AWM Insights Financial and Investment News

The market has continued to bring surprises. In the last couple months we've seen one of the quickest recessions to one of the quickest recoveries then suddenly last week we saw a -6% down day in the market. 

In tandem with this market volatility, we've also seen many big name companies declare bankruptcy followed by their stock prices skyrocketing. In their wake have been more voices who have adopted a day trading approach claiming now is the time to buy these companies pretty much across the board.

This can cause us as investors to question what is going on in the short term, and ask if we should lean into this day trading approach. However, we also know that the disciplined approach is going to continue to be to cut out the noise, control what we can control, and stick to the plan for the long term.

This week, Brandon & Erik discuss these news items and address the following questions and topics: 

• Is now the time to buy a specific company's stock that I've heard about in the news?
• How concerned should I be about short-term market fluctuations?
• Is there ever a time to consider more of a day trader approach?
• If I have a pool of money that I'm okay to take more risk with, what are some of my options to consider?
• What options are available besides stock picking on public markets?
• What do you guys see is the best approach for long-term wealth creation and success?

On last week's episode, we started our conversation on the idea of ownership by defining risk and discussing some of the rewards that come along with the different types of risk you can take. Ultimately, this can be described as the upside of ownership.

This week, we'll continue with part two where we'll explore the fundamentals of ownership and cover topics and questions like: 

• What exactly are the fundamentals of ownership?
• How do we define ownership when it comes to investing?
• What does it mean and what are the implications to owning stock?
• Why could equity be preferred over being a bond holder?
• Is all equity created equal?
• Is now the time to invest in a specific company?

What should we be doing with our money right now? Over the last few weeks, we've covered topics that we've been asked about from our clients on real estate, private markets, and more. We've also been asked if now is a good time to consider cryptocurrency. 

However, these might be the wrong questions, at least in starting the conversation. Instead, we should start with our overall money goals - what do you want your money to do for you?

The answer to this question helps us to determine an appropriate level of risk to work toward achieving the returns that would help us accomplish our money goals. 

In this episode, Erik and Brandon discuss this idea and cover topics and questions like:

• How do you actually define investment risk?
• What is the framework for determining how much risk you can handle?
• Why saying you want all the return but none of the risk does not work.
• Understanding the relationship between risk and return.
• Cutting out unnecessary risk.
• The impact of diversification on risk.

We've said that trying to predict markets is a dangerous game to play, so now that the country begins to open up - how do we answer the frequently asked question of what the market will do over the coming months? We typically start our response by revisiting why our clients are invested in the public markets in the first place. The answer should not be to try to make a significant return within the short-term - 12 or 18 months - but is most often the goal of generating wealth over the long-term.

As humans, we tend to shy away from uncertainty and instead have a tendency to lean toward people who confidently declare certainty about what will happen in the future. That's why it can be easy to find "experts" who claim they've figured it out or try to predict what will happen in the immediate future. However, the data repeatedly shows that this is a fool's game. The reality is that no one has a crystal ball on what the market will do through the rest of the year.

In this episode, Brandon and Erik discuss this idea and cover:

• The characteristics of a long-term investor vs a day-to-day market timer
• Some of the core principles to help make sure to capture the long-term market potential returns
• The importance of a globally diversified portfolio
• What the backbone of most plans should typically be based around

In recent weeks, we've seen a lot about how the stock market seems to be rallying, but the economy is doing poorly. As a result, we've received a lot of questions about how there can be a disconnect between those two entities.

However, when the stock market is mentioned, many refer to the S&P 500, which only makes up only 44% of the U.S. economy. Whereas, when we discuss the actual economy, it encompasses all goods and services being produced. Likewise, stock market data is a prediction of how those companies might do in the future, whereas economic data is data about the past. How can you navigate all this information? And how does it connect together?  

In this week's episode, Brandon and Erik address these questions and cover:

• A definition of both the stock market and the economy
• The information and data available about each one
• What - if any - information can be utilized between one to inform decisions about the other
• The distinctions between the two including how one can be doing well while the other suffers

Much of the initial emotion toward fluctuating markets has softened and our clients have begun asking great questions like "Should I invest in oil? Or real estate?" which we have been addressing the past few weeks in our Insights podcasts. This week, we wanted to focus our attention on some of the ways we do like to think about taking concentrated risks - specifically in the private markets.

We've continually said that we believe in the public markets. However, for some of our clients who have solved for safety through a diverse investment in the public market, we begin recommending looking into private markets, which often may provide over sized returns, but carry much more risk. In this episode, Brandon and Erik dive into this idea and cover topics like:

• Are there ways to take advantage of the fluctuating markets we've seen in recent months?
• When would be a good time to start a conversation with my financial professional about investing in the private markets?
• Why do some get over sized returns in private markets?
• How important is it to invest with someone who has had experience in these up and down markets?
• What resources are there where I can learn more on venture capital investing?

While many states in the U.S. are beginning to relax social distancing practices, the future is still uncertain with some still wondering if there will continue to be drastic market fluctuations. This has sparked many to wonder whether they should stay in the markets at all in the face of potentially more downturns? Why not just return to the markets once they begin to normalize again?

While market fluctuations can certainly be unsettling, trying to jump out of the markets before a potential downturn and then get back in when the markets have normalized has many issues - namely that there is no guarantee that the speculations will end up as predicted.

Taking the most recent example, in March we experienced the fastest bear market in history with stocks falling more than 30%. Later that same month, we experienced the largest three-day surge in the Dow Jones Industrial Average since 1931 followed by the best monthly performance in April for the Dow Jones and S&P 500 since 1987. Had you jumped out of the market at the outset of the downturn, you may have missed out on the potential market recovery that occurred directly after.

In this week's episode, Brandon & Erik discuss these questions and give some insight on a better approach that focuses more on long-term wealth creation rather than short-term gains.

Real estate is a topic that a lot of people have interest in - often from being home owners themselves. There is wide exposure to the idea of investing through real estate in tv shows, books, webinars and more.

One question we've been frequently asked by our clients is if this current time is providing a unique opportunity to invest in real estate in the midst of market uncertainty. The ultimate answer is it mostly depends on your situation - we are massive supporters of real estate, but only within the right context and the right plan. More often than not, the devil is in the details.

Our clients receive numerous real estate pitches, but you have to understand all the details of the deal to accurately determine if it makes sense for you without an emotional attachment to the vision of the project.

In this episode, Brandon and Erik look at what it takes to approach investing in real estate like a pro, and address some of the most frequent topics and questions we receive including:

• What are the best ways to approach real estate without an emotional attachment to investment decisions?
• What are the most beneficial sectors of real estate when considering investments?
• Should I think of my home as an investment?
• Is flipping homes a viable option?
• What cautions people should take when entering this area of investing Public vs private sector real estate investing
• How to have a conversation with your advisor to explore if this is a viable and wise investment within the context of your risk tolerance and portfolio diversity

Listen at the link below, and if you'd like to hear more about the template we've created on how we analyze real estate investments - please feel free to reach out to us.

After another week of wild financial markets, we saw another historic first yesterday where the price of oil actually went negative. Does this mean you should run out to your local gas station and have them pay you to store gas? Well, no - but it does drive home an important point:

You can't predict the future.

At the end of the day, trying to outguess the public markets is a great sales pitch but in reality is just not in the best interest of clients.

So should this new development in oil markets make you change up your overall investment strategy? Listen to this week's episode for Erik and Brandon's commentary on this event and their thoughts on the following questions that we've received over the last few days:

• What impact does this oil price dip have on me as an investor?
• Is now the time to invest in oil?
• Is there a way to time public markets like oil to capitalize on dips like the one we're seeing now?
• What are some approaches to consider when making a concentrated risk?
• Why making informed decisions in the private markets might be your best bet

In a time where it can feel like a lot of things are out of our control, there are still some things you can do that add tremendous value to your portfolio. Last week, we discussed one of the methods - tax-loss harvesting - and we'll continue this week by looking at asset location.

At its core, asset location is essentially a method of managing multiple accounts as one single portfolio. Research has shown with this practice that you can add .5% to .85% to your after-tax return, which over a 30 year period can be up to an additional 15% after-tax return.

Some investments in your portfolio - like bonds - pay you interest. If this is held in a taxable account, it will be taxed annually at a fairly high rate depending on your tax bracket. This ultimately hurts your take home return, so we utilize asset location to ensure those assets are not taxed annually and instead other assets likes stocks are the ones held in your taxable accounts.

This is a highly-specialized tactic that gets the most mileage from being utilized with our clients that are in the highest tax bracket with high levels of complexity. Listen for more details and answers to questions including:

• What is asset location?
• How does asset location work?
• How can this practice save money over the long-term?
• Who most benefits from this practice?
• How can I tell if my portfolio is utilizing asset location?