In order to prosper in this challenging economic climate, it’s important to have a professional wealth manager who understands your goals and objectives. Such an adviser can help you build a long-term investment plan with diversification across multiple asset classes.
For optimal results, communicating regularly and directly is paramount.
“As an investor, don’t be afraid to ask questions. And don’t be afraid to say, ‘No, that’s not the strategy that I want,’” says Dennis Gilkerson, senior vice president and Western Market group manager for Comerica Bank. “A portfolio manager works for the client.”
Smart Business spoke with Gilkerson about how to recession-proof wealth, why it’s important to have ready lines of credit and what to look for in a portfolio manager.
What steps can individuals take to recession-proof their wealth?
In order to recession-proof one’s portfolio, it’s important to look at capital preservation and deleverage as much as possible. What I mean by this is paying off excess debt, such as home equity lines of credits, unsecured lines of credit and credit cards. It’s inevitable that we’re going to have mortgage debt and automobile debt, but as we work to recession-proof our portfolio, building liquidity is paramount.
Why is it so important to have ready lines of credit?
Having a line of credit available provides cash flow for emergencies. I tell my clients it’s like an insurance policy on your income or cash flow. It’s important to maintain some type of a line of credit so you can meet unanticipated expenses; however, you want to make sure that you have the ability to repay it within a relatively short period of time. In this recession, things are happening so quickly. It’s easy to find our income adversely impacted. A line of credit is a backstop.
Credit is currently tight; do you have any recommendations?
It’s critical to maintain one’s present obligations. A ready line of credit will not help someone if he or she suddenly stops making credit payments. In order to obtain or even retain credit, it’s also important to establish a relationship with a bank that is going to be there for the long run. We talk to a lot of clients that have multiple banking relationships. As one of the commercial banks currently lending money, we find that it’s helpful to consolidate banking relationships into one place. An individual’s balance sheet is composed of the liquidity, or cash piece, as well as the liabilities side: credit lines, mortgages, automobile loans, etc. By consolidating all of these pieces, your financial institution will be able to do more for you.
How should one go about evaluating one’s investment portfolio?
In this environment, it’s important to be actively involved with your portfolio manager. Even if your portfolio manager has discretionary authority — they can buy or sell based on their investment strategy — it’s important to communicate on at least a quarterly basis. Individuals who fail to communicate with their portfolio manager have greater exposure to volatility.
What advice would you give to someone who has available cash on hand?
First, ask yourself if you need the cash for short-term needs. Are there upcoming life events, such as paying college tuition, having a child get married or a business opportunity requiring an outlay of cash? If so, the advice is to hold on to that cash — keep it in relatively short-term, liquid instruments like a money market or CD.
On the other hand, if there isn’t an immediate need for cash, you need to evaluate your appetite for risk. If you’re comfortable owning equities for the next five years or so, there are some good equity strategies available to execute. If you’re not comfortable with the equity strategy, there are some solid short-term, fixed-income instruments that can match a life event and one’s level of risk tolerance. There are some great opportunities available for someone who has cash and a long-term outlook. That’s why it’s important to have an investment adviser or portfolio manager that you feel comfortable communicating with.
What qualities should an investor look for in a portfolio manager?
There are a number of attributes an investor should look for in a portfolio manager. One is longevity. For example, if a portfolio manager who has spent decades as a large-cap growth manager suddenly appears as a fixed-income or small-cap adviser, it should raise a red flag. The ability to communicate effectively is also important. Are you able to understand the strategy that the portfolio manager is executing? Are you comfortable with the portfolio manager? Do you trust the person?
Finally, there is performance. I put performance as the last on my list, not because it’s the least important but because portfolio managers need to have longevity in the particular discipline they’re focused on and experience in the industry, and you have to be able to communicate with them. These screening criteria can be helpful whether you’re evaluating your current portfolio manager or looking for a professional wealth manager.
Dennis Gilkerson is senior vice president and Western Market group manager for Comerica Bank. Reach him at (310) 712-6767 or [email protected].
