while still leaving room for fun spending too. Dividends help take the sting out of inflation, and so do rising company prices. It’s both price growth in company values AND dividends working together that may tackle rising costs.

The key, and it’s a big one, is remaining patient when company values routinely contract. Remember March 2020 and October 2022? Both recent low points for America’s best companies as prices retreated significantly. The silver lining from a dividend perspective is that, when reinvested, dividends purchase companies at temporarily reduced prices.

Over time, those prices expand again, which may be responsible for where your investment accounts stand today. It’s rarely the present moment that determines the bulk of your wealth. It’s going back in time, particularly when the sky is dark, and your investments are contracting with no end in sight. How did you act or react in those moments?

Our financial behavior in good and bad times will determine what’s available for spending, both today and tomorrow. Finance, financial planning, and decision making is NOT math, it’s all based on behavior.  When you accept this truth, your perspective may shift. Your approach to what you own and why may become more input based versus output driven.

Speaking of inputs within your control, rebalancing your account back to its intended percentages now, with dividends included, is valuable. Company prices are in a constant state of motion. Taking time to realign them makes an enormous difference in the long run. We’ve talked about America’s best companies—the S&P 500—but must also include other small and medium sized companies here in the US and all sized companies abroad.

Our firm uses an investment policy statement for each account based on its unique job description as part of your financial plan. It’s natural to accumulate a lot of accounts over a career including cash reserves. How do they all fit in and work together?

We believe the answers arrive and are refined by updating your financial plan each year. As your priorities shift overtime your plan becomes outdated; the act of planning keeps it fresh and relevant.  Having a clear sense of purpose may get you closer to what you want. You don’t need to act alone, when you’re ready to chat, we’ll be here.

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