Where Should You Get Financial Advice? | Brandon Averill, Erik Averill, Justin Dyer | AWM Insights #81
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Episode Summary
There are millions of places to find mainstream investment advice across television, books, social media, newspapers, newsletters, and friends. The problem is that this advice is almost always inappropriate for you - and often objectively wrong or misinformed.
The best in the world seek only customized financial advice specific to their own situation and free from conflicts that plague Wall Street.
With markets experiencing a pullback from all-time highs, it is a good time to ensure your advisor has the expertise, experience, and structure to grow and maintain your family's wealth for the long-term.
Episode Highlights
(2:00) The S&P 500 is up 16% year to date, 31% over the last one-year period, and 120% total return over the last five years. Perspective matters on pullbacks and corrections.
(3:30) The world’s wealthiest family, The Walton family, worth around 238 billion, owns ETFs in their top 10 holdings. You don’t have to own individual stocks to grow and sustain wealth.
(3:53) Tom Brady launches his clothing line and his 21 year age gap with Mac Jones.
(4:50) Credit Suisse dumping the debt of Evergrande, the Chinese real estate company in danger of defaulting on their obligations, to their private wealth clients.
(6:00) The first step of investing like a pro, assembled an expert team doing what's in your best interest.
(7:45) UBS and other brokers do not have the ability to give tax advice.
(9:00) Conflicts of interest in financial advice and what you can do about it.
(12:00) Warren Buffet and the game he is playing. When he passes he has publicly stated many times that his wealth is going into index funds. He understands how hard it is to beat the market.
(13:55) The financial media does not have your best interest at heart. They know what sells advertising space and will exploit that to the fullest.
(15:30) The problem with Rich Dad Poor Dad and listening to amateur advice.
(17:45) What does the data tell us about expected returns at all time highs?
(20:50) How do you evaluate your true risks in investing and what gives you true control and clarity in your plan?
(22:15) Why we believe so strongly in doing what’s in our clients best interest.
Stay Connected
AWM Capital: IG | LinkedIn | Facebook | AWMCap.com
Justin Dyer: LinkedIn
Brandon Averill: LinkedIn
Erik Averill: LinkedIn | Instagram
+ Read the Transcript
Erik Averill (00:00):
Hey, everyone. Welcome back to AWM Insights, where we are here to teach you how to invest like a pro. I'm your host Erik Averill. And I'm joined alongside my co-host Brandon Averill and Justin Dyer. And each week, we cut through the noise of what Wall Street is selling you to bring you the knowledge, the skills, and the access that you need to invest like a pro. And so the topic that we're going to tackle today is who are you getting your advice from?
Erik Averill (00:28):
We are experiencing in the markets some, I guess you would say volatility, a temporary decline that has brought out all of the individuals who think that their crystal balls are going to predict the next market downturn, the crash, mass hysteria. They're trying to scare the crap out of you. And so today, we really just want to pull back the curtain of who should you be listening to, and how you should be making moves like a pro. But before we do, let's check what's going on in the markets?
Brandon Averill (01:04):
Yeah, Erik, I think if you're reading the headlines, we've had a difficult week and a difficult month, because the markets in the US markets declined about 5%. So news flash to everybody, that's actually pretty normal and a pretty healthy thing to be happening. But if you're going to log onto Yahoo Finance, or Bloomberg, or anything else, Fox News, you're going to see that, yeah, it's been a really difficult month. So overall, the quarter was essentially flat. And I just think, again, remember where you're getting your advice from, this is very normal.
Justin Dyer (01:41):
And markets are certainly up very strongly year-to-date. So let's always look at the long-term everyone, right? Let's always look at the long-term. And your year-to-date is not even long-term, but it's much longer than the past week or past month.
Erik Averill (01:56):
I was going to say just for context, because I'm looking at the numbers right now is, so we have this tough month, right? Year-to-date, the S&P 500 is up 16%, over the last one year it's 31%. Over the last five years, total returns is a 120%. So I think it's probably pretty normal, finally, somebody struck out for one month. But just for context, it's why we're kind of making light of the situation, and why we're going to jump into this topic.
Brandon Averill (02:27):
Yeah. And I think making light of it, it's a good thing to hit on really quick, because it could be the next downturn, and that would be fairly normal as well. And so this could be the beginning of a pullback that does hurt, but at least the current headlines we need to move on from. So to move beyond that noise, as we talk about often, back to some news out there.
Brandon Averill (02:53):
Really interesting, the Walton family disclosed its $5 billion in stock picks. And what we found out is that the world's wealthiest family is worth $238 billion. Actually, their top 10 holdings are held in ETFs. So they are indexers folks.
Brandon Averill (03:14):
You don't have to invest in individual equities to be rich. We know this, but just good evidence out there from a big news break this last week. We also saw the bipartisan infrastructure bill is being delayed. So not surprisingly, we've got the government boondoggling some more stuff and delaying things, but it will stay open until at least December, as we passed a last minute bill to keep the government open. So we got that out there.
Brandon Averill (03:45):
But switching over to sports, we also saw Tom Brady launching his own clothing line called Brady. So the winners keep winning, I guess. And we've got the weekend to figure that out, right?
Justin Dyer (03:58):
Using his human capital there. I mean, come on, I love it.
Brandon Averill (04:01):
Absolutely.
Justin Dyer (04:01):
And then we'll see. There's the matchup over the weekend when this airs, we'll know the results. But matchup against the Pats is the biggest spread in age between quarterbacks. Pretty interesting, over 21 years, isn't that... That's amazing statistic.
Brandon Averill (04:18):
That's wild, that's absolutely wild. Well, to transition us back to the topic at hand, where we're getting our advice. I thought this was a fantastic... Or no, actually a very sad headline to read, but Evergrande, as I was told it was pronounced, not Evergrande as it should be pronounced. Credit Suisse is a big bank, kind of like a Merrill Lynch or Goldman Sachs, or Morgan Stanley, they actually were the ones that underwrote a huge chunk of the bond issuance to this company.
Brandon Averill (04:56):
Reminder, this is a real estate company in China that made default on debt, et cetera. There's about $4.2 billion of those bonds still outstanding, Credit Suisse decided, hey, we want to get out of this business. This is too risky for us, so let's sell off this debt. And so what they did is, they called up other asset managers, hey, you guys want to buy this from us? Hedge funds, et cetera. But newsflash, the biggest thing they did, they went to actually their own ultra wealthy private clients and sold their debt to them. So Credit Suisse decided, hey, this debts not good enough for us, let's shove it down our private wealth clients' necks.
Brandon Averill (05:38):
So I think it just brings us back to, hey, if somebody is having you buy something, you might want to ask the question what the motivation is, because this is a pretty striking example of a big corporation that's putting their interests ahead of a client's interests.
Erik Averill (05:57):
Yeah. And in that transition, as Brandon you're talking about, really, the first step of investing like a pro is making sure that the team you surround your self with has this combination of expertise, experience and then... This sounds crazy, but has a structure set up that they're going to do what's in your best interest, right? You actually want someone who is measuring success the same way that you are.
Erik Averill (06:32):
And so is just as you talked about what we've seen on Wall Street, when we talk about cutting through the noise of what they're selling you is, they're playing a different game. Their measure of success is actually not your personal success. And so as we enter into these tumultuous times or potential tumultuous times that people are trying to freak you out about, instead of first just going croc brain and following the herd mentality, and just being like, oh, my goodness. It's take a step back, evaluate and go, okay, who in my circle is actually expert who has my best interest? And how do I start to have these conversations?
Erik Averill (07:09):
You know what's interesting, one of the other things that was laughable last week is the topic about the Biden tax proposals, right? The infrastructure bill and all of these changes, and there's all these questions out there about what's going to happen with taxes, estate planning? The other day, we had Goldman Sachs trying to provide tax advice to someone, UBS sends out a tax thing that gets forwarded to us.
Erik Averill (07:35):
And here's my favorite thing that I found in the PDF of the entire proposal on what you should do if you're an investor who is a client of UBS, Morgan Stanley, Merrill Lynch, Goldman Sachs, here's the punchline. They have this disclosure, neither UBS Financial Services Inc nor its employees, including its financial advisors, provide property and casualty insurance, tax or legal advice. You should consult with your legal counsel and or your accountant, or tax professional, regarding the legal or tax implications of a particular suggestion, strategy, or investment, including any estate planning strategies before you invest or implement. So your financial team is telling you to go talk to other financial experts before you make an investment decision. I think it's wild.
Justin Dyer (08:27):
So there's two important things I want to underscore here. The conflicts of interest that are rife within the Wall Street part of the industry. I mean the Credit Suisse example is a perfect example. It is unfortunate, but it's a fantastic example of just the conflicts that are inherent in these business models. Yes, they're going to tell you that they're going to put your interests first, but inherently, the business itself is conflicted because they have bonds on their books that they want to offload.
Justin Dyer (08:59):
The company owns them, and they have a ready and willing buyer in their direct clients that they can sell... Put some lipstick on a pig so to speak, and sell it to their clients regardless of net-worth status in some of these cases, which is... It's really unfortunate. I'll be honest, it doesn't happen all the time, but the conflicts of interest are there. It's ripe to take advantage of, and it's almost unavoidable, it's too easy for these companies to do it. So that's one, conflicts of interest.
Justin Dyer (09:28):
And then what Erik, you were just hitting on, is integration of advice. So we talk a lot about investing specifically within this podcast, but it's so much more than that. It's that integrated approach where we have the tax professionals, we're working with the property and casualty professionals as well. We're building portfolios in a comprehensive integrated way and providing you that advice. We are able to do that, we're independent of all these other conflicted sources, so to speak. And really, be able to give you the best advice that's in your best interest.
Brandon Averill (10:12):
Yeah. I think it's a fantastic, I mean... Go ahead, Erik.
Erik Averill (10:17):
I was going to say is, so it's this, we show this example of where the conflict is and the lack of integration. But equally, I want to return back up to one of the stories, Brandon, that you covered about the Walton family. What we do as a family office here in an independent open architecture platform is, we ask the question, what do the wealthiest people in the world know, and how do they deploy their investment advice? What they don't do, they don't need to try and reach for the moon, right? They actually get to have access to the best in the world.
Erik Averill (10:51):
And what do they do? They invest in index funds, exchange-traded funds, right? Because they understand in the public markets, what actually drives returns, it's not sexy stock picking. They don't go work with a Wall Street firm where somebody is trying to shove and throw their product down their throat.
Erik Averill (11:11):
Literally, it's the wealthiest family in the world and what do they do with their money? Publicly traded, global diversification, low cost, tax efficient. And then what else gets disclosed is they've got some venture holdings, shocker, right?
Brandon Averill (11:27):
Yeah.
Erik Averill (11:27):
Reach for the returns in venture and globally diversify, but there's no individual stock-picking. They're clearly not trying to predict the markets. And they've aligned with advisors that have their family's best interest.
Justin Dyer (11:40):
Yeah, totally.
Brandon Averill (11:41):
Yeah-
Justin Dyer (11:42):
Go ahead.
Brandon Averill (11:43):
Yeah, and you see that time and time again. I mean, we've gone back to it several times, Warren Buffett, right? Regarded as the greatest investor, probably of all time, et cetera. We all know he's playing a different game, he is taking control of companies as an activist, et cetera. But what's going to happen when Warren kicks the bucket? All his money is going into Vanguard ETFs, right?
Brandon Averill (12:08):
He makes a recognition that, unless you have the ability to play the game he's playing, you go back to... This is the most successful investor of potentially of all time. And it goes back to indexing, and it goes back to accepting the reality and the statistics that markets are efficient, they do reflect all available information, and there isn't a leg up that you can get for most people out there.
Justin Dyer (12:35):
So we're talking a lot about internal inside Wall Street-driven advice. Let's switch gears to the media because I mean, this will be fun probably. But right there, as we say time and time again, they're selling clicks, right? If it's free you're the product, all of those things really hit home here. But I mean, just to kick it off, something that just absolutely drives me crazy within this industry is, when let's say a prediction is right.
Justin Dyer (13:08):
So all of a sudden you see some individual investor, hey, this guy predicted the crash in 2008, 2009. He's saying this now, right? I mean, we've all seen it and it's absolutely backwards, right? This person, he's been sticking their stake in the ground for the last 10 years saying the same stuff, to hypothetically, but this is... It's everywhere, right?
Justin Dyer (13:34):
Saying the exact same thing, oh, the market's going to crash. Oh, the market's going to crash. The Rich Dad Poor Dad author is a perfect example of this, right? Saying the market is going to crash, the market is going to crash, it doesn't crash. But then the media, if the market does crash, which it will at some point in time. It's not a matter of if, it's when. We don't know when, we don't know how much, we have a plan around that, separate topic.
Justin Dyer (13:55):
But then, everyone thinks this guy is... he's got a crystal ball. He's the smartest guy in the room. Yet, he literally only got one tiny thing right. It was probably luck more than skill, where the market is up the other 99% of the time. I mean, just flip the probability or the statistics on its head.
Erik Averill (14:19):
I mean, that got sensitive though. You just went after the real estate mogul of passive income. I mean, have you read Rich Dad Poor Dad, though? I mean, this is a fundamental book for all amateur investors to lose their money, right? We joke around it, and I can't take this. It's a great riff on from awesome podcast, highly recommended, Animal Spirits, the rich author poor readers is what they call it.
Erik Averill (14:50):
Because here's the thing when it comes to a level of scrutiny, and this is for all of us, right? Whether we're taking medical advice, we're taking financial advice, whatever it is, there's a lot of times, if we're just clicking on a headline, or reading a tweet, or just even reading a fable book, there should be a level of skepticism that just goes, should I actually provide the authority and credibility to the person in which I'm listening to?
Erik Averill (15:20):
And a very basic research on Rich Dad Poor Dad from highly credible critics you would say, this thing is filled with errors. It's a self-help book that drives literally this guy's business, his speaking circuit, his online courses. This is a person who's filed bankruptcy. And when I clicked on this link thinking about him predicting the market was going to crash. I'm like, oh, man, yeah, it's from September. This is from 2017. This dude has been pounding the table since 2017, the stock market is going to crash.
Erik Averill (16:00):
I think this level of conversation, obviously, we have a lot of emotion around it is, for you the audience listening, you have worked so hard for your money. And it's why we go back to the difference of investing like a professional versus an amateur. There's a lot of Monday morning quarterbacks. There's a lot of fantasy Football GM's that would love to take your money and deploy their strategies. And really it's about lining their pockets.
Erik Averill (16:30):
Here's the truth, the professionals, the Waltons, the Rockefellers, the wealthiest people in the world, what they don't do is deploy the same strategies that amateurs are. And so this is coming into this evidence conversation with you of saying, hey, there's a better way, you don't have to get caught up in this terrifying, which way is the market going to go, where do I predict it? We can literally take a step back, we can look at the blueprint and the evidence, the way that multi-generational wealth is built, and you can have access to that same strategy.
Brandon Averill (17:06):
Yeah. And I think Erik, that's a great point. And I think you hit the nail on the head, why are we talking about this now as well? It's because we've been at market all time highs. And humans, we're conditioned to think that whatever goes up must come down, it's gravity. And so we've been up here for so long, we hear it time and time again, it's like, hey, when's it going to crash? It's got to crash. It's got to come back down. And so it tempts us, it tempts people to start fiddling around with their portfolios.
Brandon Averill (17:37):
But really, when you go back to the data, and there was a study recently of the last 94 years of stock returns. And after new market highs, five years later, the annualized return was 9.9%. After 20% market declines, pretty painful, five years later, average annual returns, 9.6%.
Brandon Averill (18:02):
So the data tells us that if you absolutely nailed the timing... What we're talking about is a 0.3% spread. And we all know, we've talked about this many times, trying to nail the timing on all of that stuff, you know you're going to just crush your returns. So all this anxiety, all these news headlines, all of this is to try to avoid a 0.3% difference, this is just silly, right?
Brandon Averill (18:30):
But it makes sense, it's how we're certainly conditioned, but we need to go back and take comfort knowing that these share prices, they're not fighting gravity. When they move higher, we've got to have that confidence based on all the evidence. The record highs, they're only really telling us that the system is actually working how we should expect, and nothing more.
Justin Dyer (18:54):
Yeah, and I mean really-
Erik Averill (18:58):
And would really go back.... Go for it, Justin.
Justin Dyer (18:59):
Just quickly, I think what I would underscore with all of this is at the end of the day, it's about expectation setting. I mean, and that really what we're trying to seek with this podcast is education, teaching you how to invest like the pro, but setting expectations, right?
Justin Dyer (19:16):
Markets will correct, markets will go down. I said it earlier, when that happens, no one has a crystal ball on that. We could be seeing it right now, how much more does it have to go? We don't know. But having that plan in place, calibrating your expectations from a behavioral standpoint that this will happen, understanding why it's potentially happening, and having the conversations with your team, with us, reach out to us, we'd love to talk about a specific question relevant to all this stuff. But it's that expectation setting side of it, understanding the plan in place, and really being comfortable and confident in that. So you can stay invested, so you don't have to chase those silly numbers that you were just highlighting, Brandon.
Erik Averill (20:05):
Yeah. And we've covered this on previous podcasts that we can link to in the show notes. I think when I think of why investors or why we start to panic a little bit is, we talked about loss aversion, right? We have this behavioral aversion to loss because the real scare thing, going back to the conversation of financial structure and priorities is, you're fearful that I won't have money in the future to pay for the things that are most important. And that's why I don't want to see my money go down, right?
Erik Averill (20:38):
And so there comes in this sense of, I want to control things, I want to make sure that I'm not taking a risk that I'm not supposed to. And this goes back to working with the qualified advisory team that has your best interest is because they're going to help educate you on what are true risks to you not being able to achieve your priorities? It's tinkering with your portfolio, it's taking undue risks to try and get rich in a way that there's no evidence, right? And so what provides true control, and true clarity, and true peace of mind is not panicking of when to time the market to get in or out.
Erik Averill (21:16):
It's going back to that rational plan that when you sat down with your advisory team and you said, what are your priorities, what is it that you want to achieve? Now, let's look at what the evidence says and let's construct your individualized customized portfolio, not Wall Street saying, hey, are you aggressive, are you conservative? Let's put you in a 60/40 or 70/30, 80/20, 10/90, right? It's that individualized plan that you deserve.
Erik Averill (21:43):
And then, if you want to control something, here's what we talk about on a whole different podcast, it's your human capital. The thing that's going to be the greatest driver of your return, is instead of you taking that anxiety, and this time, and the stress on this internet world reading it is, hey, what if I actually deployed a plan on how to increase my value in whatever I do on a daily basis?
Erik Averill (22:05):
And so, we hope that you take away from this is not three really pissed-off dudes who have an ax to grind, but really protective older brothers that, you know what? We come from a world where unfortunately, the industry in which we're in is not truly set up for your best interest. And so we have to have this protectionist viewpoint of our clients and you the investor, that we want you to know you don't have to play that game that the amateur is playing, that Wall Street's playing, is you can have a plan in place and you can achieve your priorities.
Erik Averill (22:46): And so, head over to awminsights.com, you can access the show notes there. And until next time, own your wealth, make an impact, and always be a pro.