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02/15/2012 6:30 am EST
Today’s low-interest-rate environment has advisor Chris Kichurchak putting clients into high-yield equity funds. He discusses three that he likes, and tells MoneyShow.com why he’s mainly seeking yield right now instead of capital appreciation.
Kate Stalter: Today, we’re talking about retirement portfolios with Chris Kichurchak of Strategic Wealth Partners. Chris, that’s an area that you specialize in. In this particular investing environment, should people be looking for price appreciation or dividend yield?
Chris Kichurchak: Currently, we’re focused on capturing dividend yield. With the heightened volatility of the market, we feel as though chasing yield is the way, vs. capital appreciation, to focus for the near term, based on riding out the market and gaining returns.
It will be substantial for the portfolio. That way you can not only take advantage of the upside, in addition to the dividends that you receive, but also give yourself a hedge on the downside with the dividend offsets.
Kate Stalter: We all know what the markets have done over the past 12 years or so. Your clients must come from a broad base of people who already retired, and some who are nearing retirement. How are you advising them, in terms of the big-picture strategy at this time?
Chris Kichurchak: The majority of our clients are pre-retirees and retirees, so our main focus is to actually protect the downside first, and make the upside do what the upside does.
There was a book written, A Random Walk Down Wall Street, in which it was said any random investor can choose any random stock in a good market and make returns. In times like this, we have heightened volatility. We don’t have a whole lot that we can hold tangible for research and ideas in today’s market without a lot of definite growth.
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We look toward places that we can gain solid footing on. Companies that have shown long track records of paying their dividends and increasing their dividends year over year, so we can make sure that there is portfolio growth and we keep up with inflation.
Kate Stalter: What are some of the investments that you like right now to achieve these objectives?
Chris Kichurchak: If we’re looking directly at individual companies, we’re going to look for companies that have had a long track record, such as Altria (MO), Duke Energy (DUK), things like that. Companies that have had a great, long track record of returns on dividends that have increased year over year, that have shown that good track record.
Or we can look at the returns, or we can look at the dividends and we can track what they’ve done over history and really know that we can count on that going forward.
If we’re looking for an ETF strategy, once again, we want to look for something that’s going to show us good yield. If we’re looking for something that has a high dividend yield, high tracker, we’re looking at Vanguard High Dividend Yield ETF (VYM) or Vanguard Dividend Appreciation ETF (VIG).
VIG, for example, will show us good dividend appreciation over the course of time. We might look at that aspect as a possible place to invest.
If we’re looking just purely at potential return, we’re looking at preferreds. For somebody that might look at just pure returns, look at a iShares S&P US Preferred Stock Index Fund (PFF), where it just shows a purely preferred stock financial plan.
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Kate Stalter: Now, if people are managing their own portfolios and trying to follow some of this advice, what metrics should they be looking at? There is a lot of talk lately about accelerating dividend payments, for example. Is that something to be concerned with?
Chris Kichurchak: Obviously, each individual is going to be so different, so it’s hard to quantify that specifically, but I would think the No. 1 thing is if you’re looking at yield, and accelerating yield in that respect, I agree with that to a certain extent.
But I’d be more concerned about looking more toward 12 months or beyond in this market, because the Fed came out and said they are not changing interest rates through 2014. I think playing in the bonds and into dividends and fixed-interest plays are a good position to be in right now, for the next year-and-a-half to two years. I think you are pretty safe with that.
If you’re a pre-retiree to retiree, hopefully, you don’t need to take a risk anyway. So as long as you’re keeping up and outpacing inflation, that means spending power goes up and therefore, should keep you up and outpace your retirement needs.
Kate Stalter: Is it more important at this juncture, Chris, to be protecting capital or looking to grow your capital?
Chris Kichurchak: I think that there’s two ways to look at it. The first thing is, when you retire, you can’t put all of your money under your mattress, right? You still have to keep it working for you.
So growth of capital is always important, but I think it depends on what your definition of growth is. I think if you’re outpacing inflation, that’s probably a good target.
You know, the Fed is figuring about 2% inflation for 2012. You know, you look at Goldman Sachs, it says they’re about 1.8%. Social security is up 3.6%.
So if yield can outpace heightened inflation, you should be OK. Now, that being said, if we don’t get in a place where we have an extremely high inflationary pressure, like we did in the ’80s, then I’ll assume that they’ll have to look for some more growth potential.
But I think that as long as money and value of money and purchasing power outpaces inflation, I think you’re at least stepping in the right direction.
Kate Stalter: And given that the Fed has signaled what they plan to do through 2014, it sounds like people have plenty of warning for how they’re going to be planning?
Chris Kichurchak: Well, that’s absolutely right, and if you’re in a position right now where you’re investing for yourself, the first thing is: Don’t invest based on emotions. When you have one-day turns where you have 3% or more up and down swings, that could play a lot on your psyche and investments.
I think you need to develop a strategy where you can look at the long term of what your capital needs are, and go with what’s in front of us. I think the first thing that we need to be confident of is that we have almost two years’ time where we should have zero real interest rates.
That being said, we have heightened worries in the Eurozone. We have potential conflicts there, so why try to ride a rollercoaster and trade in and out of cycles when you can chase yield, which has shown to be 70% of the historical returns of the market anyway?
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