AWM Insights Financial and Investment News

Last Tuesday, the S&P 500 hit a record high after a sudden and unprecedented decline in the earlier months of the year. Much of the growth has been attributed to 5 big tech stocks, which we covered on a recent episode. As we’ve seen these 5 big tech stocks diverge, it’s made many investors ask if valuations even matter anymore?

While these companies are enjoying their highest valuations ever, we see examples like Apple where their stock price has roughly tripled since early 2019, but so too has its Price to Earnings (PE) ratio. In this week’s episode, Erik and Brandon discuss this recent rise and more, including:

• What’s behind the recent all-time high of the S&P 500
• What is a Price to Earnings (PE) ratio and why does it matter?
• What are the implications of Apple’s stock price and PE ratio rise?
• Do valuations even matter anymore?
• Can valuations be used as a tool for market timing?
• What is recency bias?
• The importance of understanding what kind of investor you are and your goals for wealth creation

Are certain presidential candidates better for the stock market? If so, is there a “correct” party to vote for to improve the chances of stronger returns? We often hear political pundits offering advice or predictions around presidential election season, and suggest that the answer to both of these questions is unequivocally “yes.” There are certainly many ways political candidates impact our country, and because of that, it is extremely important we exercise our right to vote. However, as we wade through to the real issues – should a candidate’s impact on the stock market be one of them?

In this week’s episode of AWM Insights, Brandon & Erik, armed with more than 80 years of data, break down this question – and the answer might surprise you. Discussed questions and topics include:

• How do presidential elections impact investment returns?
• Which 2 presidents have seen the best S&P returns while in office?
• Which presidents experienced negative S&P returns during their terms?
• Is it true my political party is better for the stock market?
• What drives the stock market?
• How is the stock market different than the economy?
• How might the two candidates’ tax proposals impact my finances?
• Are there any ways to curb those impacts?
• Do tax rates matter to stock markets?

Recently in the headlines, we’ve seen a lot of attention around SPACs (special purpose acquisition company) due to some big names in the investing world doubling down on them this year. So far in 2020, 60 of the 95 IPOs in the US have come from these SPACs and they’ve raised $24 billion further cementing them as the preferred method for going public this year.

So what exactly are SPACs and should you be investing in them? These special purpose acquisition companies are essentially shell companies that raise money from public markets to buy a private company. They have some very interesting characteristics to them that provide some advantages such as lower cost and some flexibility, and disadvantages like the fact that you’re essentially putting all your trust in the management team of the SPAC.

In this week’s episode, Brandon and Erik discuss SPACs and cover questions and topics like:  

• What is a SPAC?
• How do they work? What are some of their unique characteristics?
• What are their advantages and disadvantages? Are they considered a good investment?
• What is behind their recent surge in popularity?
• What should you consider before investing in a SPAC?
• Should you expect similar returns with SPACs that you’d see in the private markets?
• Ultimately, we would say ignorance is not bliss in investing, but a danger. Like any other single entity investing, we recommend our clients do their research and discuss with their financial professional about how it might fit in their investment portfolio.

Most economic news continues to point to things not looking great – including a 2nd quarter contraction of US GDP by an annual rate of 32.9%. However, the stock market still seems to have some positive moves. What’s behind the majority of the returns in the public stock market? Tech companies like Apple, Microsoft, and Google. In fact, the disparity in the S&P 500 is from the 5 largest companies, which have accounted for all the growth, but the remaining 495 have been producing negative returns.

Does that mean now is the time to invest in these companies? In this episode, Brandon & Erik discuss this and more including:

• What is contributing to the majority of returns in the US stock market?
• If the 5 biggest companies are driving all growth in the S&P 500, why even consider investing in the other 495 companies – let alone international options?
• What are the risks of investing in individual equities if I’m trying to grow wealth in a long-term, risk-adjusted way?
• Is there ever a situation where you might recommend taking concentrated risk?
• Where would an investor have the best change of growing wealth through concentrated investments?

Gold is a topic that tends to pop up anytime there’s uncertainty in the market or conversations of where the economy is headed. We’ve seen gold hit all-time highs over the past week joined with increased nervousness of the pending stimulus package in congress and upcoming elections. This has resulted in more voices who recommend investing in gold as a safe alternative to a volatile market.

In this episode Brandon and Erik discuss some of the arguments made for investing in gold and potential alternatives for long term investors. Topics discussed include:

• How should we think about gold?
• Where/how does gold fit in an investment plan?
• How to think about investments
• Why we don’t include gold in our investment portfolios
• How has gold performed historically as an asset class?
• Should I purchase physical gold in case things go bad?
• Is gold a safe hedge against a volatile market?
• What’s a better way to provide some protection if you’re worried about the economy over the short term?

With a looming election this fall, an ongoing global pandemic, and companies declaring bankruptcy left and right; there is currently no shortage of speculation framed as certain advice everywhere you look. Mainstream media pundits and social media influencers alike are quick to share the latest stock tip, advice on market timing, speculations on bankrupting companies, or even urge you to exit the markets entirely and wait until they calm back down.

While it is entirely likely there will be market impacts from the upcoming presidential debates and election, COVID-19 vaccine trials, and whether or not the government adopts an additional stimulus plan – the full effect of those impacts and even how they play together are entirely speculative. The truth remains that no one has a crystal ball.

So what should you do in the midst of all the noise?

Don’t abandon your plan.

In this week’s episode, Brandon and Erik address some of these speculations and cover other topics and questions like:

• Was Peter Schiff correct when he recently said that a market crash is inevitable?
• How to avoid FOMO (fear of missing out) in the current market climate
• The greatest dangers investors face
• The difference between being an investor and a speculator
• Understanding how to participate well in public markets
• Why the mainstream media is not the best source of financial advice
• What advice can you give on having confidence in my investment plan?
• How can I wade through all of the speculation that I’m receiving the economy, stock market, and investing?

One of the most important distinctions we like to make with our clients is that our primary job is not only investing. We re-center our clients’ definition of success by asking them if simply investing is the goal or if it’s actually to increase their net-worth after taxes and expenses?

The answer is always: net worth.

Investing is really just a means to an end. Our primary job, and the ultimate value we deliver, is in increasing our clients’ entire net worth.

Unfortunately, the act of investing is typically the sole focus of retail financial advice. The average broker and financial advisor will spin their wheels trying to sell their investment strategies in the public markets, yet this is rarely the main driver of wealth. Most investors miss out on other financial moves to grow and keep wealth including tax planning strategies that can produce double digit returns on their net worth.

This week, Erik and Brandon discuss some of these strategies and why they should be important to you covering topics like:

• Why should I consider taxes in my investment conversations?
• Why aren’t more financial advisors talking about this integration of investing and tax planning?
• What are conversations I should have with my financial advisor to keep the returns from taxes that I deserve?
• What are some other ways to manage, defer, and reduce taxes when it comes to your investment plan?
• Are there ways a 1099 employee can reduce taxes?
• Why those in the highest tax bracket might want to consider asset location and tax-loss harvesting in their tax strategy plan

As you see in the major media and financial publications, earnings season is coming soon, but what does that mean for the typical investor? Articles and TV segments abound with the results and guidance of some of the best analysts in the business on their predictions of how some of the top companies are doing, but does that mean that you should be acting on those claims?

Put simply, “earnings season” is the time in which most of the major publicly traded companies release their quarterly earnings reports. As a result of these reports, more updated information is then available to the public followed by market adjustments. What makes this upcoming earnings season of particular interest for many is the fact that it’s following the best quarter since 1987.

In this week’s episode, Brandon and Erik discuss earnings season and cover topics and questions like:

• What exactly is earnings season and why do people get excited about it?
• How earnings season can highlight the difference between the stock market and the economy (for more on this, see episode 11: Stock Market vs Economy)
• How and why earnings season causes market adjustments
• Why some of the best analysts in the world still can’t predict future outcomes based on earnings season information
• What should I know about earnings season? Should I take any steps to prepare or react to it?
• What’s the best way to secure long-term, positive financial results?

Over the last couple weeks, we've seen the return with a vengeance of volatility in the markets with some of the biggest highs and lows in history all within a short time span. With these swings, we're starting to see non-investor voices give investing advice that really boils down to gambling.  The message from these media personalities is loud and clear: now is the time for people to become active investors. 

Is there room for this type of investing? The answer revolves around your current situation and your long-term goals. In this episode, Erik & Brandon give some helpful thoughts on how to view this concept and address topics and questions including:

• Why Shaq’s free throw record relates to investing
• The myth of entertainment-based trading
• Should we pay attention to what the media is telling us? How much credence should we give to news sites advice on the investment decisions we should be making?
• Day trading vs long-term investing
• How the active investing we're seeing in mainstream conversations is similar to sports gambling
• How do we most effectively grow our wealth over the long-term?
• How do you stay disciplined over the long term and not fall for the get rich quick gimmicks?

With a spike in Coronavirus cases around the country, we continue to see multiple industries getting shaken including airlines, cruise ships, and travel destinations. Alternatively, we see the top tech companies (Google, Facebook, Microsoft, Apple, and Amazon) combined currently represent more than 20% of the S&P 500, which makes sense with more people than ever relying on technology to work and stay connected. As we continue to allocate investments, many are wondering if we should try to make concentrated bets on how the Coronavirus might continue to impact different parts of the economy.

However, the main thing to keep in mind is that no one has a crystal ball - no one can see the future. So, typically the best way to prepare for times like these is diversification of your allocations. We've seen throughout history similar trends with different industries rising and falling, and investors who aren't diversified can unknowingly expose themselves to more risk than they intend.

In this episode, Erik & Brandon discuss this idea and address topics like:

• What is the home bias?
• How diversification can protect against unintended risk and help to capture opportunity
• What can we learn from history and data in terms of portfolio diversification?
• What is success?
• How do we most effectively grow our wealth over the long-term?