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“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

— Warren Buffett

The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?

A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a two-decade holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Marsh & McLennan Companies Inc. (NYSE: MMC) back in 2003. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 03/14/2003
$10,000

03/14/2003
  $60,348

03/13/2023
End date: 03/13/2023
Start price/share: $41.35
End price/share: $155.26
Starting shares: 241.84
Ending shares: 388.73
Dividends reinvested/share: $24.42
Total return: 503.55%
Average annual return: 9.40%
Starting investment: $10,000.00
Ending investment: $60,348.59

As shown above, the two-decade investment result worked out well, with an annualized rate of return of 9.40%. This would have turned a $10K investment made 20 years ago into $60,348.59 today (as of 03/13/2023). On a total return basis, that’s a result of 503.55% (something to think about: how might MMC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Marsh & McLennan Companies Inc. paid investors a total of $24.42/share in dividends over the 20 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).

Based upon the most recent annualized dividend rate of 2.36/share, we calculate that MMC has a current yield of approximately 1.52%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.36 against the original $41.35/share purchase price. This works out to a yield on cost of 3.68%.

One more piece of investment wisdom to leave you with:
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” — Peter Lynch