Financial experts advise carrying a diverse portfolio

By Michael Bradley
Special to Delaware Business Times

Cynthia Hewitt

Cynthia Hewitt has been with Merrill Lynch for more than 40 years, so she has seen a lot of changes in the financial services field. Back when she started, in the 1970s, it was “a totally different world,” with vacuum tubes carrying buy orders to traders and the Dow Jones not even at 1,000 points.

“The old codgers would come in to the office with their brown bag lunches and sit around watching the ticker tape,” said Hewitt, now managing director and senior consultant at Merrill Lynch.

It’s hard to imagine that 40 years from now, investment professionals will be laughing about the rudimentary technologies of today, but it will no doubt happen. But those working in the financial services industry aren’t worried about that far in the future, even though many of them have clients who will be around at that point. Although many people are thinking about how to expand portfolios to meet their needs decades from now, most investors in the 50-65 age range are thinking about holding on to their assets, rather than taking risks that could result in some short-term trouble, according to Delaware financial advisors.

Don Kalil

“People approaching retirement or in retirement are looking for wealth preservation,” said Don Kalil with Affinity Wealth Management in Wilmington. “They aren’t looking to follow the trends of the market or get into hot investments. They have been saving for this all their lives, and our goal is to help them get through retirement without running out of money.”

Rusty Giles of Morris Capital put it succinctly: “They care more about the return of their money than the return on their money.”

One would expect those who are much younger would be interested in maximizing their returns, even if that means withstanding the cyclical tendencies of the market in exchange for big payouts later. But experts insist that what has happened over the past 10-15 years has created more trepidation among millennials, who are no longer so bold.

“They are more risk-averse than previous generations, because there is more volatility,” Hewitt said. “The crash of 1987 was short-lived, but they have lived through 9/11, the crash of 1998 and the ’08-09 collapse. They have less confidence in the market.”

Although younger investors are more careful, they can’t be shortsighted, according to Caroline Chahalis, CFP,

Caroline Chahalis

first vice president at UBS. There is no guarantee Social Security will be there for them, so they must start investing as soon as they start earning a paycheck, she said.

“It’s important for them to work somewhere that offers a 401(k) plan,” Chahalis said. “But those investors are more suspicious. They have lived through the Lehman crash and saw what their parents went through. They want to save, but they are a little cautious.”

As investors try to find the right balance of risk and security, they seem to be remaining generally trusting of those whom they hire to manage their portfolios. None of the four analysts consulted for this article reports a particularly large growth in the amount of oversight clients are exercising.  Chahalis said that while they are “more engaged than ever,” thanks to the information available on the Internet and through TV stations like CNBC and Fox Business, there is still a strong level of faith in advisors. That doesn’t mean there aren’t plenty of opportunities for contact.

“We practice what we call “˜24 times a year,’ ” Chahalis said. “Through e-mail, written correspondence, birthday cards and “˜lunch and learn programs,’ we touch base with our clients 24 times a year.”

Hewitt echoed Chahalis’ comments. She said she does hear from her clients, but most leave her to the business of managing their portfolios. “If they are into micromanaging things, they’ll generally do it themselves,” she said. Of course, the explosion of information can pose some problems, according to Giles, who said some clients are looking at information too often and getting concerned at times for no reason.

But outreach remains important. “I believe that it’s important to educate clients, so that you can have similar expectations,” Giles said. The size of an investor’s portfolio will often dictate the frequency of contact. Those who have more complicated situations require more attention, while the average client looks for two-to-four meetings a year. Thanks to e-mail and constant phone contact, there are ample opportunities to address issues immediately when they arise. “When you have a new client, and you are getting to know him or her, you will have more contact and do a little more hand-holding,” Kalil said. “Once they feel comfortable, the phones don’t ring as much.”

Kalil estimates that his “typical client relationship” is about $800,000, while the average portfolio Hewitt and her team manages is between $2.5 and $5 million.” Chahalis refers to her average “sweet spot” as between $1 million and $3 million, and Giles’ roster has a broad range that can extend into the hundreds of millions but can also be a few thousand.

The goal for all of the advisors is to create as much wealth and stability for their clients, so although most of those they service have Delaware roots, they are not clamoring for local stocks to be part of their portfolios – unless they will produce big returns. Hewitt says that many of her clients already own stocks like Du Pont and Incyte on their own, and while she does send out reports on those companies, she is not focused on equity positions in Delaware companies just because they are local.

That disciplined approach informs the choices made in asset allocation. Although there have been news reports, like an early-June Wall Street Journal article about municipal bonds, advising a move to more fixed-income investments, most advisors work for an optimal blend of positions.

Rusty Giles

“Within someone’s portfolio, diversification is the key,” Giles said.

Kalil agreed, especially since he thinks the market is in the “seventh to ninth inning” of its current boom and that a correction could be coming. “What we’re seeing is a flight to safety out of small cap stocks into large cap and even fixed income,” he said. “Even our more aggressive clients have up to 8 percent in fixed income.”

But they aren’t buying precious metals in great volume. Gold and silver are expensive, and while advisors are not recommending purchasing them, there are some avenues that allow for investors to dabble. Hewitt says some of her clients have “up to 5 percent” invested in gold and silver. Kalil would like to put his customers into “private placement” opportunities, instead of commodities. These allow investors to provide capital for companies that want to lease equipment to businesses, like hospitals, in return for a fixed return over several years.

“It’s a nice, new product,” he says. “Our clients appreciate that we do the research for them to find these opportunities.”

And keep moving forward.