Know Your Goals and How to Achieve Them
Editor's note: Only one person should control your investment destiny...
You.
As our Director of Research Austin Root explains in this weekend's Masters Series – adapted from the June 2018 issue of Stansberry Portfolio Solutions – you should never just give up control of your own investment destiny... But you can lean on others like us for guidance.
However, as Austin details, you must first identify your individual goals yourself...
Know Your Goals and How to Achieve Them
One of the most popular types of mutual funds in the world today also happens to be my least favorite...
These funds are taking over Wall Street. By the end of last year, individual investors had pumped roughly $2.3 trillion into these funds. This was during a period when other types of actively managed mutual funds were losing share to low-cost index funds and exchange-traded funds.
And yet, with all its success, I hate this type of fund.
Just what kind of fund am I talking about?
Target-date funds.
If you're not familiar, a target-date fund is a mutual fund with a mix of assets – typically stocks and bonds – managed to become less risky as investors get older and approach retirement age.
For example, a target-date fund structured for an investor retiring in 2050 will be more aggressive and generally have a higher allocation to equities than a fund with a 2025 target date.
On the surface, that sounds pretty good, right? It's an easy way to "set it and forget it" with respect to your investments.
So why am I uncomfortable with target-date funds? As I'll explain, the strategy is misleading, and for most folks, it's simply the wrong investment vehicle. Target-date funds go against what I believe should be the single-most important tenet for every investor...
Target-date funds masquerade as a customized product, tailored for you as you get older. In reality, they are generic, one-size-fits-all solutions. Investors who put all their capital in these funds are giving away control of their own investment destiny.
You may wonder if this really matters. After all, if the goal is to accumulate as much money as possible by the time you're ready to retire, how much nuance really matters?
Just consider what happened during the financial crisis...
According to research firm Target Date Analytics, the average 2010 target-date fund was more than 45% invested in stocks in 2008. Some, like AllianceBernstein's (AB) 2010 portfolio (LTDAX), were more than 55% invested in stocks that year before the downturn.
Remember, that 2010 fund was for folks who were about to retire in just two years. Those investors must have assumed their nest eggs were safe and secure. But when the market sold off, these funds got hammered nearly as badly as the stock markets... LTDAX lost 33% of its value in 2008, almost as bad as the S&P 500 Index's 37% fall.
Ask yourself one question. This sums up how the fund's shortcomings more than offset its ease-of-use benefit...
Why should two individuals with different levels of risk tolerance, income, net worth, and living expenses be invested in identical strategies... simply because they're the same age?
Of course they shouldn't.
That's my biggest concern. These products have no idea about your investment goals. So why should you blindly put your money in them?
You should be in control of your investment destiny. Full stop, without equivocation.
It is, of course, OK to utilize others for guidance. I encourage it. And I personally do so every day... For example, the teams that produce Stansberry Innovations Report and Stansberry Venture Technology – led by Dave Lashmet and John Engel – teach me cutting-edge things about science and technology all the time.
And really, that's what all of Stansberry Research is here for...
The heart of our business is to give investors control. Some subscribers like to blend ideas from a number of our resources to create a hybrid approach. Others prefer to take a product like one of our Stansberry Portfolio Solutions services and follow it closely.
In either case, investors who use our products know what they own... They have control over what they own, and they can make moves to change allocations as their goals or the market require.
Most important, they won't be left less than two years from retirement unknowingly (and against their better judgment) with half their retirement savings invested in risky stocks.
But to utilize our team and research most effectively, you must first know your investment goals...
Are you looking to preserve your wealth and focus on low-risk investments with high margins of safety? Do you want to strive for higher long-term capital appreciation? Or do you want to begin harvesting your assets a bit and use them to generate high current and future income?
The choice is yours. You control your investment destiny. But once you identify your goals, we can help you get there.
Achieve Your Goals by Owning a World Dominator
For just about whatever your investment goals may be, we believe at least some portion of your portfolio should be invested in world-class businesses that are enduring and capital-efficient. They're one of the most consistently successful ways we know to generate solid, steady investment returns.
These businesses are market leaders. They're the ones you can trust to be around decades from now. And as their sales and profits grow, their capital investment requirements do not. Thus, the amount of money available to return to you as a shareholder will soar over time.
This is a great time to remind you of the power of capital efficiency by comparing the long-term results of two actual companies... We believe it's a clear example of the power of capital efficiency.
These two stocks are not just well-known to most Stansberry Research subscribers... They're also two of the most historic corporations in America – Hershey (HSY) and General Electric (GE).
Hershey is, of course, an epitome of capital efficiency. GE is a case study in how not to operate a business. It is highly capital inefficient.
During a 25-year stretch through 2017, both companies grew sales by more than 130%... or by a nearly identical 3.4% per year on average. (We call this average yearly growth calculation the "compound annual growth rate," or "CAGR" for short.)
But that's where the similarities end.
Hershey took this modest 3.4% revenue growth and created a much better return on its invested capital for shareholders. Through a combination of improved operating margins, a 42% reduction in the share count, and virtually no increase in capital spending levels, the chocolate maker grew its per-share free cash flow by 15.5% per year. (Free cash flow, or FCF, is what's left after a company pays all of its expenses including capital expenditures.)
From just 133% growth in revenue, Hershey generated 3,571% growth in FCF per share.
Meanwhile, GE's capital-intensive business generated far lower returns from the same revenue growth. Over the same 25 years, the industrial conglomerate's FCF per share declined 16%.
Below are more details on the 25-year comparison...
Both companies returned considerable capital back to shareholders. They both paid a growing dividend and bought back stock to reduce the number of shares outstanding. But Hershey grew its dividend by more than 880%, while GE's grew about one-fourth as fast.
And more important, Hershey's asset-light, capital-efficient business ensured the company's FCF could easily cover its large dividend. That's not true at GE... Prior to dividend cuts, GE paid an annual dividend of $0.84 per share... But its FCF per share – after accounting for bloated capital expenditures – amounted to only $0.42 per share.
Worse, its per-share FCF still fell short of GE's updated, lower annual dividend of $0.48 per share in 2018. That's worrisome and ultimately unsustainable. (Editor's note: This proved to be true... GE cut its annual dividend down to $0.04 per share in 2019.)
Hershey's business is exceedingly sustainable. It's one of the most sustainable businesses on the planet. And that's not just because of the capital efficiency. It's also a result of the enduring nature of the products it sells.
Our grandparents enjoyed the same Hershey's chocolate bars 50 years ago that our great-grandkids will enjoy 50 years from now. And that makes Hershey a must-have in your portfolio.
We've been fans of Hershey for more than a decade. And we'll likely continue to be fans of this capital-efficient business long into the future.
As always, our goal with all of Stansberry Research's services is to be a guide and help you achieve your goals. But first, you must identify your individual goals yourself.
We can do a lot of the "heavy lifting" for you. We can simplify the investment process and allow you to make more efficient use of your valuable time.
But in the end, it's your life... your retirement... and your future.
The choice is always yours. And we'll always be here to help if you need it.
Good investing,
Austin Root
Editor's note: If you're looking for more guidance on how you can take better control of your investment destiny, we urge you to check out our special broadcast next week...
Stansberry Research founder Porter Stansberry will sit down with Dr. David "Doc" Eifrig and Dr. Steve Sjuggerud for an end-of-year update. They'll discuss some important changes we've made to our business... and discuss how it could all impact you personally. Plus, Porter will detail how you can take advantage of one of our most generous offers ever.
If you recognize the value of our research and want to play a bigger role in our business, you owe it to yourself to tune in for this event. But don't delay... It will be available for only 56 hours starting Wednesday, December 16, at 9 a.m. Eastern time. Learn more here.