THAT PERSEVERES DURING TOUGH TIMES
These past few months have been a very challenging period for all of us. Our health has been threatened, our freedom restricted, and our activities diminished.
However, in the category of silver linings, many people report that this period has also caused them to rethink and reprioritize what really matters in their life. Spending quality time with family members in a home you enjoy is an old-fashioned recipe for happiness that seems to have made a big comeback during the pandemic. Hopefully, there have been some silver linings for you and your family as well.
This period has also highlighted what matters in the realm of investing when adversity arrives unexpectedly– especially for long-term investors. What kind of investments will enable you to ride through major upheavals like Covid-19 confident that your portfolio will recover and that your long-term investment objectives will stay on track?
I believe the portfolio characteristic that matters most in the face of adversity and continued uncertainty is resilience – the ability to persevere through setbacks and bounce back when the storm passes. Here are three ways to build resilience into your investment portfolio:
OWN HIGH-QUALITY COMPANIES. By our definition, high-quality companies have established market positions, experienced management teams, conservative balance sheets and consistent earnings growth over extended periods of time. These companies are built and positioned to not only weather difficult periods but ideally to come out stronger on the other side.
CONSTRUCT A DIVERSIFIED PORTFOLIO. Purchase positions in 45 to 55 high-quality companies representing a diversity of, industries, and economic sectors. Challenges will come in many forms over time, and diversification helps ensure the portfolio will continue to meet your long-term objectives even if some individual holdings face heightened adversity for a period of time.
FOCUS ON COMPANIES WITH RELIABLE AND INCREASING DIVIDENDS. Assuming you have a diversified portfolio of high-quality companies, the final component of resilience is to make sure you do not have to sell any shares of those companies at depressed valuations. Having reliable dividend income to meet your withdrawal needs buttresses the resilience of your portfolio by assuring that all your shares are intact to recover as conditions improve. Of course, if you do not need to take withdrawals, the dividend income can be used to buy additional shares, thus further enhancing the resilience of your portfolio.
What’s next?
There will always be something on the horizon to worry about. While it is a natural part of our survival instinct to be on the lookout for threats to our well-being, it is also important as a long-term investor to have confidence in the strength and resilience of our country.
Building a resilient investment portfolio will enable you to ride through turbulent times with greater peace of mind, so that you can more fully enjoy whatever it is that matters most in your life.
Will Verity, along with his wife Paula, founded Verity Investment Partners (VIP) in 2002 and has more than 30 years of experience in the investment and private equity business. He serves on the Board of American Financial Group (NYSE: AFG), a leading provider of specialty property and casualty insurance and other financial services. He served on the Board of Chiquita Brands, Intl. from 1994-2002. Contact Verity at will@verityvip.com or for more information, visit www.verityvip.com
