The Multigenerational Mindset | AWM Insights #152

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Episode Summary

Athletes and Founders are playing a different game that has its own unique rules and boundaries, from your unorthodox career path and service time to the magnitude of impact your earnings can have. 

With the distinct nature of your lives, it is vital to take these rules into account and use them in your favor to maximize your impact. In many cases, this leads to establishing wealth that will outlive you. 

This enduring influence must be built around what you value and prioritize and be guided to adapt to the known uncertainty of tomorrow. 

This episode touches on how we build portfolios with a multigenerational mindset, and why we use your individual goals as the backbone of your financial structure to create a precision and robust solution that gives you the confidence to succeed. 

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 

  • 0:40 What do we do when building custom portfolios and why is our process different and more complex? 

  • 3:33 How do we break out each of your priorities to create a precise portfolio? 

  • 4:45 How the level of importance of a priority changes the assets and strategies we use? 

  • 5:47 Having a multigenerational perspective changes portfolio construction 

  • 7:33 Precision leads to confidence 

  • 9:29 Planning helps you capture the illiquidity premium while avoiding cash crunches 

  • 10:10 Text us

 

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Justin Dyer: LinkedIn
Brandon Averill: LinkedIn

+ Read the Transcript

Brandon Averill (00:10): All right, back for another episode here of AWM Insights, new location. If you are watching on YouTube, you see the background. We're in temporary space, but the background might not change because we're going to have hopefully beautiful brick walls downstairs as well.

Justin Dyer (00:22): Yeah.

Brandon Averill (00:23): But what we're going to focus on today is a comment that actually came from an internal source, so we got to give Eric his credit where credit is due. But we talk a lot on this podcast, Justin, about building a portfolio for clients because that's who's listening, and we talk a lot about building a portfolio that is really specific to their priorities and how we achieve that. And Eric kind of tongue in cheek said, yeah, you know what? Everybody says they do goal-based planning.

Justin Dyer (00:50): It's true.

Brandon Averill (00:51): So we thought it might be good to just dive a little deeper today and really talk about what do we mean by achieving your priorities, and what does it look like to actually build a portfolio in a way that goes towards those? Because I do think it can get lost a lot of times. I mean, it is the standard language out there that, "Yeah, of course we do goal-based planning," and what we're talking about is for those listening, we do not inherently do the goal-based planning that most people think of. We really design portfolios that are very specific to you the end client.

Justin Dyer (01:27): Maybe we start with what is goal-based planning in a nutshell.

Brandon Averill (01:31): Sure.

Justin Dyer (01:32): We're going to really try and keep it high level in this conversation, but I would say in my definition, goal-based planning is essentially sitting down with clients, having a conversation of what your goals are, what your priorities are, putting those into some sort of spreadsheet-based tool with inflation assumptions, market assumptions, et cetera. And basically the goal is to figure out a required rate of return or target rate of return for your assets that you have saved in order for those with some level of probability. That's Monte Carlo too. We're not going to necessarily go down that rabbit hole. Maybe we'll pick on that a little bit. But with some element of probability how your assets can support really that singular rate of return. And that's it. And it's not terrible. I think it's a lot better than blindly picking stocks as an example, or blindly buying ETFs or bonds that really don't roll up to some greater purpose. But there really is a better, more robust way, which is what we're going to get into.

Brandon Averill (02:46): I think that's a fantastic distinction, because we've hammered on previously why we don't just pick a 80/20 portfolio, 80% stocks, 20% bonds, or 70% stocks and 30% bonds, but really maybe without a whole lot of explanation, the way that most advisors get to those allocations is this goal-based scenario, right? And so you sit down and you lay out with your advisor these goals that you want to achieve, you arrive at a rate of return. Those portfolios all have an expected rate of return, and that's where you get slotted into. And what we're saying is rather than do that, we're getting pretty granular with every priority that you have, and then all of those priorities roll up into a very specific portfolio. So maybe give an example there, Justin, somebody says, "Hey, I want to buy a ranch in Montana in 15 years." And you know what? I understand some things have to go well, but that is something I want to do. How will we look at that?

Justin Dyer (03:46): Yeah. I think this whole conversation really is one around precision. So goal-based planning rolling up into an 80/20 portfolio, 70/30, whatever it may be, that has an element of precision that's not complete in our opinion. And to answer your question, essentially every single goal or priority that a client of ours has, has its own asset allocation, its own asset really. So the ranch in 15 years, because that's 15 years out, and part of this too is, "Okay, well how important is that?" Is this a, "Hey, I want to make sure this happens regardless of what is going on in the market in my career with my company, with my contract playing, et cetera," right? There's an element of, let's call it importance that comes into the equation as well, not just time, but essentially we take those two variables, time and importance, and then build an asset allocation specifically for that goal.

(04:45): So that ranch in 15 years, let's say hypothetically, this is a come hell or high water, we want to do this. This is one of the most important things. It's a lifelong goal. Well guess what? We're not going to take a lot of risk with the asset allocation that supports that goal. Conversely, if it's a, "Hey, it would be cool to happen, maybe 15 years, maybe 20, we're a little bit flexible." Well then that tells us we have some ability to take a little bit more risk. And the asset allocation to support that goal would probably have a combination of equity and some fixed income as well involved with it. But really I think the takeaway here is each and every goal and priority based on those two variables I talked about, time and importance has its own very granular specific asset allocation, or you can think about it portfolio essentially, right? There's an asset allocation that matches and supports that goal with very high precision and priorities.

Brandon Averill (05:44): And I think that's important. I think when you also had hit on at the very beginning, it's not terrible, this traditional goal-based planning. I think it's actually probably fairly good for the masses, right? But for clients listening, you aren't the masses. You already know this highly complex situations, and then many of you are on this path. For us, what we're passionate about is really working with multi-generational families. And where we see this start to, the traditional goal-based planning that is, fall apart is if you have more resources than you're ever going to need in your life, you don't have priorities to eat up all of the resources you've generated, all the money, all the investments, then what would it actually do? It would return actually a required rate of return that's extremely low. So the traditional thinking may say, "Hey, you don't really need to grow your money all that much to achieve what you want in this lifetime, so let's take very little risk."

(06:38): On the flip side, we think about it differently because we're thinking about it multi-generationally, right? What that ends up doing is actually taking those resources that you need in your life. Sure, we want to protect those, manage those in a way they provide for you. But if you're thinking 2, 3, 4 generations down the line, allows you to actually be a little bit more growth-oriented where you can take some additional risk and expect higher returns, but have an allocation maybe to venture capital or private real estate or things that are going to grow at a more advanced rate long term.

Justin Dyer (07:13): And I want to hit on something you referenced for our clients. There's let's say a level of wealth to describe it simply I guess, that allows you, affords you listeners, clients of ours, the ability to have more precision within your investments. It's really, really important. Another way to think about it is the industry has gone to this more kind of cookie cutter goals-based approach because it's scalable. It's okay on the one hand, it's a fine solution, like I said, but it's scalable. All of these tools have been built to support that, whereas we are saying, "Hey, you know what? We're investing the time and our resources to get something that's more precise for you, our end client that gives us a higher level of confidence, whatever it is." Maybe it's wealth goals or just buying the house a year from now.

(08:10): We have a lot more confidence in the way in which we're building portfolios. We're layering asset classes for each specific goal that you have, and it gives a lot more, I always use the term robustness. That's a academic term that I get made fun of sometimes, but it allows us to walk away with a lot of confidence to make sure goals and priorities are met. Because at the end of the day, that's how we view success.

Brandon Averill (08:37): I think it's important, and maybe just to wrap a bow on this is really conceptually when you're thinking about it, you hear goals-based planning. Yes, we're trying to achieve your goals, right? But we're very intentional about using the word priorities because it is different and it is achieving that precision, and it's also why we spend so much time identifying your priorities because it really matters when we roll everything back together, right?

Justin Dyer (09:01): Yeah, totally.

Brandon Averill (09:02): And to your point, Justin, by doing this, by having this precision, what it allows you to do, and I hit on this earlier, is really allocate as much money as much of your resources to growing this multi-generationally, being able to solve those problems and really kind of end that shirt sleeves to shirt sleeves, pass these resources that you've worked so hard for down and it allows you unique opportunities.

(09:27): We've hit on the private markets and venture capital in the past, but without having this level of precision, you're kind of shooting in the dark with that stuff quite a bit. And if you're allowing yourself with precision to tie up your money a little bit longer term with a level of certainty that you can continue to show up. We're seeing in the venture capital space right now, may well tease us out for next week, but there's a lot of people pulling out of the market because they didn't have a really good idea of what they could actually hold themselves accountable to and continue to participate in the venture markets year over year. And if you have this level of precision, it gives you a much higher likelihood of being able to do so. So I guess that's the tease out for next week, but we appreciate you tuning in. Again, we've got that text phone number, (602) 704-5574. We'd love to hear from you guys. But until next time, own your wealth, make an impact, and always be a pro.