How My Heirs Help Me Invest Better Without Lifting a Finger

I truly enjoy investing, spending a vast amount of time thinking about stocks and the businesses that underlie them.

My wife and my daughter spend absolutely no time thinking about investing — it’s just not something either of them enjoys.

I’m happy to bear the responsibility, but I won’t be capable of doing it forever. Which is why I always ask myself one simple question before I invest in a stock. And thanks to that question, my wife and daughter, without lifting a finger, have helped me avoid some giant mistakes.

Don’t bury the lede!

I’m not going to make you wait. The most important question I ask about any investment is: Would I want my wife or daughter to own this stock if I were dead? How’s that for macabre? Only, at my age, it’s a very real issue for me to consider.

I manage the money in my family because I love my wife and daughter and want them to have a good life and a solid financial future. Although it’s a burden I gladly bear, if I didn’t do it I’m not quite sure who would.

Two people comparing charts with a calculator and computer on a table.

Image source: Getty Images.

Because I’m a planner at heart, the knowledge that neither my wife nor my daughter like investing leads me to wonder what will happen when I die. And, like it or not, I’m 100% certain that I’m going to die at some point. So any portfolio I create needs to be one that would be easy for my heirs to take on, free of esoteric and risky investments that only a true Wall Street diehard would be able and willing to watch over.

Some specific examples

I can’t even begin to explain the number of times asking myself “Would I want my wife to own this?” has kept me out of a risky investment. Just recently, as an example, I saw that Intel‘s (INTC 0.76%) dividend yield had risen toward historic highs. I’m an unabashed dividend investor, focused on buying great companies with strong dividend histories when their dividends are historically high, which I view as a sign that they are out of favor. Assuming the companies can maintain their dividends through the rough patch they are in, I stand a good chance of getting a fat dividend yield and a bargain price when the business is turned around.

The risk, of course, is that the company’s troubles are too great and the dividend gets cut. When I looked at Intel in late 2022 I thought it was far too focused on one industry segment (chips that power computers), wasn’t doing a particularly good job of taking on intense chip industry competition (it has been losing market share), and lacked a strong history of corporate transformation (it has failed to break into new chip markets that others have managed to exploit).

I was happy to stick with my technology investments in IBM and Texas Instruments, both of which held up much better on all the above points. Intel just announced a dividend cut, which I avoided because I took a moment to think about my wife and daughter.

That’s hardly the only example. I also took a pass on B&G Foods (BGS 1.67%) multiple times, because a key part of its business model is to use leverage to buy brands from larger competitors and then breathe new life into them. The company does this quite well, but its balance sheet has historically been much weaker than those of other food companies. (Neither my wife nor my daughter would know how to find a balance sheet, let alone read one.) I like to think of myself as being opportunistic, so B&G Foods’ approach resonates with me. But I wouldn’t want my family to be stuck with a company that specifically uses a high-risk business approach. B&G Foods ended up cutting its dividend, too. Thanks to my big question, I was spared that cut.

That said, I bought General Mills (GIS 0.82%) when it took on a lot of debt to buy Blue Buffalo, a deal that some industry watchers thought was overpriced. The company even pre-announced that it would stop increasing the dividend while it worked to integrate Blue Buffalo and pay down debt. But that’s a statement in and of itself. General Mills is an industry-leading food maker that was buying an industry-leading pet food company and doing it in a fiscally responsible way. The stock market punished the shares just the same, but I believed General Mills was capable of living up to its reasonable to-do list and that leaving this stock to my heirs would be a long-term success story.

In the end, General Mills quickly reduced leverage, got back to dividend increases ahead of schedule, and managed to grow Blue Buffalo’s sales by a huge 14% annualized rate since the acquisition. General Mills’ vastly different business approach was one that passed my “big question” test and has paid off handsomely for me … and my family.

I still make mistakes

I would be lying if I said that asking if I would want my heirs to own a stock if I were to die saved me from every bonehead mistake I might make. That’s not true at all and, frankly, making mistakes is part of investing (you have to learn to forgive yourself, but that’s an entirely different topic).

And yet, I know for certain that this question has reduced the number of mistakes I do make, with Intel and B&G Foods just two of many examples. That alone makes it worth asking for every investment I examine. You might want to consider adding the question to your buy criteria, too.

Reuben Gregg Brewer has positions in General Mills, International Business Machines, and Texas Instruments. The Motley Fool has positions in and recommends Intel and Texas Instruments. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short January 2025 $45 puts on Intel. The Motley Fool has a disclosure policy.