How Robust Planning is Positioning Your Portfolio for Success | AWM Insights #142
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Episode Summary
As new economic data is reported and forecasts are updated, it’s easy to get lost in the constant flow of information. You will hear things from just about every source out there. But does it matter? What info is important to pay attention to?
As entertaining as markets can be, it’s imperative to remember that markets serve you. It’s not the other way around as the rest of the industry sometimes presents it.
Taking your situation, priorities, and needs FIRST, and then factoring in market information is the only way to confidently achieve your goals.
Removing step one or pushing it down the list only leads to a less personalized approach that will not give you the same level of certainty as a robust and tailored solution. You deserve to have a strategy built around you and what truly matters in your life.
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
1:17 What is a Soft Landing and how would that impact markets
3:38 Why timing and predicting the impact of data doesn’t work and is the wrong game to play
4:06 How AWM builds portfolios for your success in a more robust and tailored way than the rest of the industry
6:32 Why building portfolios in this fashion gives you true confidence of success
7:51 What do proper planning and portfolio construction lead to
9:15 Why it “pays off” and gives clients peace of mind to implement this complex framework
12:10 Text us!
+ Read the Transcript
Brandon Averill (00:04):All right, almost the end of January and we're still going here. I can't believe the years just already flying by. We're on the verge of tax season, on the verge of spring training. There's a lot going on. And this week's no different. We've got earnings coming, we've got a Fed meeting. I'm sure I'm forgetting a few other things. There's all kinds of stuff going on. So I think there's no shortage of things for us to talk about today, but there's been a lot of talk out there just around stuff like what's a soft landing? Are we worried about the debt ceiling? What's a short seller? We're seeing these news topics across the board, and so I thought it'd be good maybe even just to go through a couple of these different things, Justin, and just talk about what are these terms as clients that are listening, hear these in the media.
(00:56):How do we think about them? There's probably a pretty good guess if you've been listening to us for a while, but they aren't things that we just put our head in the sand, we still pay attention to and we still have a perspective on. So maybe even starting with what's a soft landing? I think that ties into Fed rates. Maybe just even start there. Define what's a hard landing? What's a soft landing? What the heck are they even talking about?
Justin Dyer (01:20):Well, hard landing's one you feel, and I've got my radio voice on today, so apologies if I sound off. Short of it, soft landing is the Fed basically organizing, or orchestrating is maybe a better word, a coordinated controlled slowdown in the economy to a point where it does not go into a recession. That's my own definition, I don't think there's a textbook definition, although probably there is a textbook definition or a textbook out there that tries to specify it. But what the topic is being brought up to touch on is because of what the Fed has done and interest rates skyrocketing to combat inflation, typically interest rates going up slows down the economy. It increases the cost of borrowing. In the simplest term, hey, mortgage rates are a lot higher than they were six months ago, 12 months ago.
(02:20):And so that pushes down demand. I'm using that as a very isolated example, but extrapolate that across the economy and it pushes down demand. The Fed is trying to thread this needle to push down demand so it can push down inflation, but do so in a way that it doesn't crash the economy to a hard landing. And why this is coming up in the news right now is that the more recent data appears to support this soft landing narrative, whereas it was only, gosh, four or five weeks ago we were talking about right before we got on, I think we had a discussion, are we in a recession? What does that mean? Et cetera, et cetera. Now the narrative hasn't completely changed, but it's changed fairly dramatically in the span of really three, four weeks. And that's one thing I love about this industry and this job is there really is never a dull moment. You tee that up at the outset. There's always an interesting dynamism in the market and things change incredibly quickly.
(03:23):There's a lot of data that is coming out. We're recording this earlier in the week, we'll know a lot of this by the time I think this gets released, we'll have some clarity and it could totally change.
Brandon Averill (03:34):Sure.
Justin Dyer (03:34):It literally could change by the end of this week because of the potential magnitude of some of this data coming down the pike.
Brandon Averill (03:41):Yeah. And I think that's the point, information travels super fast, it's very efficient. So we've talked about this before, but trying to guess where things are going to go is one thing, trying to get that right is hey, what does the Fed say? How does the market react? All those types of things. But then there's the execution piece of it, which is even more difficult at times. So I think you could get lucky and get it right, but then actually executing upon that luck a lot of times is pretty difficult. And so that's why it does tie back to financial structure as you guys are probably catching on by now, but it is why we build the portfolios and the way that we build them, is really understanding everybody's priorities, everybody's different, and we know what it costs to fund those priorities. And then we match that up in building a very unique customized portfolio to people. And one question we got over the past couple of weeks is, Hey, everybody does goal-based planning. That doesn't seem too novel.
(04:41):And yeah, we totally agree. And it was several years ago that we "saw the light" I think for a long time. And that's what the industry teaches is, Hey, do this goal-based planning, do something called a Monte Carlo, give yourself a percentage and 80% chance or 90% chance of success. And I think it's what hit us is there's a better way, there's a better way to actually understand specifically what the priorities are, what those priorities are going to cost to actually fund, and then build a portfolio around that. So it is different than what the industry talks about goal-based planning. And maybe in the coming weeks we can dig into it deeper. But I did want to address just that when you are seeing all these news events, the Fed is moving things around, et cetera, they were taking a very tailored approach to building that protective reserve and allowing you to be conservative where you need to be conservative and as risky, if you want to call it that, or growth oriented is probably the better way of putting it in the best way possible as well.
Justin Dyer (05:47):Yeah, completely. I think just piggybacking on the topic briefly of goal-based planning, I think like you said, we'll get into a little bit more nuance and detail of that, but typically what happens is that leads to a cookie cutter type approach where portfolios are literally just grabbed off the shelf. Is that terrible? No, I won't be too hard on that, but you use the word there's a better way. And that really is where that's led us to a liability driven or priorities driven approach and custom portfolios. We'll get into the neat details of all this stuff, but those custom portfolios allow far better outcomes. They should allow far better outcomes and allow investors and clients to weather this storm, whether or not we have a soft landing, going back to the topic of the day, soft landing or hard landing, it's a more, I use the term robust, I think it's a more, there's more confidence, there's more strength is a good word to use in that approach to give that staying power, to have it uniquely dialed into each and every individual.
(07:05):No two people are the same. And our industry does view people like that. You get a risk tolerance score or you look at your age and you do take into account your goals and things like that. But it's only, I don't know, 75% of the way there if you want to slap a number on it, that's an unscientific number. But really the way we view it is it's a more wholesome, qualitative and confidence inducing approach.
Brandon Averill (07:34):Yeah. And I think it's a good point. Most financial firms are built to scale, and that's great. You need to put together advice for masses. And so this more cookie cutter approach is not, like you said, it's not bad, it's just the element of where they're at for our clients listening, that's the benefit of the multi-family office. A little bit more attention to detail with your specific situation. We're going to build a very customized approach to you because we don't have to do it for a thousand clients like a lot of firms do, and provide a very valuable service to that clientele, but it is something that does become afforded to you as your wealth grows and you're able to work with a firm like ours. So I think that's a good thing to mention.
Justin Dyer (08:17):One thing, just to wrap up the goals-based topic we're talking about here. I was actually in San Francisco last week meeting with some venture capitalists, met with one of them and was having this conversation, how do we construct portfolios? How do we allocate to venture capital, et cetera, et cetera? Pulled up our platform in which we do this and walked him through it. He's like, oh, wow, that's a lot more sophisticated than even he does it, his money management. So just a little bit of a teaser, know that, that there's a lot of thought, a lot of sophistication that goes into a more priorities driven, liabilities driven, custom tailor made approach.
Brandon Averill (08:54):And I think what it ultimately might be able to provide in a lot of scenarios is if you have a really good understanding of how your portfolio can be constructed, going back to the conservative where you need to be conservative, you have that right protective reserve in place, you can then maybe have some confidence to reallocate money towards higher expected returns. And you start to think about the compounding effect of that over time. If you have money sitting in, let's say treasury bonds, when that money could be allocated to the US stock market for a long period of time, and we're talking about exponential difference and millions of-.
Justin Dyer (09:31):Totally.
Brandon Averill (09:31):... of difference-.
Justin Dyer (09:32):Over long periods. Yeah.
Brandon Averill (09:33):... depending on the size of your portfolio. So it really does pay to get very sophisticated, and that's our job. That's not you guys listening and gals listening to this is, Hey, I need to know specifically how much to be allocated to, that's our job, to understand your priorities, interpret that, and then optimize that portfolio so you do get access to those returns that you deserve.
Justin Dyer (09:56):Well, and then hopefully in these conversations on this podcast and even one-on-one conversations, we give that the context to why the portfolio is built the way it is, and it hopefully gives you that staying power when we're talking about, or you're reading about, okay, are we going to be in a soft landing or a hard landing? Are we going to hit the debt ceiling.
Brandon Averill (10:15):Yeah.
Justin Dyer (10:15):There's all sorts of headlines around that. Markets typically do okay when there's a defined date, that's why you've seen markets rally. It's shrugged off this whole debt ceiling debate. I think that's a little bit more of a political gamesmanship, at least right now. But these are scary headlines and it's okay, it's natural to react to them. But if you understand and we really want to emphasize that, call us, shoot us a text. We gave you guys the number, ask the question so you have that confidence and understanding. We don't want you to be experts and be able to do this yourself. That's what we enjoy and what we love talking about on a day-to-day basis. But we want you to see those headlines and understand how it applies to your portfolio and give you that confidence and that staying power to realize those long-term returns.
Brandon Averill (11:06):I think that's a fantastic point, and I think as we look this week ahead, you're likely to see a lot of volatility because there's a lot of information coming, and we know that the markets, if they're functioning well, they're going to develop that or they're going to absorb that information, they're going to adjust prices to reflect the available information. So don't be surprised if you see everything bounce all over the place, but hopefully through this discussion and your discussions with advisors, et cetera, you have a lot of confidence in knowing that, hey, even when all hell seems to be breaking loose, or maybe not, maybe it's all great news-.
Justin Dyer (11:44):Maybe not. Yeah.
Brandon Averill (11:44):... and everything goes up, or maybe it's terrible news and everything goes down. You have a financial structure in place that's very specific to your priorities and it allows for the best, most optimized return over time, which is ultimately your personalized benchmark of achieving your priorities because money's just a tool, as we all know. So we'll wrap up for today, but again, Justin just mentioned it. We've got that text, we got that phone number you can text with questions. I'll just remind it again, it's (602) 704-5574. We'd love to hear from you guys and we'd love to tackle some of your questions and topics in future episodes. So until next time, own your wealth, make an impact, and always be a pro.