Brent Dickerson’s one-man financial planning firm is still in its early stages. Dickerson, a certified financial planner and a graduate of Texas Tech University’s financial planning program, set up shop in Lubbock, Texas, in 2014 and expanded his business to northeast Ohio when he moved to the Cleveland area in 2017. Dickerson does financial planning and investment management for his clients and relies on exchange-traded funds for the bulk of his client portfolios.
Schlegel: What is your investing philosophy?
Dickerson: I adhere to the philosophy of modern portfolio theory. I believe in a passive approach to investing because in the long run it’s almost impossible to consistently outperform the market. One of the reasons why I use ETFs is that I don’t see the point in paying for active management when over the long term you probably won’t get the alpha that you need.
Schlegel: What role do ETFs play in your client portfolios?
Dickerson: For most people they comprise 90% to 95% of their portfolio. There are only a few areas where I prefer active management and go with mutual funds.
Schlegel: What are those areas?
Dickerson: The bonds market is one. I feel an active manager can do a better job making quicker changes needed when interest rates are changing. For example, I might choose a municipal bond mutual fund during a period of changing interest rates because active management can offer alpha in such an economic environment.
The other area is in emerging markets, because sometimes they are shrouded behind a veil of sorts. Here in the U.S. and in Europe there are set standards for accounting practices, but with emerging markets sometimes it seems it doesn’t work that way. So I prefer going with a manager who’s more familiar with those markets and who can make quicker moves than an index can.
Schlegel: What are some of the key factors you look for in ETFs?
Dickerson: Mostly cost. I look for low-cost funds, and I also want tax efficiency, particularly if it’s in a taxable account. Both of those features are pretty much universal with ETFs. I’ll look at a fund’s beta and Sharpe ratio to see if they’re taking on certain amounts of risk, and whether investors are getting properly rewarded for taking on that risk.