Top Investment Advisers: Be Calm, Remember Churchill
By David Dykes
The pandemic has upended Main Street and almost Every Street for families and businesses, with many wondering what’s ahead.
On Wall Street, the stock market has experienced record volatility since the nationwide outbreak of Covid-19 in the U.S., and investors, too, are feeling they’re in an economic bubble.
The Dow Jones Industrial Average closed the week of Sept. 25 down 483.46, or 1.75 percent, from a week earlier. That was off from an all-time high of 29551.42 on Feb. 12, 2020, a result of the longest bull market in history.
The S&P 500 Index was off 21.01, or 0.63 percent, and down from an all-time high of 3580.84 on Sept. 2, 2020.
Gallup said it found 55 percent of Americans reported they own stock, based on polls conducted in March and April. That was identical to the 55 percent recorded in 2019 and similar to the average of 54 percent Gallup has measured since 2010.
However, stock ownership was more common from 2001 to 2008 when an average 62 percent of U.S. adults said they owned stock -- but it fell after the 2007-2009 recession and has not fully rebounded, Gallup said.
Gallup’s measure of consumer stock ownership is based on a question asking respondents about any individual stocks they may own, as well as stocks included in a mutual fund or retirement savings account, like a 401(k) or IRA.
Will Verity of Beaufort-based Verity Investment Partners knows stock fears are causing concern, but he’s remaining confident, while aware of the risks.
VIP, as his firm is known, is an advisory firm serving individual investors and their families. Earlier this year, it was named to the Financial Times 2020 edition of the 300 Top Registered Investment Advisers that recognizes top independent RIA firms across the U.S.
The Abacus Planning Group of Columbia also was named.
Paula and Will Verity founded Verity Investment Partners 18 years ago. The employee-owned firm that began with just a few clients has since grown its base of operations to include Edwards, Colo., and San Antonio, Tex.
VIP advisers apply a holistic approach to investment management that encompasses financial planning, investment strategy and ongoing portfolio management. The firm specializes in structuring dividend growth investment solutions designed to deliver targeted levels of annual income and income growth while keeping principal invested to grow long term.
Verity’s 10 team members serve clients located across the United States, with $565 million in assets under management as of Dec. 31, 2019.
“Paula and I stated from the beginning that we wanted to have a lasting impact on the lives of our clients and their families,” says Verity, VIP’s president who grew up in Middletown, Ohio, and has been the CEO of several companies. “Our dividend growth investment approach is designed to create a stream of investment income that grows each year while keeping principal intact to grow over the long term.”
He aims for a different investment approach that is more predictable than stock markets tend to be, particularly during periods like this.
The goal is to build an income stream from clients’ investments to replace earned income while keeping savings invested to also grow.
“Then when you get to these periods where the market is incredibly volatile, the headlines are traumatic, as long as your investment income continues to grow steadily, I find that people are not as anxious about all the topics that the media want to harp on,” Verity says.
The firm invests in companies that pay an increasing dividend. It narrows the overall universe of public companies to 495 that meet its screening criteria and then advisers select from that pool of 495 to construct a diversified portfolio with approximately 45 to 55 companies.
The requirements: yield greater than 1 percent; a minimum of three years of consecutive dividend growth, and an average dividend growth rate over the most recent three years of more than 2 percent; and a market capitalization greater than $500 million.
VIP advisers also include fixed-income positions in some portfolios to reduce volatility and provide liquidity, if needed.
The average VIP client portfolio is about $2 million. With an average dividend yield of 3.5 percent to 4 percent, a $1 million investment produces about $35,000 to $40,000 a year of dividend income.
“That amount starts to become meaningful for most people in retirement,” Verity says.
He adds, “We do a lot during good times to remind people that we will have periods like this, and to make sure they’re comfortable with their asset allocation and comfortable with the amount of income the portfolio is generating, so that when we get into one of these periods they, first of all, can remain calm and not panic.
”But secondly, if they have additional cash or don’t need the income the portfolio is generating, these selloffs do present an opportunity to put money to work.”
For the seventh annual FT 300 list, RIA firms applied for consideration, having met a minimum set of criteria. Applicants were graded on six factors: assets under management (AUM); AUM growth rate; years in existence; advanced industry credentials of the firm’s advisers; online accessibility; and compliance records. There are no fees or other considerations required of RIAs that apply for the FT 300.
In an interview earlier this year with correspondent Kevin Dietrich, Cheryl Holland, president and founder of Columbia-based wealth management firm Abacus Planning Group, said she’s been advising clients that a pandemic is a once-in-a-lifetime event.
She’s been focused, the chartered financial analyst and certified business financial adviser said, on reminding clients that they cannot prevent losses, but they can mitigate them and discipline themselves for time-tested strategies for recovery.
Asked how she alleviates client concerns when there are so many unknowns, Holland said, “We think Winston Churchill had it right – tell the facts/truths no matter how grim, share a plan of action for dealing with the facts, and provide a sense of hope about the future.
“We share clients’ portfolio losses with them, explain the headwinds to the global economy, the challenges to both Main Street (mom and pop businesses) and Wall Street, share our action plan for their portfolio and remind clients that they have faced personal or financial challenges in the past, which they have overcome time and again.”