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My stepfather, who will be 90 years old this summer, owns some JPMorgan Chase & Co. common stock. The JPMorgan Chase stock dividend was cut in the 2008 global financial crises and the share price was recently battered by international trading scandals. Is this a good stock for an 89-year-old?
Do You Really Know What's In Your Portfolio?
My stepfather never bought JPMorgan Chase common stock. He didn't inherit it or receive it as a gift. How did he come to own it today?
More than 30 years ago, my stepfather bought some stock in The Farmer's Savings and Trust Co., a local savings bank in his hometown of Mansfield, Ohio. The Farmer's Savings and Trust Co. only had offices in Mansfield and only made local loans. He knew the bank's president and many of the people on the board of directors. It was a simple, safe, local investment.
But then The Farmer's Savings and Trust Co. was bought by Bank One, a larger Ohio bank. Bank One started to expand regionally. In the 1980s and 1990s, regional bank stocks did very well, so his original investment accumulated quite a capital gain. Such a large capital gain became an obstacle to selling the stock.
"When you buy an individual stock, your original investment may grow into something completely different."
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Corporate Mergers Can Affect Your Investments
I've lost track of the corporate mergers, but I think Bank One bought Continental Bank in Chicago. Then JPMorgan & Co. merged with Chase Manhattan to become JPMorgan Chase & Co. Then Bank One merged with JPMorgan Chase. There may have been some other mergers along the way.
JPMorgan Chase common stock recently got pummeled by international trading strategies. But the bank that my stepfather originally bought stock in never did international stock trading. Many smaller, local banks in many communities were able to maintain and not cut their dividends during the 2008 global financial crises. But my stepfather's stock had "morphed" in to a much different bank than he invested in.
There are many similar stories of other companies in many industries. Some corporate changes have turned out well, some not so well.
Be Careful When You Buy Individual Stocks
One thing is for sure. Beware of buying individual stocks to buy and hold forever. Or be willing to sell and pay a capital gains tax, which most people won't do. When you buy an individual stock, your original investment may very well grow into a completely different animal.
About Bruce J. Berno, CFP®
Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com.
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