Ketchup and Warren Buffett Share A Common Interest In Special Needs Planning
Rob Wrubel CFP®, AIF®
Last week, Warren Buffet bought one of my favorite companies – Heinz. Not just some shares in the company like we do for clients. He bought the whole company and plans to turn it private.
Ketchup has been a staple of mine from the first french fry and hamburger platter I remember and it has always been Heinz ketchup for me. The other brands never seem to compare. These days, it has been more about Heinz the stock and investment for me than the ketchup and I am a little mad at Warren Buffet.
Planning for our special needs family member along the Blueprints path I use means having emergency funds, getting rid of debt, putting money towards retirement and creating assets to fund special needs trusts for future spending needs. Along the way, we recommend investing some of those holdings in a variety of stocks and bonds, either through index funds, mutual funds or direct ownership of individual stocks and bonds.
The goal in our long range accounts is to have our money make money and increase its value more than inflation. This produces excess return or money which can then be used on houses, therapies, living expenses, entertainment and just about anything we need or want. Special needs trusts usually need to have their assets increase in value over time and money inside the trust can be used for just about anything, except for housing and food at this time.
The investment plan needs to consider how to generate future return when the time line of the need is long and how to generate income when the time line is short. For some families, we are looking at the best ways to preserve capital as the spending need is immediate. The trustee and trust committee, if you have one, should work with the investment advisor on developing portfolio guidelines and reviewing the portfolio and guidelines on a regular basis.
Most of us take our investment dollars and invest in public companies. We can invest in companies like Heinz, Coca-Cola, IBM, Apple and thousands more in the US. When IBM earns a few more dollars (or a few billion more) than expected the stock price should rise. Companies that increase profits should be worth more each year and it generally happens that way. As Americans, we should take pride in our ownership of companies that provide great products, jobs, taxes and investment returns for us.
Sometimes, we own these companies in mutual funds or other investment vehicles. Sometimes, we own them outright. Your retirement accounts and special needs trusts look to these companies to provide the ability to maintain or improve your standard of living over time.
This brings us back to one of my favorite companies – Heinz.
Heinz is more than ketchup these days. There are the 57 flavors of Heinz. The company also owns brands throughout the world like Classico pasta sauces, OreIda, Master (think soy sauce in China), Honig in Europe, Quero in Brazil and more. They are a major food provider throughout the world with significant growth potential as millions of people join the middle class in the developing world.
Heinz has focused on profitability and cost reduction throughout the company over the past five years as management shifted from family to professional management. They have also shown the ability to grow sales by selling more ketchup, soy sauce and other food products throughout the world.
The company has been paying a dividend to investors of between 3% and 4% over the past few years. The stock price kept moving in the right direction as well. And now, Warren Buffet has gone and messed it up for me and my clients who own Heinz. We can no longer be investors in the company.
Heinz is the kind of company most of us can relate to and understand as an investment. When more people throughout the world use ketchup and other condiments as their wages and standard of living improves then Heinz does better in sales. If they manage their costs well, then their profits increase. Some companies choose to take part of this increase in profits to increase the dividend. Investors looks at companies with increasing profits and sales growth and pay a bit more for then each year (in this perfect world). Those of us who own Heinz stock see the share price increase and our dividends paid increase and feel like we have made a good investment (again when it all goes well).
We typically use a mix of individual stocks or bonds, index funds and managed mutual funds in special need trusts, retirement accounts and other investment holdings. I like companies where I can understand what they sell, to whom they sell it and how they expect to make money. I prefer companies that pay a dividend over time so I get paid something each year no matter what the stock price does.
Portfolios should have guidelines in place to direct them. Investment policies for trusts and financial plans for people. The guidelines direct how much to put in stocks, bonds cash or other asset classes. Right now, stocks look like they should outperform bonds in the next few years and so we might hold a little more stocks than bonds according to the guidelines.
Call us if we can help you understand how to build a portfolio for your family based on our specific needs, goals and resources.
I liked Heinz as a company to own as an investment. I liked earning between 3% and 4% each year. I like their ketchup. Clearly, I think this company had potential for increasing values of my client portfolios. Now it will become part of Berkshire Hathaway (Warren Buffett’s company). Warren Buffet will get an earful from me if I ever see him.
Rob Wrubel CFP®, AIF®, is a Senior Vice President – Investments with Cascade Investment Group, member FINRA & SIPC. Rob is also a father of a daughter with Down syndrome. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.719-632-0818
