AWM Insights Financial and Investment News

We all have our dreams, and while they might not always be realistic, it can be fun to get caught up in the hype of the newest product, market trend, or what you’d do with $2 billion if you won this week’s Powerball, it doesn’t always pan out. 

However, what if you were told that some of your wildest dreams could be achieved with two simple secrets? Discipline and diligence.

Hype cycles can challenge any investor to stay disciplined and diligent. It is very easy to be overly optimistic and see a short path to your dreams becoming reality. A path does exist, but it requires the two secrets mentioned as well as a knowledge of financial market principles and fundamentals that govern the laws of that road.

They may not always be the strongest (or most exciting) forces in the market, but history has shown that they are the only tried and true tools that can be used to achieve your dreams and do so in a highly probable fashion.

On this episode of Insights, we highlight current events, including how many quickly accumulated fortunes over the past few years were lost overnight due to an overdose of optimism and a deficiency of discipline and diligence.

Episode Highlights: 

• (0:00) Intro
• (1:07) Current Events
• (2:56) Surprise Inflation Reading
• (4:25) Earnings Readings and Adjustments
• (6:25) Crypto market activity - FTX
• (7:27) Recession and Market Pricing
• (8:45) Takeaways
• (13:04) If it sounds too good to be true…
• (13:25) Don’t forget that Fundamentals Matter
• (13:55) Wrap up

As a pro athlete or successful businessperson, you have heard this statement a thousand times, “control what you can control.”

Why?

It’s because every fiber of our being wants to react to the “noise” good or bad. We are easily caught up in the emotion of an event or views of the crowds.

This is where the pros are separated from the amateurs. The amateur reacts to what’s happening outside of themselves. Typically, rewarding themselves with feelings of comfort. 

Yet, the pro resists. They know it’s all a distraction.

A pro is only concerned with what they can control. They choose to suffer through the feelings of doubt and discomfort. Investing is no different. Few will earn the returns they deserve. 

What can you control?

A negative market provides one of the greatest tools to maximizes your long-term after-tax returns.

The S&P 500 is down ~23% year-to-date which has felt like an exhausting marathon.

Would you believe us that the -23% return has been created by only nine days? There are 254 trading days in a market year. 

It’s a silly exercise but if you had the ability to avoid those nine days, you'd actually be up 9% year to date in the S&P 500. 

Unfortunately, these were not nine consecutive days. And more importantly, avoiding the worst days means you risk missing out on the best days all but guaranteeing you destroy your long-term returns.

From 1/3/2000 – 4/9/2020:

• Six of the seven best days occurred after the worst day.
• Seven of the ten worst days were followed the NEXT DAY by either top 10 returns over the 20 years OR top 10 returns for their respective years. 

Given this reality, if someone leaves the market after experiencing a poor return, it is literally impossible for them to get invested in time to benefit from the best day that may follow. 

Over that same period if you stayed fully invested you would have earned 6%. However, if you were to miss only the 20 best days you would have wiped out your entire return. There are 7,398 days over that period.

The cost of being wrong is catastrophic. It’s not just that you don’t earn the returns you deserve it’s that you have less money putting at risk your ability to pay for your priorities. 

It’s why we don’t player a loser’s game of attempting to predict the market. 

We use the power of data and evidence to build your portfolio to earn higher expected returns and provide you with the highest confidence to achieve your priorities. 

The key to staying in the market during difficult periods is know your portfolio has been built knowing in advance these periods would come. 

Listen in to hear how your protective reserve is uniquely customized and the role bonds play in your portfolio.

In business and sports, everyone dreams of the payoff. A company that sells for billions and an athlete that signs the big contract. Yet, every owner and athlete who has achieved this will tell you the sacrifice and resiliency it takes to survive the gauntlet of the journey.

• 1,982% cumulative return over 30 years. 
• 9.2% annual return
• $1 invested grows to $20.82

We all want the payoff. Few will do what it takes. 

Are you prepared & willing to?

The purpose of investing is to put your money to work and build wealth. The growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.

To capture the returns above you had to stay invested when every fiber of your being was telling you to get out. 

• -49% annual return in 2001
• -57% annual return in 2008
• -34% annual return in 2020

It’s what I imagine an ironman athlete feels like when they get off the bike to realize 26.2 miles stand between them and the finish line.

Returns are not given. They are earned. 

2022 is testing our convictions. As of 10/14/2022, the S&P 500 return is -24.43%

The most common question is can’t we avoid the pain? Don’t we know what’s coming? For instance, the current inflationary environment won’t last forever. Should we be on the sidelines until things return to normal?

Here’s the thing, this time is normal. 

This is a well-functioning market. It's doing exactly what it should be doing. Lots of uncertainty, high inflation, things are changing, and the markets reacting, all those things are normal.

Even if we can reasonably know what the future may look like, markets remain unpredictable in the short term.

There are 10,950 days over 30 years. Missing less than .5% of the days can be catastrophic.

• $1 invested in the S&P 500 on Dec. 31, 1991, and held the position until Dec 31, 2021, grows to $20.82 for a 1,982% cumulative return.
• However, if you missed the 50 best days, you would only have $1.62.

It’s not enough to want to stay invested long-term, it’s having the capacity to do so. 

The biggest mistake we see amateur investors make is not having an adequate amount of money set aside to provide for their essential priorities (expenses) over the next few years. Without this protective reserve, they are forced to panic and sell out of the market and turn what should be temporary unrealized losses into permanent losses. 

At AWM, we are evidence-based investors. The history of the markets tells us we should expect short-term periods of temporary declines which is why we build your financial structure with a protective reserve. Your protective reserve allows you the capacity to meet your short-term priorities and remain invested for the long term giving you the best opportunity to capture the returns you deserve. 

As advisors this is not just the advice we provide to our clients, this is how our families’ financial structures are built. We are in the trenches by your side watching our investment balances temporarily decline. The confidence we have is that when times were good, we were building our bunkers to weather the storm. 

We encourage you to do what it takes. It’s never a comfortable straight-lined journey, but staying the course is how you secure your family’s future. 

DISCLOSURES

Source: Portfolio Advisory Group

This information is for illustrative purposes only. Data is not inflation adjusted and is derived from the S&P 500 index from 1/1/1991 to 12/31/2021, including the reinvestment of dividends. Investing involves risk including the risk of principal. Investments cannot be made directly in an index. This does not represent the performance of any AWM portfolio and past performance of the index is no guarantee of future results. 

We have recently hit 2-year lows on many indexes, and if you have tuned into any financial news offerings lately, you would believe that the worst is yet to come.

More interest rate hikes are on the horizon, greater uncertainty remains from the war in Ukraine, and energy prices that continue to rise are leading many pundits and analysts to predict an imminent recession. Are they right, and what should you do?

On this episode of insights, we walk you through the recent turbulence, a comeback story in Real Estate, what news is actually relevant in our saturated world, and how changing market conditions should impact your mindset and portfolio construction.

Have questions for an upcoming episode? Want to get free resources, book giveaways, and AWM gear? Want to hear about when we release new episodes? Text “insights” or the lightbulb emoji (:bulb:) to Brandon at (602) 704-5574 to join our new AWM Insights Network.

Episode Highlights:

• (0:00) Wine Showcase: Deovlet Wine
• (1:07) Weekly Market Movement
• (3:06) Real Estate
• (4:35) Profiting from News and Opinions
• (5:25) Complexities Today
• (7:27) Recession and Market Pricing
• (9:13) Earnings
• (10: 11) Tying it all together
• (12:25) Liquidity and Accessing your money
• (13:31) Zinger 1 Market Timing
• (14:00) Zinger 2 Market’s general movement
• (14:13) Zinger 3 Financial Structure

Markets are crazy right now. The S&P 500 was down over 9% for September alone. Interest rates have been marching higher. What does this mean for you and your money?

Everyone goes through challenging periods of time whether that's in sports or business. Investing is no different. It is perfectly normal in times like these to be unnerved by market drops and the possibility of a looming recession. Talking it through with your advisor is exactly what you should be doing. For clients, there are three zingers for you to know right now.

1. There are many different kinds of interest rates and they are not all created equal. It is important to know which one people are talking about and whether it should even matter to your personal situation.
2. The best place to be in times of high inflation for long-term investors is equities. Stocks have proven to outpace inflation when you invest over decades. Sitting in cash destroys purchasing power during high inflationary periods like today.
3. Clients with resilient financial structures should feel more confident because markets are healthy and working for you. It affords you the luxury of being indifferent during these times.

Have questions for an upcoming episode? Want to get free resources, book giveaways, and AWM gear? Want to hear about when we release new episodes? Text “insights” or the lightbulb emoji (💡) to Brandon at (602) 704-5574 to join our new AWM Insights Network. On an iPhone? Click HERE to join.

EPISODE HIGHLIGHTS:

• (0:55) The Fed has increased interest rates and earnings season is around the corner. Should clients be doing anything with how much markets are moving? 
• (1:31) You probably shouldn’t be doing much. But that assumes you have the right financial structure and portfolio already set up.
• (1:55) This is a healthy part of markets. To get a positive return on your investments there must be a trade-off. The volatility or price movement and range of outcomes that are uncertain is the risk you must be willing to bear.
• (2:27) Risk is a wide range of possibilities of movements in price. There is a range of outcomes that represents that range of risk.
• (2:53) Volatility is the price movement. Weathering volatility can be unnerving but it is the price to pay to get returns.
• (3:43) Everyone goes through challenging periods of time whether that's in sports or business. Investing is no different.
• (4:05) It is perfectly normal in times like these to be unnerved by markets and the economy. Talking it through with your advisor is exactly what you should be doing. 
• (4:40) The data shows that even if you know where interest rates are going, it wouldn’t help you predict what the market is going to do.
• (5:36) In the history of the markets, there is no correlation between interest rate and market returns. You can’t reliably time the market in this area if you listen to the evidence. 
• (6:20) The media loves periods like this because it sells clicks and eyeballs.
• (7:25) Business is still happening. Adobe just paid $20 billion to acquire Figma. Opportunities are still out there in private markets.
• (8:00) Quality companies are still able to fundraise in private markets.
• (8:37) Business is still happening but valuations have come down. The price you are paying for future earnings is the PE multiple.
• (9:42) The economy is not the market. 
• (10:00) What are three things clients can focus on when it comes to current events in the market? 
• (10:40) There are many different kinds of interest rates and they are not all created equal. It is important to know which one people are talking about and whether it should even matter to you. 
• (11:48) The best place to be in times of high inflation for long-term investors is equities. Stocks have proven to outpace inflation when you invest for decades. 
• (12:10) Cash is the worst place to be. Inflation destroys your purchasing power and gives you no opportunity to offset or beat inflation. 
• (13:00) You can hedge inflation with a Treasury Inflation-Protected Security or TIPS. This makes sense for short-term funding needs.
• (13:34) This is actually great because it is supposed to happen. Our clients have the financial structure to be indifferent during these times. Confidence in markets is reinforced during times like these as new information is priced in and should be encouraging for clients.   

Rising interest rates have dominated headlines for the last few months, but which rate is the most important to you? Should you be concerned? 

The rate you’ve likely heard the most about is the Fed Funds rate. In short, this is the interest rate that banks charge each other if they need to borrow or lend in excess of their reserves. This rate is set by the Federal Reserve and is the main policy tool used to influence other short-term rates in an effort to cool inflation. 

Contrary to what you might hear, rising rates does not always mean the stock market will crash or even go down. Past evidence has shown no strong correlation and trying to time the market using this data would be a fool’s errand. Staying the course with your long-term strategy and trusting in your established protective reserve should give you confidence during these times.

In this episode of AWM Insights, Brandon and Justin discuss these rising rates, their potential impact on you, and how to navigate market downturns.

Have questions for an upcoming episode? Want to get free resources, book giveaways, and AWM gear? Want to hear about when we release new episodes? Text “insights” or the lightbulb emoji (💡) to Brandon at (602) 704-5574 to join our new AWM Insights Network. On an iPhone? Click HERE to join.

EPISODE HIGHLIGHTS:

• (0:35) Interest rate talk is dominating headlines. What does that mean for you?
• (1:29) When you hear about interest rates rising, it's important to ask which interest rate you are talking about. Usually, people are talking about the Fed Funds rate.
• (1:50) There are so many different interest rates, and each has its own length or term of borrowing.
• (2:17) When the Federal Reserve increases the Fed Funds rate that directly impacts the short end of interest rates. You can see it in 3-month and 1-year rates pretty easily.
• (2:50) The longer-term rates tend to do the opposite of what you would expect when Fed Funds rate is rising. They tend to go down. 
• (3:25) When thinking about rates, they don’t necessarily impact long-term rates like a 30-year mortgage. There are many other factors that go into that.
• (4:11) Short-term rate changes impact variable rates like credit card debt.
• (4:35) What is the effect on stock market returns when rates are going up? Is it bad for stocks?
• (5:30) There is no discernible relationship when interest rates are going up or down on equity returns. It is not that easy to say any time rates are going up the market will be going down.
• (6:00) Cost of capital is a finance term that if a company wants to borrow money and interest rates are higher, then I will have to pay more money for that debt. That has a material impact on profits. 
• (6:29) Cost of capital could be a driver of declines but markets are so incredibly complex that there is no simple explanation. 
• (7:27) Playing a game of letting fed funds rate dictate how you invest isn’t going to work as a strategy. Every other sophisticated market participant already is anticipating future rate hikes. 
• (8:19) Even if you had a crystal ball and knew rates were going up, its impossible to know what the market is priced into the market and what isn’t. 
• (9:00) We’re not saying you shouldn’t be concerned about rising interest rates impacting your situation. High inflation does eat away at future earnings and purchasing power of your money. What we’re saying is to tune out the noise of changing your investment strategy because of interest rate moves. 
• (9:54) A solid financial structure is built ahead of time to hedge the impact during stressful periods like equity and fixed income markets are going through. 
• (10:40) Markets are in bear market territory. The last decade has been phenomenal for returns to investors. It's easy to focus on this single 9-month period and ignore the big picture.
• (11:45) It is healthy for the market to be pricing in interest rates and future expectations. With higher rates, expected returns for equities in the future are higher.   
• (12:10) A protective reserve in your portfolio should be constructed to deal with times of adversity. Build-in protection for unexpected inflation is a must.
• (12:38) The key takeaway is to control what you can control. Marry your resources with your priorities so you know you can weather storms and make it through periods of difficulty. Taking comfort in knowing markets are working and you will be rewarded if you stay disciplined and stick to your plan 
• (13:25) If people are saying they can predict what will happen, it may feel good, but they don’t know the future. Things get a lot more certain over long periods of time. 

It is estimated that 70% of wealth is lost by the second generation and 90% by the third. This is what defines the phrase “shirtsleeves to shirtsleeves” and it has been this way for centuries and across cultures.

What can be done about it? 

You have to start by being intentional and focusing on solving the problem for your family. Begin by thinking big picture and spending time and resources to set your family up for success over the long term. 

The number one issue we have seen is a lack of skillsets - not technical knowledge. Not knowing how to talk to your kids and failing to prepare them can be addressed early on. Setting the intent and fostering strong communication over decades can establish the foundation for them to then be successful into the next generation.

Have questions for an upcoming episode? Want to get free resources, book giveaways, and AWM gear? Want to hear about when we release new episodes? Text “insights” or the lightbulb emoji (💡) to Brandon at (602) 704-5574 to join our new AWM Insights Network. On an iPhone? Click HERE to join.

EPISODE HIGHLIGHTS:

• (0:27) There is no greater impact than working on your family and helping them become the center of that impact. Not just for today but into the future.
• (1:38) Why doesn’t wealth transfer? How you can have more impact on future generations?
• (1:44) Family wealth includes more than just dollars and cents. It includes values, history, and the stories that create family legacy. 
• (2:05) Intentionality is difficult. The numbers are unfortunate. It’s estimated that 70% of wealth is lost by the 2nd generation and 90% by the third generation.
• (2:30) The “shirtsleeves to shirtsleeves” epidemic has been around for centuries. 
• (3:02) To break this trend, you have to begin the process. Doing nothing or passing it off to someone else isn’t the best solution.
• (3:30) You shouldn’t be afraid of your kids inheriting large sums of money. You should feel confident they are prepared and educated on how to handle it when that times comes. 
• (3:50) Passing off the wealth to someone else probably won’t result in the greatest impact for your family. Training your own family and heirs to steward the wealth well is an incredible opportunity that you have a lot of control over.
• (4:32) The data shows that 60% of the reason wealth doesn’t transfer is communication, and 25% is due to heirs being inadequately prepared. Technical knowledge only makes up a small amount of the problem.
• (5:45) Lack of skillsets. Not knowing how to talk to your kids and failing to prepare them can be addressed. Setting the intent and fostering strong communication over decades provides the foundation for them to be successful.
• (6:20) Not talking about money is common in our society. Communication should be encouraged and framed in the right way.
• (7:00) Talking about the work, study, and effort that went into earning that wealth is a great opportunity to frame wealth the right way.
• (7:56) Stewarding the wealth generation after generation becomes the mindset rather than just focusing on what you can do with it only in your lifetime.
• (8:34) Wealth can be financial capital, human capital, social capital, and charitable intent. Each of these types of wealth deserve their own conversation. 
• (9:11) Generational wealth is more than just a portfolio and how big it is.
• (9:23) The families that successfully transfer wealth are ones that take a step back and establish intentionality and a big picture vision.
• (9:55) If you’re a business owner, you have utilized your intellectual capital and intelligence to create a new opportunity. Teaching financial capital is important but arguably more important is social capital. Relationships and the people you are around is an incredible opportunity to model for your children.
• (11:02) Put your kids in a lunch with you and someone important and teach them the importance of relationships to begin building their social capital.
• (11:45) The technical side or financial science is just one part of the equation. 
• (12:29) Building the foundation for a flourishing family that will make an impact for generations is a fulfilling endeavor. 
• (12:46) It’s never too early to start. The younger years are actually the most influential when it comes to money. It’s also never too late. The worst strategy is to not communicate and leave it to chance. 

Money is just a tool to drive impact. What that impact looks like is different to every individual and family.

The anxiety of preparing the next generation is universal across wealthy families. Building the mindset to raise kids well and not spoiling them while giving them the foundation to live productive lives is the cornerstone of generational success. 

How do you measure success when you’re giving? Are your money and time making the impact you strive for? Is the impact aligned with your intent? Should you start a foundation or use a Donor Advised Fund as your tool? 

In today’s episode, Brandon and Justin address these questions and discuss how to approach preparing the next generation to establish your family’s legacy.

Have questions for an upcoming episode? Want to get free resources, book giveaways, and AWM gear? Want to hear about when we release new episodes? Text “insights” or the lightbulb emoji (💡) to Brandon at (602) 704-5574 to join our new AWM Insights Network. On an iPhone? Click HERE to join.

EPISODE HIGHLIGHTS:

• (0:57) As a family office, where can we add the most value to our client’s lives?
• (1:17) Building the mindset to raise kids well and not spoiling them while giving them the foundation to live productive lives is the cornerstone of generational success. 
• (2:09) How do you properly prepare for charitable intent? 
• (2:37) If you want to make the most amount of impact, you should aim to do it best-in-class. Doing it with a strategy can increase the benefits of giving. 
• (2:47) Does it make sense to have a foundation? Do you have a Donor Advised Fund yet?
• (3:12) One good way to measure impact is that for every dollar given, how much makes it to the cause at the end?
• (3:30) If you can’t accomplish everything you want with a Donor Advised Fund, then you should evaluate the foundation route. Foundations have a high burden of ongoing costs.
• (4:38) You don’t setup a foundation so you can put your entire family on the payroll and deplete what is left for charity. That is not impact and taking ownership of your wealth. 
• (5:18) The key to focus on is intent. How do you make it part of your legacy?
• (5:55) If you are super innovative and really trying to do something new then a foundation or nonprofit may be the best tool.
• (6:03) If you are trying to give to the many already established well-run charities, it’s tough to beat the advantages of the Donor Advised Fund.
• (6:38) Many billionaires want to offload wealth from their children. Warren Buffett, Bill Gates are the ones that are doing this and they are taking the wrong approach.
• (7:07) You have the ability to train, form, and shape for twenty years to handle wealth. They can carry on your legacy into the future.
• (7:37) You should bring the competitive drive to ask what is success and how can we measure the impact of giving. 
• (8:55) The conversation needs to go a layer deeper when it comes to legacy and family governance. Intent can be clearly established and built up over a lifetime.   
• (9:40) It’s never too late to start. Adult children can be brought in and the groundwork can begin on family legacy.
• (10:10) It’s never too late to start. Simply starting with save, give, spend boxes and the small conversations that stem from such a simple exercise will pay off in the future. Who is the money going to and why? Intent can start early. 
• (10:54) Discipline, determination, and hard work are values all athletes possess that you want to pass on to your children. 
• (11:11) Shirtsleeves to shirtsleeves or rags to rags is the common problem that money doesn’t transfer over generations. It is because of the lack of preparation over multiple generations.   
• (12:15) Money is a tool to drive impact. What that impact is different to every family and to every single person within that family. 
• (13:05) Our mission is to have a multigenerational business serving multigenerational families.

It only takes one unfortunate event to bring down everything. That is why risk management is such an important part of protecting your financial structure and sustaining generational wealth. It is not generally given the attention it deserves.

Risk management is more than just insurance. It is protecting against an uncertain future. This includes physical as well as online security. Families should be prepared for these risks and informed on how to deal with situations that hopefully never come up. 

It doesn’t make sense to skip insurance for the things that can devastate your plan when you can insure them relatively cheaply. Home, auto, personal umbrella liability, disability, and life insurance should be dialed in appropriately for each family. 

Life insurance is often sold as something more than just insurance. Sometimes it's touted as a bank or a wealth generation tool, but in general, simple is normally better. These policies are typically the most pushed because the commissions are the highest.     

Have questions for an upcoming episode? Want to get free resources, book giveaways, and AWM gear? Want to hear about when we release new episodes? Text “insights” or the lightbulb emoji (💡) to Brandon at (602) 704-5574 to join our new AWM Insights Network. On an iPhone? Click HERE to join.

EPISODE HIGHLIGHTS:

• (1:17) You can build great wealth and create the best investment plan in the world but all it takes is one accident to ruin everything. Unless you have built out your risk management. 
• (2:12) Insurance is just one piece of risk management. The future is uncertain and you should think about how to protect yourself.
• (2:40) Personal security and protecting yourself online are both forms of risk management. 
• (3:30) How you construct your portfolio, when done right, is a form of risk management.
• (4:15) Uncertainty is what we should be concerned about as individuals. Risk is what a casino should be worried about.
• (4:33) Overly leveraging an investment portfolio is a risk that oftentimes blows up in the investor's face. Managing uncertainty should be done at the portfolio level too. 
• (5:10) Partnering with a cybersecurity firm has given us insight into how to protect yourself online.
• (5:25) Using a password manager is much better than using the notes app or using an easy-to-guess password for all your accounts.
• (5:42) Public wifi is often a place you are a target. What are called “dirty networks” should be avoided and using your phone as a hotspot is usually safer. 
• (6:06) Athletes are public figures and even if you don’t think of yourself as a target, people may look to target you because of the notoriety.
• (6:37) If you’re ever being followed, head to a public well-lit place. Being aware and educated on how to handle these situations is a part of risk management.
• (7:40) Even if these disturbing events don’t happen very often, over a lifetime the chances one of these events will happen to you is significant enough to be prepared early.
• (8:00) A well-structured risk management plan is not difficult to get in place. It takes time and effort but should be a pillar in a wealthy family.
• (8:25) Proactive risk management addresses risks before they happen. Insurance, like auto or life insurance, addresses bad things once they’ve already happened.
• (9:45) Umbrella Liability insurance is notoriously missed by professional athletes. This gap is a massive risk to not just current wealth but also future earnings.   
• (10:27) Umbrella protects you whether you’re in your car or at home. What if you accidentally hurt someone else?
• (10:59) What happens If you get sick or injured and your family relies on your income that is now gone? Disability insurance protects your family in this situation. 
• (11:13) You get insurance for insurance. Don’t be fooled. 
• (11:29) Life insurance is often pitched as a wealth generation tool but life insurance is not a bank. If you hear that pitch, turn around and walk away. 
• (12:09) It is incredibly important to have the right life insurance at the right amount to protect or provide for your heirs. 
• (12:59) Where other insurance is usually undersold, life insurance is oversold.
• (13:25) Simple is better. The cheapest version is generally all you need. It isn’t sold because it pays the insurance agents the least.