From the President

From the March 2017 issue of AEJMC News

“AEJMC Investing Beginning to Pay Dividend”

If you’re like me, you know just enough about investing to be dangerous. One thing most of us do know, however, is that certificates of deposit (CDs) these days are about as lucrative as the underside of the mattress.

That’s why I’m happy to report that AEJMC’s new investment policy is beginning to pay dividends. Literally.

Thanks largely to the sound management of past boards and Executive Director Jennifer McGill, AEJMC had been accumulating reserves in various pockets all over the budget, for several years. But these reserves lived in CDs, which in early 2017 are averaging less than a 1 percent return per year. We had more than $550,000 in operating reserves, plus about $230,000 in endowment principle. For an organization whose entire operating budget is less than $800,000, that’s a lot of cash under the mattress.

So in 2014, during Paula Poindexter’s presidential term, the board authorized Jennifer to seek out investment companies with experience investing for non-profit organizations. We settled on the Columbia, S.C., office of Janney Montgomery Scott (headquartered in Philadelphia). In April 2015, we took the plunge.

With the guidance of Janney’s Chris Smith (an engaging young fellow who seems genuinely to enjoy the company of JMC educators), the “plunge” has been slow and careful. We have gradually invested parts of the reserves and endowments, but ultimately we’ll invest only 75 percent of our big pot of reserves — keeping the rest as cash on hand. We will invest only half of our endowments principle. Whatever we make from investing our reserves, half will come back to us as useable cash, and the other half will be reinvested.

The strategy is appropriately conservative — but nowhere near as conservative as a CD. With that 75 percent of our reserves, Janney will invest 80 percent in stocks and 20 percent in bonds. With the endowments, the strategy is even more conservative: 50 percent in stocks, 50 percent in bonds. The idea is to find companies that not only pay dividends, and not only have been paying dividends for several decades, but that have been increasing the size of their dividends over decades. It’s the dividend income that will provide our investment return. This way, the short-term fluctuations of stock prices will matter little, as long as these companies keep increasing their dividends in the coming years. We’re investing in about three dozen companies, ranging from consumer products and food and beverages to utilities and telecommunications — all firms that pay impressive dividends.

So why am I boring you with this board-room finance? For starters, I believe that as officers of AEJMC we must be careful stewards with the precious resources we have, and that includes growing the budget when it makes sense to do so. And the ultimate objective, of course, is to secure funds to enhance what we do as educators.

So how’s it going? In 2014, the CDs produced about $1,200 in interest for us. For fiscal 2016, our first year of investing in the markets, our investment income was about $19,900 before fees. Chris Smith estimates that this year’s return will be about 30 percent higher than last year’s, mainly because we’re finally investing the entire amount we’d planned to invest.

It may not seem like much, yet, but the impact on the board’s budget planning is palpable. For example, the investment return from endowments enabled us to put $500 more into the 2016 Lionel Barrow Scholarship, and a new $500 into the 2016 James Tankard Book Award (as well as more funds into our other endowed awards). In previous years, we would have to dip into rainy-day contingency funds to ensure that we could pay out the bare minimums of our awards and scholarships. Now we seem to be breathing a little easier. At our December board meeting, we raised the prize of the Krieghbaum Under-40 award from $1,000 to $2,000 each year, and we raised the amounts to be awarded this year for Emerging Scholars and Senior Scholars recipients.

The “early returns” have had a certain ripple effect for other AEJMC budgets. Did you know that several AEJMC journals have also accumulated substantial operating reserves? In December we authorized Jennifer to create a “Research Reserves” committee to make plans to (1) invest a certain portion of the journal reserves and (2) devise ways to spend the reserves and investment income to enhance AEJMC’s research mission.

AEJMC’s officers meet with Chris twice a year, in June and in December, and we review the portfolio’s performance with an eye to making any necessary adjustments. In June, we nervously asked Chris if Brexit would harm our investment, and in December we asked, 10 times more nervously, if the election of Donald Trump would likewise impact us. His answers were similar: Politics and federal policies sometimes create short-term fluctuations in stock prices, but they rarely affect dividends, especially not over the long term. When Chris and I chatted in early February, Chris said we’ve seen, and we’ll keep seeing, a “headline effect” on the market’s weekly performance, in reference to certain angst-inducing (or joy-inducing?) headlines emanating from Washington. But markets have a knack for adjusting after sudden movement.

“We look to invest in companies that that have shown over the years that they can weather any kind of storm,” he said. “They’re the ones that help us sleep at night, no matter what the latest headline.”

AEJMC is taking more risks with our resources than ever before, but so far they’re proving to be carefully calculated risks. The financial health of our organization is good, and we aim to keep it that way.

By Paul Voakes
University of Colorado, Boulder
paul.voakes@colorado.edu
2016-17 AEJMC President


“From the President” is courtesy of AEJMC News.

Print friendly Print friendly

About kysh