2023 Kick-off | AWM Insights #139
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Episode Summary
Welcome to 2023! The New Year is always a natural time for reflection. We looked back on the year that was in our last episode. In this week’s episode we take a look forward and set some foundational expectations for the year ahead, whatever it may bring.
The big topics in the financial media at the moment are 2023 predictions. And they are just that, predictions! No one has a crystal ball and no one seems to be able to predict the future with any certainty. So while it is certainly a fun exercise and a great topic over a beer or glass of wine or other beverage of choice, history shows you should definitely stop there and rely on a systematic, long-term approach to managing and building multi-generational wealth. Just remember markets tend to fool most people most of the time and we’ll talk through ways to avoid this
As we enter 2023, it’s important to remember that we view money as a tool to accomplish your priorities. We want to intentionally allocate your money in a way that supports what is most important to you. As such, we structure portfolios and your net worth in a way that increases the likelihood of success and minimizes the impact of chance on your outcomes.
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.
Episode Highlights:
0:00 Intro
1:05 How do we think about predictions?
1:19 What we are thinking about going into 2023
2:32 Markets are positive on an annual basis about 75% of the time
2:52 2022 validated some of our thinking
3:25 Flashback to Dec 2019, who would’ve predicted where we are today?
4:42 It’s natural to think we can outguess markets but reflection helps remind us what actually works
5:11 You don’t have to play the prediction game to succeed
6:59 The importance of Bonds in a portfolio
7:50 Markets fool most people most of the time
9:35 Focus on meeting your priorities in the highest probable way
10:18 Humans are wired for short-term gratification
11:53 Wrap up
+ Read the Transcript
Brandon Averill (00:00): Let's do it. All right, Justin. 2023, we're back, so why not start off with a bang, and get a new AWM Insights going.
(00:11): A lot of good stuff. Always the beginning of the year we get talking about predictions, and what's happened in the past year, and what's going to happen in the year that's upcoming. So I thought we'd just spend some time there and talk a little bit about that.
(00:24): We now know what happened in 2022, a down year for the markets. Those happen, as we know, but it's still never fun to actually see it unfold. And there is something about the year end that is like this marking point, but actually is irrelevant.
Justin Dyer (00:44): Doesn't mean a lot, right?
Brandon Averill (00:44): In a lot of ways. But it's time for reflection. And then certainly, right now, if you're paying attention to the financial media at all, everybody's predictions are out there. And so, it'd just be fun to chat a little bit about, hey, we read these things too. How are we looking at them, so clients listening can have a good understanding.
(01:05): So would love to hear from you as you reflect back on 2022 and markets being down just throughout the year. Maybe some reflection on how you're thinking about it going into 2023.
Justin Dyer (01:19): Yeah. It's a great time to reflect, like you said. Personally, from a market standpoint... Quite honestly, it wasn't a great year. I think that's not a bold statement to make.
(01:32): But we've said this throughout the podcast, and hopefully people do pick up on it, that it's actually a good thing to have negative years. And I don't say that lightly. The reason why I do say that is that the reason why you expect a positive return going forward is because there is risk in investing, or there's risk to investing.
(01:56): And so that's what I mean by it being a good thing that we had a negative year. That shows us, that gives us confidence, that verifies that markets are working. Again, not fun to actually go through, but it's a healthy mechanism to see or to witness, and we don't know what the future unfolds.
(02:18): A lot of people, to your point, have been putting out their prediction for the year, and quite honestly, no one knows. We say that a lot. I know we do, but it is true. No one knows. No can predict the future.
(02:32): But we do know markets are positive most of the time. In fact, about 75% of the time they're positive over a calendar year cycle. But we're going to see a negative year again. It could be the fact that this year is also negative, but that doesn't change anything. That doesn't really change how we view investing.
(02:52): So that's a real broad statement to answer your question, but some specifics around, what did I learn? I would even flip that question around to say, what did we verify? I think it's more so to say, what did we verify? And I think it gave us a lot of confidence in our approach, in our approach of controlling what we can control. Tax loss harvesting when the market provides opportunity for that. Not trying to predict these things day in and day out.
(03:25): There were so many unpredictable events. If you go back - there is a great piece I read recently - starting in December, 2019, where the economy was doing incredibly well. Unemployment was doing incredibly well, and literally two or three months after that the pandemic hit, and then just the whole entire... The dominoes fell. It was a roller coaster ride. Up crypto... You name it. There's so many headlines over this period of time, and then all of a sudden last year, war in Ukraine, interest rates rising. These things are so unpredictable.
(04:00): And here's the little dovetail, or the headline. The period, if you will. Over that period of time, the Russell 3000, which is very similar to the S&P 500 - S&P 500 had a similar return - was up 10% over that three year period of time, through the end of November. No one would've predicted any of that.
(04:19): And I sit here today to take this reflection and say, yeah, going forward, it's a silly game to play to try and predict things. It's fun to talk about, by all means, to your point. We read them. I like reading them. I love reading these intelligent people talk about the economy, talk about the market, but acting on those predictions are two different things.
Brandon Averill (04:42): And I think that's what... It is a reminder when we go through these periods. You start to see these things, and you know that it's probably unrealistic to outguess markets and to think about... But we still have this control fallacy, or this belief that somehow we have some keen insight sometimes. And so it's reminding ourselves to take a step back, and remind ourselves that we don't have to actually do that to have really successful outcomes.
Justin Dyer (05:10): Exactly. Right.
Brandon Averill (05:11): I think that's the other tricky part here is, a lot of people think you have to get all these things right, these predictions right, to have a lot of success. And really, what you'd be better off doing, and I would argue, rather do, is participate in the human ingenuity that exists in our economy and our people, and have the belief that, hey, if I have the staying power, if I am truly an investor, if I'm somebody that looks over the longer term, and I structure things appropriately, I'm going to get all the benefits of this, and I don't have to figure out when the up and down is coming.
(05:47): And in preparing for this, we saw a lot of stuff too. All the predictions at the beginning of 2022 were like, "Hey, we're going to have a fantastic year." On consensus. And obviously we now know - hindsight's 20/20 - that that didn't unfold. And now you fast forward to this year and consensus is wildly pessimistic. We're headed into-
Justin Dyer (06:11): Funny how that works.
Brandon Averill (06:13): I know. We're going to have all these corrections. And that all may very well happen, but the data also tells us that most of the time when people are in consensus, markets work in reverse. And that doesn't always happen. It's not a tradable thing to say, "Hey, everybody expects this to happen. Let's go on the flip side."
(06:31): I wish it worked that way, but it probably wouldn't be consensus. And so I think when we start to reflect and look at these things, I think it's just a good reminder for people that, hey, yeah, it's really fun to predict the future. It's really fun to think that you have some sort of control over where things are going to go. But what we actually have control over is being long-term investors, then taking the prudent steps to put the right financial structure in place.
(06:59): And I think that was a verifiable thing for me this past year, was the way that we used bonds in client portfolios. I think so often bonds are viewed as, hey, this is the safe asset, and so it's going to hold up well when the stock market does poorly. And that didn't happen last year, and we've taken an approach over the years where we actually use bonds in a different way. We use bonds so that they mature when our clients need the money, as opposed to trying to bolster the portfolio. And so I thought that was a pretty verifying thing from 2022.
Justin Dyer (07:34): Yeah, yeah. Much more targeted portfolio construction is how we do things, and there's a lot more meaning behind that, I think. And if you can understand that, and really wrap your head around that, it's a powerful conclusion.
(07:50): There's a great quote that says, "Markets tend to fool most people most of the time."
(07:55): I think that's exactly what you're trying to get at, and I think you did get at, where it is interesting to talk about all this stuff, and you will see some people get 2023 right. I'm sure we could go find someone who got 2022 right. The devil's in the details with something like that, and the repeatable nature.
(08:19): And you mentioned it's not tradable, and this stuff isn't. That's where it becomes really, really tempting, if you will, because often you'll get the little sound bite, "Oh, this guy predicted the great financial crisis," which was 15 years ago now, and now he's saying, "Hey, prepare for the worst."
(08:39): And you'll get that little ad on whatever Yahoo Finance or Wall Street Journal. I'm sure everyone's seen them. And that is just not indicative of any repeatable sound investment strategy going forward. We always take the stance that the way we define success is making sure you can meet your priorities in the most predictable way possible.
Brandon Averill (09:04): Right.
Justin Dyer (09:06): Chasing predictions is not predictable whatsoever. Trying to predict the future, trying to pick stocks. Same idea. So that's the nuance, is that we want to build portfolios. We want to structure your entire net worth in a way that has the highest probability to meet your priorities. That is, at the end of the day, how we view success and define success. And hopefully that's something that people can really anchor on as we go into the new year.
(09:35): There's still is a lot of uncertainty out there, but knowing that the portfolio, the way in which we use bonds, what's called a liability driven approach, is one that increases the probability of meeting your priorities, as opposed to just throwing darts against the wall, if you will, or trying to read the tea leaves and predict where markets are going to go. Is Tesla going to be the darling this year, or is Elon Musk going to blow it up more? Who knows, right?
(10:05): There are all these funny games that people try and play that just don't have this element of confidence, or increased confidence, if you bring them into your overall financial structure.
Brandon Averill (10:18): Yeah, totally. And I think it's a good reminder for people that this isn't natural. I was actually listening to a podcast with James Clear, the author of Atomic Habits, and Dr. Peter Attia, and they were talking a lot about habit formation, and our ancestors are built for the short term gratification. If you're a hunter gatherer and you go out on a... You want the quick hits, right? There's no saving for-
Justin Dyer (10:46): That's a great point.
Brandon Averill (10:47): - a hundred years from now, or there's no saving for retirement. That just didn't exist. So we're physiologically built, our brains are built, in a way that is very difficult to think about delayed gratification.
(10:59): And I think it's the same thing here. And so you're going to hear us talk probably a lot this year, and try to remind everybody listening that we do have to take a step back, and we have to shift our brain a little bit and remind ourselves that what we are trying to accomplish is meeting our priorities, and a lot of those priorities are down the line. And we're going to try to protect ourselves from getting caught up in the, hey, did we get that quick hit? Or are we expecting to hit the lottery that...
(11:28): And a lot of times when we try to do those things, we put the whole picture at risk. And so that's what we're going to try to continue to go back to, hopefully, over the course of the year. We really want to focus you on reminding how we're actually building your portfolio, how we're trying to help you to meet your priorities. And so hopefully those are the themes that we'll hit on this year.
(11:53): And we'll close out for today by... Along those lines, if you have questions around how we're actually implementing these things, or even if there are other topics you want to hear about, how they incorporate into the overall plan, shoot us a text. You guys know the number by now, hopefully. 602-704-5574. We'd love to address it, and we'd love to reach out and just talk to you about it.
(12:19): So until next time, own your wealth, make an impact, and always be a pro.