Will Biden’s $1.9 Trillion Stimulus Plan Impact My Portfolio? | Erik Averill, Brandon Averill, Justin Dyer | AWM Insights #45
Enjoy AWM Insights? Leave us a 5-star rating & review to help others like you discover the show!
Episode Summary
After yet another week packed with events including president-elect Biden rolling out a $1.9 trillion stimulus package, big tech bans, and Bitcoin hitting an all-time high and then losing almost a third of its value shortly thereafter – Erik, Brandon and Justin cut through the noise to help you navigate through the most recent financial and investment news.
This week, they discuss the potential impact of the stimulus plan and a Democratic-controlled government on the markets, the dangers of holding individual companies or countries, and the benefits of taking a long-term, evidence-backed approach to building multi-generational wealth.
Episode Highlights
Unpacking the week’s events (00:01)
What might the stimulus plan do to my investments? (1:25)
“Multi-generational wealth requires discipline and long-term thinking to allow that compounding effect to take hold.” – Justin Dyer
What would you have done in January 2020 if you had the magic crystal ball? (3:41)
How long do you sit on the sidelines? (5:18)
Warnings against trying to pick individual stocks or countries (6:23)
Bitcoin and FOMO (7:23)
Focus on what you can control (8:04)
The three most important things to focus on in investing (9:20)
The dangers of chasing returns (10:53)
Which country was the top performer in 2020? (11:48)
When to take measured risks (13:48)
“Why do you invest? Are you investing to grow your wealth, or are you investing for entertainment?” – Brandon Averill
Is a united government bad for the stock market? (14:56)
“In a time when you feel like there is a lot of uncertainty, you know what is really risky and dangerous? Holding an individual company.” – Erik Averill
Stay Connected
AWM Capital: IG | LinkedIn | Facebook | AWMCap.com
Erik Averill: LinkedIn
Brandon Averill: LinkedIn
Justin Dyer: LinkedIn
+ Read the Transcript
Erik Averill (00:01): Hey, everyone. Welcome back to another episode of AWM Insights. It's your power three, two CPWAs and a CFA. We are Erik, Brandon, and Justin. Each week, we cover what you need to know to capture the returns you deserve and invest like a pro. The markets continue to be filled with updated news that we are trying to figure out as investors, what is going on in our portfolios, and what we've seen in just the last seven days is. In a 24-hour bout, we watched Bitcoin go from an all-time high of nearly 42,000 to losing almost a third of its value. We've seen big tech bans happening, Trump being impeached for the second time. Labor markets are weakening. Then last Thursday, president-elect Joe Biden rolls out his $1.9 trillion stimulus package. There's a lot of questions going on that we want to help demystify and cut through some of that noise, first starting with the stimulus package. We have received some questions from clients regarding a weakening dollar, potential inflation, and just how this monetary stimulus could impact their portfolios. We're going to start there, tell you what you need to know.
Justin Dyer (01:25): Yeah, I'll jump in here. On the stimulus side, often the question is, "Well, we're adding money to the national debt. What's that going to do to portfolios?" or, "That means the dollar is going to weaken, and inflation is going to take off. What's that going to do to my investments?" The short answer, and I know we say it all the time, is we can't predict it, really. Really just unpacking that more, the reason why we can't predict it is there are so many variables in that question. It's not just, "Hey, Biden's proposing $1.9 trillion of additional debt, essentially." It's, "What are the second, third, fourth degree impacts that that might have on the economy?" Add to that we don't even know the events that are going to happen in the future.
Justin Dyer (02:21): Flashback to this time a year ago, no one probably would have guessed... Maybe some people around this time would have guessed that there could be a pandemic, but that was so far out of the realm of at least our mental concept of what's possible in the year ahead, yet it was the dominant factor, if you will. At least until November of last year it was the dominant factor or event in 2020. It's so hard to really isolate truly what will influence markets in the economy in the year ahead or the years ahead.
Justin Dyer (02:57): There's no doubt that $1.9 trillion stimulus is significant, and we should pay attention to it. We should see what's going on with inflation. We have diversified assets in portfolios to protect against things like that, but trying to make a significant bet or call one way or another based on a singular event, albeit important with respect to this stimulus, is just not a prudent way of investing, especially for the long-term investor. That's a critical thing to underscore, at least on these podcasts and for our clients. Multi-generational wealth requires discipline and long-term thinking to allow that compounding effect to take hold.
Brandon Averill (03:41): Yeah. I think to even further go on that vein, Justin, what if January 1st of last year I gave you the cheat code? I gave you the crystal ball that actually worked. We saw that we were going to lose hundreds of thousands of people to some virus that originated outside of the U.S. I won't go down that path, but let's just pretend that I told you all these hundreds of thousands of people were going to die. Then I told you-
Erik Averill (04:07): Short sold the market.
Brandon Averill (04:08): Yeah, we're going to have a divisive government. We're going to have a leader that just manages emotions one way or the other. People are going to divide. It's going to end up with a whole group of people storming the U.S. Capitol. If you've got that crystal ball, you know all that's going to happen. What are you going to do? Erik, you hit the nail on the head. I'm selling out. I'm getting out. There's no way that markets are going to do well. What we all know in hindsight is that would have been the absolute worst thing for you to have done. If you would have done that, the repercussions on your long-term returns are absolutely destroyed. I think that's what people don't understand. When we turned to the whole election time and we talked about this, people got so nervous of, "Oh my gosh, what if there's a blue wave? What happens if Biden wins and the entire government is controlled by the Democrats?" You had people selling out prior to the election. What they missed out on in return is going to affect them for decades. It's just crazy.
Erik Averill (05:18): It's sad. I think of a conversation I had. He's not a client of ours. Back in March, they sold out. I had a conversation with him earlier this week. He was just like, "Erik, the truth is like, I listen to your guys' podcast," so shout out to who I'm talking about, "but I understand it's super fearful of, 'When you get back?' because it's inevitable. There is a correction coming." I tell him, "Yeah, it's most likely inevitable that in the future, the stock market will correct. It's just, who knows when? How long do you sit on the sidelines?" I think this is one of the things that we're really trying to help ourselves and our clients and you, the listener, work through is not allowing the news of today ruin your investment experience when you are a long-term investor, and taking a step back. As scary as the market can feel, that's news and media selling you advertising, not what's in your best interests.
Erik Averill (06:23): We have to remind ourselves as, "What does the evidence say? How are we allocated?" We would say is, "If all your money is invested in the United States market, and you are trying to hold on to dear life because you don't have a protective reserve, you've got no cash on the sidelines, your worry is legitimate. But if you take an approach to make sure that you're diversified, and you have a long-term approach, this is nothing new." It's why the mistake, and we understand, when people go, "You know what? The market feels so scary. I see Bitcoin over here, and it's up over 300% in 2020, that feels far safer," it could be further from the truth, or trying to go, "You know what? I know Tesla's going to make money," and you start to have this desire to want to pick individual equities. I'd love to hear just your guys' warnings about trying to pick individual stocks or individual countries.
Justin Dyer (07:23): Well, I would just jump in and say hindsight's 20/20. Usually, what is driving that is FOMO. We've used that word, fear of missing out, or that phrase. You're seeing what's going on with Bitcoin, let alone the actual market structure of Bitcoin, which is getting a little bit too geeky on the finance side, but there's some interesting things there. The actual volume that is traded within that marketplace is actually pretty... It would be concerning for me as an investor.
Brandon Averill (08:04): Well, I'll jump in and save you a little bit here, Justin. One thing that you triggered, Erik, for me was, probably because we did a little session on focus this week, but stats... We are bombarded with 4,000 to 7,000 messages per day. We've got a saying around here, "Focus on what you can control." All those messages, all those advertisements are doing is trying to pull you off of that focus, drag you into FOMO, drag you into, "Hey, I'm going to see Tesla a thousand times, so I'm going to go buy Tesla as my individual equity." I think most people don't realize when you buy a company, you buy a stock, you're doing so because you have an expected return. You're buying a certain share of earnings. You're paying right now for Tesla. It's $1,600 for every $1 of earnings right now, whereas if you look at the entire market and what we know, are that value stocks actually outperform over time, Tesla is far from a value at 1600 for $1 of earnings. The entire market's, what, 20 times right now, Justin? Probably 20 to 25 times, depending on how you calculate it?
Justin Dyer (09:18): Yeah.
Brandon Averill (09:20): I think it's just going back and figuring out, "Hey, if everything's trying to throw me off focus, let's take a step back. Let's focus on what we can control, diversification because we don't know what the best-performing stock is going to be. We don't know what the best-performing country is going to be." Justin, I know you have stats around that, that you can get to in a second, but then focus on taxes and focus on expenses. If you do those three things, you're going to have a successful outcome.
Erik Averill (09:46): Before you hit those, Justin, here's what I would say that's kind of gimmicky is FOMO, I don't want you to miss out. You should have fear of missing out because what we see, unfortunately, it's the way most investors invest their money in the public markets, is they absolutely remove their ability to be allocated to what will be the best performers because we can constantly say, "You know what? I don't know what they're going to be, but if I have the right type of investment mix and allocation, I will have exposure to them, and if I don't..." you're going to crush your returns.
Erik Averill (10:20): It's one of those things that we try to encourage our clients that once again, we're an independent, open architecture firm, meaning we don't care what you invest in. We actually want your portfolios to grow to maximize your wealth for maximum impact, that, "Here's just what the evidence says," and Justin's going to cover it is... Once he reads these lists, I would like somebody to please call me and say, "You know what? Those were the top 10. I had that nailed. If that's it, "That's great, man. Can you manage my money for me?"
Justin Dyer (10:53): Right. I'll tell you the top countries in a second. I just want to underscore, I think, what touches on exactly what we were just saying. What's so important for us as investors, long-term investors especially, which is our clientele and what we focus on, is having a philosophy, having a plan and portfolio management approach that supports that philosophy, and sticking to it. You don't want to be driven off course. What happens when you see Bitcoin, you see Tesla, and you start to chase returns, you are going off course. To Erik's point, it's diverting you from participating in the areas of the market that actually give you compensated returns. Going over to the country side, we want exposure to these countries. We just don't know ahead of time which ones are going to outperform.
Justin Dyer (11:48): Guess what? Last year, it wasn't the U.S. Now, parts of the U.S. market performed fantastic. That's just a sliver. Again, knowing that ahead of time is all but impossible. U.S. was sixth in line. Number one was Denmark, little, old Denmark, almost 43% rate of return, just under that. Then we had Sweden, Netherlands, Finland, and New Zealand all ahead of the U.S. On the emerging markets side, overall, emerging markets actually did really well, almost in line with the U.S., but within that, Korea was the top-performing country, even if you look at developed markets as well, 46% rate of return, Taiwan at 39% China, 29%. You want exposure to those countries, and you don't know ahead of time... To your point, Erik, again, who had Denmark as their number one country at the beginning of 2020? If you did, let's go to Vegas, I guess. Right?
Erik Averill (12:48): Yeah. I think to your point, as you read these countries, what we're saying is one of the best things that we can do at times is to actually zoom out, take a look at, "What is it that we're trying to achieve?" It is to grow our wealth in a risk-adjusted way, meaning, "What does the evidence say?" We have this tagline, "To help you capture the returns you deserve." It's because you've worked so hard for this money that we don't want you to miss out on what the evidence says. This is standard knowledge. This should be your default. The problem is it's insanely difficult to do because of the 6,000 messages that are telling you, "Trade your account. You're missing out," short-term thinking, "The U.S. has been the best performer over the last umpteen years, minus..." That's just not true. They're not pulling off the Denmarks of the world, but it's this desire of, "Oh no, I need to do something."
Erik Averill (13:48): Well, if you've saved your money, and we have money set aside, I promise you, you let compound interest happen, you invest in globally-diversified portfolios, you're going to end up in a great position. Once again, take risk where the evidence proves you can have these out-performance, these exponential returns. This past week, we saw Poshmark go public. Then in one day, it's up 140%. First off, most people have no idea what Poshmark is. They're starting to pour into it and driving the value up. Now it's this FOMO. What we are cracking up about is we had an opportunity to actually sit down with the founder of the company, I think, two years ago when we were up in the Bay Area as part of one of our educational days, and hearing him talk about how they switched the model over the years, but you know who made the money? The people that were invested when it was private. That's what we've talked about so often on these podcasts is making sure that you're taking the risk that you should and nothing more.
Brandon Averill (14:56): Yeah. I think the other thing about that, Erik, when you look at this too, I would challenge anybody listening to this podcast right now to ask yourself the question, and that's what you just really alluded to, is, "Why do you invest? Are you investing to grow your wealth, or are you investing for entertainment? Because if you're investing to grow your wealth, then you need to do it with an evidence-backed way and not allow all these messages to bombard us and mislead us, quite frankly." We heard a fantastic set of data a couple of days ago that... Shoot, I was susceptible to it. I heard these arguments and believed it up until I looked at the data, and the argument is is that a controlled government, a united government is bad for the stock market, and especially this one.
Brandon Averill (15:53): When we look back at the data, there were... I think it was something... 14 times the Republicans controlled government, there were... Over that period of time, the average annual return was 14.52%, fantastic, a fantastic return. you're sitting there, going, "Okay. Well, maybe divided government isn't so good. Well, it's got to be the Democrats' problem. They're the ones that cause all the problems." While they've controlled government somewhere in the middle 30 times, call it 34 or 36 times, the average annual return over that period, 14.52%. To me, it was just striking.
Justin Dyer (16:33): It's unbelievable.
Brandon Averill (16:33): The message is out there telling us that it's horrible to have a unified government, and yet the data says something completely different. You need to take the emotion out and really answer the question, "What are you trying to do with your wealth?"
Justin Dyer (16:48): You're highlighting those statistics not to say that the next four years are going to be fantastic at 14% rates of return. Hey, let's hope so. That'd be great.
Brandon Averill (16:55): That would be awesome.
Justin Dyer (16:57): It's predicting it and drawing conclusions based on your political inclinations or what you may be hearing in the media. You got to take a step back, look at the data, understand that we are super emotional. We're being bombarded with an insane amount of advertisements and noise to get our attention each and every day. I would also just underscore that when we're talking about Bitcoin, Tesla, individual stock picking, and compensated risk, really, it's a confidence spectrum. We're saying, "We know these other things are going to be highly likely to generate positive outcomes or generate the returns you deserve," to Erik's point.
Justin Dyer (17:44): "We don't know that the same is true on the other side, on the Bitcoin, on Tesla, on Poshmark." Clearly you see some of these companies performing well. It's just picking that ahead of time is a very, very low confidence exercise. Where do you want to put your money at risk, and that money, again, that you've worked so hard to build, and you're trying to preserve it and use it to meet certain outcomes that you've expressed to us? At the end of the day, that's what's most important, not whether you pick the next Tesla.
Erik Averill (18:21): A professional portfolio is built in a way that has experienced world wars, that's experienced pandemics, that's experienced assassinations, planes flying into buildings, is... A lot of times as investors, we act as if everything's going to be perfect and we should never see negative, temporary declines in the markets. I don't say losses because they're not guaranteed losses until you sell when you shouldn't be selling. I think to your point, Justin, is what we would implore our listeners and our investors to... In a time when you feel like there is a lot of uncertainty, you know where it is really risky and dangerous? Is holding an individual company, is a Tesla.
Erik Averill (19:04): As great of a performer it is, it has a lot higher ability for your money to go to zero holding that one stock than it does in a globally-diversified portfolio. You got to ask, really, "Is the juice worth the squeeze?" I think as investors, we appreciate your guys' attention. We know that these are difficult times. We're paying attention to the same stuff you are. We're asking the same thing because our family's futures are invested as well. We love spending time with you guys. If there are questions that we haven't answered, we'd love to hear from you, awminsights.com. Until next time, stay humble, stay hungry, and always be a pro.