Welcome to Make your Money Matter, the show that aims to change the way we think about financial advice. So, you can make better decisions.
Brad Barrett is a managing director and partner at One Capital Management, a wealth management firm serving nearly 1500 clients nationwide. With over $2.5 billion in assets, they’re a group of advisors dedicated to ensuring their clients achieve their investment and retirement goals. And now here's your host Brad Barrett. [00:26.1]
Brad: Welcome to Make your Money Matter, the show for truth seekers who are fed up with outdated financial advice. My name is Brad Barrett, I'm a managing director and partner here at One Capital Management. And it's my goal on this show to reaffirm what you know, to be true and to challenge the advice you may have been told is true. Here at One Capital, our mission is simple to help our clients and you listeners live well and not just survive, but thrive. Friends, we live in a world where we are consuming information at warp speed and it's easier than ever before to access information, getting more difficult to find truth. And that's what we're after because after all your money matters and knowing the truth on how to plan your financial future is vital to your financial success. Now, before we get started on today's show, and you want to find out more about me or our advisors here at One Capital Management, you can go to our website at onecapitalmanagement.com, you can click on the media tab, you can hit subscribe and download the Make your Money Matter podcast. We'd love to get a review; hear how we're doing as well. You can put your review on any of the platforms where you would download a podcast, whether it's Google podcast, the iTunes app, or Spotify, let us know what you're thinking, how you're feeling. We always love to get feedback. And again, you can also go to our website to find out more about our firm and our advisors at onecapitalmanagement.com or give us a call at (805) 409-8150. [01:53.5]
And on today's program of make your money matter, I want to talk about the Dow Jones, industrial average. We hear those words every day, I'm assuming at this point, but not too many people actually know what they mean. And as an advisor here in the firm of my colleagues as well, we sit with clients constantly and a usual question is, Hey Brad, or Hey, Mr. and Mrs. Advisor, how are the markets looking? What do you feel the markets are going to do? And when we talk about “the market” odds are referring to the Dow Jones industrial. Right or wrong, that's typically what we are referring to. So, I figured, you know what, it's a great episode to talk about a little bit of the history of the Dow and what the index means to all of us and why we refer to it as “the market.” Now, to understand the Dow Jones industrial a little bit better, we have to actually go back in time to the 1880s. The Dow Jones industrial average is named after a guy named Charles Dow and a man named Edward Jones. Dow was primarily a, he grew up in the new England area and he wrote for newspapers, including the Providence journal and the Springfield Massachusetts newspaper or the daily Republican. So, we had a lot of journalism behind him. [03:09.8]
Now, quick fun fact, eventually Dow would become the founder of the wall street journal. Now Edward Jones was primarily a statistician, a numbers-based kind of guy. But in case you're jumping ahead of me, oddly, this Edward Jones bears no relationship to the Edward Jones who founded Edward Jones investments, which is located in St. Louis, two different guys. So now in 1882, Charles Dow the journalist and Edward Jones, the statistician partnered with a third fellow, a guy named Charles Bergstresser to form a company called Dow Jones & Company. Now Bergstressor was an interesting kind of a guy. Like Dow, he was primarily a journalist, but he was also what we would consider the money guy. He came up with the finances needed to begin the Dow Jones & Company, and they located their company on Wall Street, New York city. And a few years later in 1889 because of their new company where it was located, it was Bergstresser that suggested to Dow to name a newspaper, he was starting The Wall Street Journal. [04:09.9]
Again, a little bit of fun fact in history of the Dow. So, Charles Bergstresser was pretty creative in my opinion, but he was also modest, he wished to be a silent partner in the new venture, again, Dow Jones & Company. He didn't want his name in the lights. So, in 1882, the three partners opened the door of their new company located on wall street, nut the sign on the building simply read Dow Jones & Company. The company began operations as a simple investment company, but in 1884, Charles Dow had a great idea. Rather than tracking companies individually, he thought that he tracked a group of companies providing a broader look at how the U S economy was performing as a whole. The type of grouping that I'm referring to, that he was basically inventing, became known as an index. [04:56.3]
And after creating the first, Charles Dow actually created several others, we'll talk about that later. Now that was very first index focused on the transportation sector of the U.S economy. And in 1896, he created a second index, The Dow Jones, industrial average, tracking the results of 30 large companies involved in heavy manufacturing. Now today, the Dow Jones industrial average is still composed of 30 companies, but hardly any having anything to do with heavy manufacturing. It's made up of companies like American Express, Apple Walgreens, Goldman Sachs, IBM, and there's twenty-five other household names. One of which I'm going to talk about here in a minute. And as you might imagine, because an index represents a cross section of American businesses reflecting, essentially what is going on in the U.S economy as a whole. Index performance, good or bad can be pretty susceptible to policy coming out of Washington, DC, as well as being affected by unforeseen geopolitical events that really happened around the world. [06:01.2]
Now, there was an article in market watch a few years ago, carried the title, ‘The Dow's tumultuous 120-year history in one chart.’ In the article, they examined the chart showing the Dow’s performance since 1896. And as the article states and I quote the chart shows the indexes peaks and troughs have reflected the index triumphs and tribulations. But more than that, the graph also illustrates how the Dow has become a chronicler of investors responses to significant global events. Further along the article they write and I, “investors must stay fluid to changing market conditions. There is no get rich quick scheme investing is more challenging than brain surgery” and quote. And as I was doing my research for this podcast, with the history of the Dow, that quote, and that article stuck out to me because it says so much about what we do for our clients who are listening here, or those that have heard of our firm and what an, a good investment advisors should be doing for clients is making sure that we manage the risk and using the market “indexes,” like the S&P 500, the Dow Jones industrial, the Russell 2000. [07:07.7]
Again, these are indexes, they're able to take a look at the broader us economy. And when you look at the history of the Dow, there've been lots of ups and downs, generally riding the incoming and outgoing tides of world events and Washington's policies and economic activity and social moods. A lot of that's chronicled in the, again, over a hundred year plus history of the Dow. And there've been periods of really oppressive regulation in that time period, as well as too little regulation, high interest rates and low, as we've seen recently, there'd be an outright war in that time period. Military excursions, and we'll call it adventurism into various countries, political structures. You know, following the market crash of 1929, the Dow, if you look on the graph, took 25 years to recover according to MarketWatch article. And the Dow took 16 years to recover from the events of the early 1970s, a host of items, including the Vietnam war, skyrocketing oil prices and the resignation of a President Nixon at the time. [08:07.4]
And all these events are chronicled again in the history of the Dow, its ups and downs. And its history can serve as our guard and we can learn a lot from their experience and overseeing it. But again, the long haul and the strategic diversification using that as one of the indexes or one of the investments that you are looking at in your portfolio, combined with others that maybe aren't US-based, maybe they're more European-based globally, if you will, from an asset allocation standpoint, is how you want to look at your portfolios because you see the fact that markets move up and markets moved down is nothing new, nor is it new that markets are affected by external domestic and geopolitical events. Many of which come as a surprise, those black Swan events that happen. And as all of us know, markets can only move one of three directions. They can go up, they can go down or they can remain flat. There are no other options. So, understanding those options and how it relates to managing your account and diversifying your risk to protect your downside is where a good investment manager comes in. [09:09.7]
And what we do here at One Capital Management for our clients using “the market,” if you will, the Dow as an index among many others, to be fair, and then understanding those companies that represent the broader market, how those are fundamentally designed, if you will, and whether or not we feel it's appropriate for your portfolios. Given our partnership with you as clients, understanding your risks, your goals, your objectives, the types of accounts is a lot that comes into play to build a holistic plan. And if you haven't done that with an advisor, give us a call. You can call us at (805) 409-8150. You can sit with one of our advisors to go through your plan, whether you are in the accumulation phase of still working in saving or you're getting near retirement or in retirement, it's never too late. And it's important to make sure that understanding what an index is, which I'm alluding to a little bit today and how that fits into your overall plan is vitally important to make sure the success of your financial plan works for what your goals and objectives are for your retirement. [10:10.1]
Now, I want to take a moment and talk about one of the companies. In fact, the oldest company that has been in the Dow since inception. Now several years ago, I was back east with my family and we were going through some of the Northeast coast and different areas in Massachusetts in particular, and to visit one of these places we were going to you'd have to travel through a city named Lynn, L Y N N. It's somewhat of a rougher area. The local say, Lynn Lynn, the city of sin, I came to find out. But Lynn, like so much of New England has its own unique story to tell on anyone that understands American history knows new England has a lot of history there. Now why I'm bringing this up today has to do with the company that I'm referencing. So, on a street named Western Avenue, there are huge General Electric buildings. It's such a built-up area, if you go through there, you can pass right by them and never really given them much thought. But through the windshield of this car, you see Lynn's kind of sprawling General Electric facility, it like melts into this urban landscape that there it's actually quite a sight. And in reality, those General Electric plants represent a lot. They're a piece of American industrial history. [11:19.3]
You see in 1883, the Thompson Houston Electric company was formed in Lynn to help satisfy the country's growing demand for electricity at the time. Now at that time, America was going through a period of rapid industrialization as we've come to know, as the industrial revolution. The Thompson Houston electric company was largely funded with money from Lynn’s businessmen. Many of whom made fortunes in believe it or not shoe manufacturing. And one such investor was a guy named Charles Coffin who owned the Coffin and Clough shoe company. Charles Coffin was for all intents and purposes, a very capable and well-respected businessman. And when Lynn's business community was looking for someone to head the newly formed Thompson Houston Electric company, they chose the shoe magnet, Charles Coffin. [12:08.8]
So then in 1892, as fate would have it, the Thompson Houston Electric company of Lynn merged with the Edison General Electric company of Schenectady, New York to form one larger entity as we know it, General Electric. And a quick aside for anyone who's thinking of Ronald Reagan's voice right now, I'm with you because yes, I'm talking about that General Electric. And Charles coffin, the Lynn Massachusetts shoe tycoon became GEs first CEO. And soon thereafter in 1896, a financial genius by the name of Charles Dow, who we just spoke about formed his iconic stock index, the Dow Jones industrial average, which back then consisted of only 12 companies. One of which was General Electric. Now let's fast forward like 120 years until about two years ago, three years ago, or so GE remained the only original company still listed in the Dow, which is quite a testament to the staying power of a quintessential company. One that was once synonymous, in my opinion, I think to a lot of people with American business. But since 2017, GE is no longer part of the doubt. It was actually replaced by Walgreens, the drugstore. [13:18.6]
And for many years, if you look back General Electric had been one of the worst performers in the Dow Jones, industrial average and things got really bad in 2016. GE stock was downgraded following some disappointing earnings. And what was once considered the bluest of all blue chips had begun aggressively cutting costs and selling off business units here and there. Back then GE hired actually new CEO who after just 14 months in the job was given his walking papers. And I wonder if he was wearing a pair of shoes made in Lynn, I joked. And in addition to getting rid of him, GE shed billions of dollars in costs through the sale of assets and reduced their dividend payments to shareholders. And you may remember in 2016, it was announced that dividend payments would be cut in half. Now as the front page of The Wall Street Journal described things at that time and I “GE takes a knife to dividends under a restructuring plan that will slash the annual dividend by $4 billion.” This for a company that was historically among the biggest dividend payers in the U.S and one that a ton of American retirees really depended on for their income. Now, jeez, new CEO was quoted as saying, we understand this is an extremely painful action for our shareholders. Man, you think so? I'm sure anyone who is driving their income in retirement solely off the dividends of GE, which is a scary tactic to use potentially it's very, very much putting all your eggs in one basket, probably didn't think so. That was very painful, right? [14:43.7]
So how does all of this affect those that are pensioners savers and investors who for decades, again, relied upon the successes of companies like General Electric. Their share price and the promises that some of these companies made or the presumption that because they're so long standing, there's a promise these companies make. You see, it's not uncommon again, said before for retirees to use dividend producing stocks to generate retirement income, but we know there's risk associated with that. So, understanding again, an overused word quite often, but is so important here, is diversifying not only you growth assets with your dividend payers were essentially finding that growth and value within your equities within your portfolio. You see business, they move in cycles, as we know. Businesses, aren't static. [15:34.2]
As an example, let's return to the original 12 companies that first made up the Dow Jones industrial average. In addition to General Electric, there were the American Cotton Oil company, the American Sugar company, the American Tobacco company, the Chicago Gas company, the Distilling and Cattle Feeding company, the Laclede Gas company, the National Lead company, yikes, the North American company, the Tennessee Coal Iron and Railroad company, US Leather company, and the United States Rubber company. Now all of these companies, as you can very easily see with their names were involved in traditional heavy industry. In their day they were the bluest of the blue-chip stocks, but today the 30 components that make up the Dow have little or nothing to do with heavy industry, as I mentioned before. Now over time, the face of American business has changed quite a lot. And with that change, so to have gone sometimes the fortunes of investors, their incomes and their wealth. And you know what, that's all well and fine. I think we all understand the realities of business, but it's what I'm trying to get at here with the history of the dowel, and maybe a little bit of a tail end subject matter is utilizing dividend paying stocks as the sole strategy for generating retirement income. [16:46.6]
Retirement income strategies, really, they're not equal. Some are better than others, but oftentimes we'll see clients really driving maybe 10 or 15 dividend paying value companies and that's their growth and income strategy, both at the tail end of their working years and into retirement. And I'm not here to say that that's wrong. What I'm here to say is understanding how that fits into your social security payments you're going to be receiving in retirement, your pension payments, if you have those other income like rental income or other assets coming through, it all needs to be put together as a holistic plan and understanding the risks associated with certain areas. And risk means different things to different people. Like 30 years ago, risk meant opportunity. Nowadays, it largely means fear and an opinion aside for me, I would actually say the law that has to do with the mass amounts of communication that we can get at our fingertips and as fast as we can get it. We can develop a opinion about something within a matter of minutes by just looking on Twitter. And that's the sad reality that it is some of it's good, some of it's bad. [17:46.9]
So, understanding when it comes to your money, a important topic, especially for those that have worked for 30, 40 years to save it. You want to be a good steward with those assets, for you, for your spouse, for your kids, for your community, for what you want to be doing with those assets. Because it's, multi-generational. You know, here at one Capitol, we talk about legacy planning as it pertains to our clients. And we want to build their goals with their values, their interests, those are all really important. Their relationships, those are all really important factors when it comes to managing assets for clients. And sometimes during our discovery process here at the firm, what we call our, our very first meeting, our discovery process, we ask those questions. We actually have a questionnaire that we go through for an hour, hour and a half, and we help our clients or our prospective clients at that point, ask the questions that may, they may not know what to ask. And sometimes it's surprising for those that have had an advisor before, they're like, you know, my old advisor never asked me that. Well, it's important to know the qualitative data, the goals and objectives, the interest, the values I just mentioned around money around life, around what you want to be doing just as much as the quantitative data, the actual numbers, the types of accounts that you have, ages, things like that. Those need to go hand in hand. [19:03.9]
So, what we've built in nearly 20 years, over 20 years now, frankly, is really a sound process to discover where you are at now and help you develop a plan and build your goals and objectives to where you want to be going five years from now, 10 years from now, 20, 30 years from now. That's the ability of working with the true private wealth manager, putting all of those things together and then on the original question, I mentioned the top of this episode today around how do you think the market is doing? I want to dissect what we consider, “the market.” And that's why I wanted to go into a little bit of history about the Dow. Hopefully that was educational, maybe entertaining, right? And then maybe a specific company that we've all known as more of a value, a dividend payer and how that actually can change. Cause nowadays we have technology changing on us and technology changing can be disruptor some good, some bad. If anyone disagrees with that, try going to a blockbuster or maybe shoot me a text on your Blackberry, right? Technology is a disruptor. [20:04.9]
So, understanding how that affects older valued companies and what those changes for current companies are doing and how that all relates to your portfolio. Because again, it is all intertwined. So, if you haven't met with that person, or if you're a client here at the firm and you're talking with your advisor about this, it's great to bring these kinds of items up on your review meetings. And if you haven't sat with that advisor and you're hearing about our firm from maybe a colleague or a friend or a family member, give us a call set that time with an advisor it's free. It's complimentary, it's our discovery process to help you understand again, your goals and objectives for retirement. [20:37.7]
So, you can give us a call at (805) 409-8150 to set a time with an advisor here at One Capital Management, or you can go to our website and set a time virtually at onecapitalmanagement.com. You can also subscribe to this podcast, leave a response as well, and let us know how we're doing because the more feedback we get, the better we're able to help, not only our clients and our prospective clients, those of you listening to aren't currently working with us. And before acting on anything discussed today, remember to speak with a financial advisor near you about your specific situation, or again, if you'd like our help, you can visit us at onecapitalmanagement.com or give us a call at (805) 409-8150. I want to thank you for listening today on Make Your Money Matter podcast. Next week on the, Make Your Money Matter podcast, we're going to be talking about what your retirement number is. I'm looking forward to it until then stay safe. [21:29.0]
The information in this podcast is educational and general in nature and does not take into consideration the listener's personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice.
To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a final decision. [21:52.1]
