The Long-Term Performance of GE and PG Stocks: A Detailed Analysis

Investing is a long-term game, and the performance of stocks over decades can reveal a lot about their future potential. In this article, we explore how much $1000 invested in General Electric (GE) and Philip Morris (now known as Altria, formerly called Philip Morris Investors) in 1990 would be worth today, and compare it with the performance of the Vanguard 500 Index Fund. This analysis will cover the timeline, dividends, stock splits, and the impact of reinvesting.

General Electric (GE) Stock Performance

General Electric (GE) opened at $4.99 per share on January 1, 1990. Over the years, the stock has experienced multiple splits, which dramatically impact its value today. Let's break down the process:

First split: 1:2 (each share becomes 2 shares) Second split: 1:2 (each share becomes 4 shares) Third split: 1:3 (each share becomes 12 shares) Fourth split: 100:104 (each 100 shares become 104 shares)

The cumulative effect of these splits means that one share of GE in 1990 would now be equivalent to 12.48 shares, as calculated by:

[ 2 times 2 times 3 times 1.04 12.48 ]

The current closing price of GE stock is $9.96 per share. Using this factor, each share is now worth:

[ 12.48 times 9.96 124.30 text{ (per share)} ]

With an estimated 11.59 annual rate of return, $1000 invested in GE in 1990 would be worth approximately $24,910 today. This calculation doesn't include the reinvestment of dividends, which would significantly increase the value.

Phillip Morris (Altria) Stock Performance

Phillip Morris, now known as Altria, had a different trajectory than GE. According to a financial chart on Yahoo Finance, the price of PG stock in 1990 ranged between $8.50 and $10.80. Let's assume a purchase price of $9.00 per share:

If $1000 was invested at $9.00 per share, it would buy 111 shares. The current closing price is $102.90, so the value of 111 shares would be:

[ 111 times 102.90 11,421.90 ]

The dividends that were not reinvested would have substantially increased this value. Without reinvestment, the calculation is straightforward. However, if dividends were reinvested, the gains could be even more significant.

According to Portfolio Visualizer, reinvesting dividends would have made the $1000 investment in PG stock grow to $22,928 by February 28, 2019, with a Compound Annual Growth Rate (CAGR) of 11.34%.

Comparison with Vanguard 500 Index Fund

The Vanguard 500 Index Fund (VFINX) is a widely recognized benchmark for large-cap U.S. stocks. According to the same data from Portfolio Visualizer, a $1000 investment in VFINX over the same period would grow to $14,173, with a CAGR of 9.52%.

This comparison highlights the varying performance of individual stocks versus a well-diversified index fund. While the individual stock might offer higher returns, the stability and broader diversification of an index fund can provide more consistent growth.

Conclusion

In conclusion, investing in stocks like GE and PG in 1990 could have resulted in substantial gains, especially when dividends are reinvested. However, the broader market, as represented by the Vanguard 500 Index Fund, provided more consistent growth. These examples underscore the importance of both individual stock performance and the benefits of diversification in a long-term investment strategy.