A couple of months ago I stumbled across an article discussing the average holding period of any given stock. In the 1960s you’re average investor held a stock for a total of eight years. By 2011 that had crashed all the way down to around six months. Now I imagine that there are probably a number of factors at work which would explain that trend, however I think the rise of the internet has got to be one of the biggest ones.
Basically the flip side to being able to buy stocks in less than twenty seconds with a single click is that it also takes less than twenty seconds to sell them with a single click as well. Needless to say chopping and changing every six months is a pretty bad idea if you’re looking to build long-term wealth. Never fear though as there is a fairly easy solution to this: Computershare.
I’m pretty sure I’ve mentioned this previously on the blog but there are two things I envy Americans over. The first is that their market is so big and rich that they can afford not to look abroad for great companies to buy and hold. You might make Nestlé (and possibly L’Oreal too) an exception to that if I was American I’d probably never bother to look abroad. Want to own the best beverage companies? You never need to look past Coca-Cola, PepsiCo and Dr Pepper. Energy? Exxon Mobil and Chevron. Household goods? Procter & Gamble. Food? You’ve got Hershey, Kraft-Heinz and J.M. Smucker to choose from. Alcohol? Brown-Forman. I could go on like this for the whole post.
The second thing, and this sort of ties into the first, is that these companies actually make it really easy for individual investors to both regularly invest (including reinvesting dividends) and have their name directly on the shareholder register. This is where Computershare comes in. Basically they run the shareholder register for a whole range of companies both in the United States and abroad. They aren’t the only ones who do this, but from what I can see they are the largest so I will use them as the all encompassing example. In actual fact the list is a pretty impressive collection of the world’s top companies: Coca-Cola, Exxon Mobil, PepsiCo, McDonald’s, and Johnson & Johnson are all there, and that’s really just the tip of the iceberg too.
Now there’s a couple of reasons why I think going down the Computershare route is a really good idea for those looking to build a high quality stock portfolio (especially for younger investors). The first one is that since your name will be held directly on the company’s share register it clears up one of the biggest concerns surrounding online brokers and nominee holdings: who actually owns your shares? In theory it’s supposed to be clear; I mean who else is going to own your shares if they’re yours? In practice there have been a few eye-opening legal cases in which customers realized that it isn’t always so clear cut. At the very least it could lead to a few stressful months while everything gets cleared up in the case that your online broker should go under. If you own the shares directly then none of this is an issue.
The second major plus point is that these direct investment programs are often pretty attractive in terms of how the fees are structured. Take the Exxon Mobil one for instance; which is almost legendary in terms of how shareholder friendly it is. The minimum startup investment is set at just $250; perfect for younger investors who are just starting out or those who don’t yet have a lot of capital to their name. Alternatively you can instead choose to stump up just $50 initially so long as you’re prepared to commit to that for at least five consecutive months.
The best part about it though is the fees, or rather the lack of them. Initial setup fee? $0. Ongoing automatic investment fee? $0. Oh, and if you want to reinvest dividends along the way then Exxon will cover the cost of that fee as well. In fact the only fees applicable appear to be from selling, in which case you’d have to pay a flat fee of $25 for a market order sale and $0.12 per share as a processing fee. In other words if you’re planning on holding Exxon for the long haul – possibly even forever – then you’re going to be paying next to nothing for a regular investment program (including automatic dividend reinvestment).
If you run through the list of available plans you’ll find that they all have their various fee structures and minimum/maximum investments; some being more attractive than others. The Coca-Cola plan for instance charges $10 as an initial startup fee, $3 for additional cash purchases and $2 per ongoing automatic investment. In addition there’s a $0.03 per share purchase processing fee and for dividend reinvestment the charge is 5% of the reinvested amount up to a maximum of $2. If you only had $50 a month to put towards Coca-Cola stock then it might not look all that special compared to a regular investing program with a normal discount broker. Similar deal for the likes of PepsiCo and McDonald’s. Dr Pepper Snapple Group, on the other hand, only charges an initial $15 startup fee. Automatic investments, dividend reinvestment and additional cash purchase fees are all set at $0.
Once you’re familiar with the various programs you can then go about constructing hypothetical low or no cost portfolios for ongoing investment. The likes of Exxon, Dr Pepper Snapple Group and Abbott Labs you can pretty much stick to $50 per month minimum and slowly build your holdings free of ongoing fees. For something like Johnson & Johnson you might want to invest either a higher monthly amount (there’s a $1 charge for ongoing automatic investments) or stick to lump sums (the fee for extra purchases once the plan is up and running is $0). If you play around with the combinations a bit then you can build a really high quality low cost portfolio for around $500-$1000 per month. The best part is that you’re fully signed up on the shareholder register as well. It’s odd in that it doesn’t get all that much coverage or marketing, but Computershare is great for those investors who are longer-term orientated and don’t have buckets of capital to commit in one go.