A
Tale of Two Guys
This is the story of two guys; Joe and Moe, both business
owners.
MOE
Moe has been in business
for over 30 years. He appears to
have a great reputation and has taken care of his clients. But he is overloaded with
debt and quickly running out of money to pay
his employees' retirement benefits. He also keeps spending to make it look like he's creating
jobs and security (i.e. healthcare.) For a $1,000 investment, Moe will pay you
2.74% for 5 years. At the end of the 5 years, he will give you back the
$1,000 plus $137 in interest for a total of $1,137.
JOE
Joe has also run a business for over 30 years. Joe's been very judicious in how he
runs his operation. When things
get tough, he tightens his belt.
He also doesn't overspend and cuts costs when recession hits. Joe continues to pay his
employees their bonuses (aka dividends) and has very little debt. He will
give you a minimum return of 3% a year for 5 years. If business is better than
expected, he will raise the rate as time goes on. He also thinks that his
business is undervalued and if he grows his company's earnings, he might be
able to increase his payout to you by 20%. If all goes well, at the end
of 5 years, this is what Joe thinks you will get: $1,000 plus $200 appreciation
and $150 annual dividends for a total of $1,350. This is 18% better than Moe can pay!
Both Moe and Joe are asking for
money to grow their businesses. Who would you give your money to?
The most obvious answer would be Joe. Right? Joe has run a solid business. He's prudently kept costs in line and done the right thing by his employees and investors.
WHO ARE
THEY REALLY?
Now let's tell you who Moe and
Joe really represent.
Joe represents large cap,
multinational companies that have been judicious in running their companies and
returned money to shareholders in the form of dividends.
Moe represents the
Government. I find it so
surprising that ever since we've gone into a recession, individual investors
have been pouring their money into municipal and government bonds. With the level of deficit we're
currently at, it's frankly crazy to be buying bonds. Maybe a short-term bond makes some sense. But even the latest rates show the
2-year note paying just 1.14%.
Compare that with a high quality dividend paying stock at 3%.
A CALL
TO ACTION
The economy is looking better
and better every day. Which means
it's the right time to revisit your portfolio and restructure it to outperform
inflation and provide a stream of income.
When was the last time you looked at your portfolio?
