By Bob Fry, Chief Investment Council, National Christian Foundation
“I am still confident of this: I will see the goodness of the Lord in the land of the living. Wait for the Lord; Be strong and take heart and wait for the Lord.” (Psalm 27:13-14)
When King David wrote the words of Psalm 27, no one knows exactly what was going on in his life but we can tell something about his circumstances. Before the concluding lines quoted above, David says that he will remain confident in the Lord, “even if an army besieges me . . . and war breaks out against me.” (Psalm 27:3)
Don’t you know how he feels? Despite the tremendous rally in the stock markets over the last nine months, the U.S. economy has simply not been keeping up. By almost any measure, our economy is still struggling with record high unemployment, continuing foreclosures in the housing market, soaring vacancies in the commercial real estate market, and continuing loan deterioration in the portfolios of American banks. All in all, it feels as if an army of bad news is besieging us.
So how do we continue to invest with confidence?
Perhaps not surprisingly, David himself gives us the answer in Psalm 27:4:
“One thing I ask of the Lord, this is what I seek: that I may dwell in the house of the Lord all the days of my life, to gaze upon the beauty of the Lord and to seek him in his temple.”
In other words, David intentionally chooses not to focus on his problems, or the bad guys, and the armies that besiege him, but rather to focus solely on serving the Lord his God. This doesn’t mean he gets to ignore his problems – David was a military leader who fought wars and battles all his life. But for David, fighting the battle was just something he did . . . it wasn’t the goal. The goal was to seek the Lord’s face, which is the Hebrew way of saying, my goal is to worship him.
We hope you find it refreshing that The National Christian Foundation (NCF) tries to emulate David in managing the funds that our givers have entrusted to us. Most importantly, we do not worry about what all the other guys are doing – the armies that besiege us. For example, we don’t try to keep up with the S&P500, or beat the indexes, or outperform our competitors. To focus on those things would be to fight the battle as if that were the purpose and goal of our lives. It’s not. Our goal is to serve the Lord by protecting and preserving our givers’ funds.
Remembering this true goal gives us tremendous investment management freedom. We use that freedom to make the investment pools safer and less volatile than they would be otherwise.
Let’s look briefly at NCF’s Conservative Pool as an example of how this approach works. The broad benchmark of this pool is 60% fixed income (cash and bonds) and 40% equities (stocks). If we managed this pool “like all the other guys do,” we would fill the fixed income bucket with government and corporate bonds of varying maturities and we would fill the equity bucket with different types of stocks – large company stocks, small company stocks, foreign stocks, real estate trust shares, and the like.
And if we wanted to “beat the other guys,” we would be sorely tempted, and might sometimes succumb, to add more aggressive, longer maturity bonds to the fixed income mix, or more aggressive stocks to the equity mix. And in good years, like 2009, we would look brilliant. But in years like 2008, our funds would get slaughtered.
What we do instead is look forward with humility by asking ourselves, “What are the forces at work in the world from which we need to protect the funds?” That question leads us to three very concrete decisions:
1) First, we fill the fixed income bucket (the yellow pie slice) exclusively with short-term U.S. government notes, cash and a modest amount of highly rated, short-term corporate bonds. While this approach sometimes reduces the returns from our fixed- income allocation, it also eliminates the risk of large drops in value that happen to long-dated bonds when interest rates rise.
2) Secondly, we act to protect the funds from inflation (and dollar devaluation) by adding investments in commodities, gold, and foreign equities (the green slices).
3) Finally, we seek future growth in the safest way possible by using a mix of U.S. equities and hedge funds, which can generate positive returns in both up and down markets (the blue slices). The result is something that doesn’t look a whole lot like “the other guys.”
But the portfolio also produces steady returns with far less risk than a more traditional allocation. We follow this same approach in all of our investment pools by decreasing the fixed income holdings (the yellow slice) in those pools that are intended for longer-term funds. In recent years, this safer approach has been very comforting as you can see from the performance reports available at http://www.nationalchristian.com under the Forms and Reports tab.
And that brings us back full circle to King David. Despite our fears and the armies of problems that besiege us all – from the economy to the uncertain actions of governments, to wars around the world – we remain, “confident that we will see the goodness of the Lord in the land of the living.” May you be strong and take heart as you rest in this confidence as well.
Copyright © 2010, The National Christian Foundation. Bob Fry is the Chief Investment Counsel to The National Christian Foundation and the founding member of Makarios Investment Advisors in Laguna Beach, California. Immediately prior to forming Makarios, Bob worked for ten years at Merrill Lynch in a number of investment and management positions. He served as Merrill Lynch Trust Company’s first Director of Investments, in which capacity he supervised the investment processes on $10 billion of trust assets, was a member of the Merrill Lynch Trust Company Board of Directors and was Chairman of the Investment Committee.