Why am I Investing? | Brandon Averill, Justin Dyer | AWM Insights #84
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Episode Summary
The most important question when it comes to investing is the why? You cannot give good financial advice or make good investing decisions on your own without understanding what success looks like to you.
Most financial advisors miss the most important question to ask their clients because they have too many clients to spend the necessary amount of time getting to know. They then invest them into one of their model portfolios that may or may not be what they need to achieve financial success.
Money is a powerful tool that can be invested to achieve priorities and create multi-generational wealth. The impact on families can live on for generations when wealth is properly stewarded. Answering the why of any investor makes for a better investing experience. Even if generational wealth is not the desired outcome.
Episode Highlights
(1:05) Market news: WeWork finally going public at a $9 billion valuation. Earnings season is in full swing and Netflix has created internal drama with the newest special by Dave Chappelle. Squid Game is also drawing huge amounts of interest in its first season.
(3:05) Bitcoin ETF (ticker: BITO) launched and doesn hold Bitcoin directly but rather holds futures contracts in the fund.
(4:15) Why should you even invest in the first place
(5:15) Money is a tool to help you accomplish your priorities.
(5:35) Anyone giving you advice how to invest without knowing what you're investing for is giving poor advice.
(6:20) Your why is incredibly important. Make your wealth work for you.
(7:17) Investing is not speculation. Speculation is gambling and should not be confused with investing.
(8:00) Invest to at least keep up or beat inflation and this maintains or increases your purchasing power
(9:25) Two different people have their own unique wants and needs and should not have the same portfolio. This is why customized investing according to priorities and not age should be how a portfolio is constructed.
(11:30) A longer time horizon allows for investing in assets that have even higher expected returns. This can lead to even greater impact over a lifetime.
(12:23) “Thinking of money as a tool in this framework should provide more comfort, understanding, appreciation, focus.” -Justin
(13:25) Knowing your why and the impact you want to make with your money (the tool) then guides how the portfolio is built.
(16:20) What does investing for impact mean to you
(17:10) There is a huge opportunity for change and impact that could be made if investors focused on achieving priorities versus chasing short term returns and fads.
(18:45) It is unfortunate the industry is still tied to a risk tolerance survey and many people aren’t given the opportunity to invest according to their priorities
(19:00) The family office model allows for true customization and the greatest chance to achieve success with your money.
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+ Read the Transcript
Brandon Averill:
Hey, everybody. Welcome back to AWM Insights. I'm one of your hosts, Brandon Averill, and I've got our CIO, Justin Dyer. As you know, each week, we cut through the noise of what Wall Street is selling you, to bring you the knowledge, skills, and access you need to invest like a pro. Today, we're going to continue along our theme and we're going to actually tackle a topic that maybe we should've hit first, but we're saving the best for last and that's why? Why do we actually invest? So, we'll start with the basics and we're going to build it all the way up for you. But as you know, before we do, we're going to recap a little bit about what's going on in the markets.
Justin Dyer:
So, we're recording this a little bit earlier in the week than we normally do. By the time this goes to air or is published, if you will, WeWork will have made its final debut on the public stock exchange, excuse me. It stings though, $47 billion was the initial valuation the company had about two years ago when the CEO was the talk of the town. Money was flowing at them like crazy and then they did their IPO roadshow and cooler heads finally prevailed and said, "Wait a second, wait a second. How are you valuing this company?" Anyway, it's been a long row to hoe for them and lawsuits and all that, but they're finally going public at a $9 billion value.
Brandon Averill:
I thought all venture capital just went to the moon now. If you invest in venture, you don't, aren't you supposed to just make money?
Justin Dyer:
No, unfortunately risk and return are related. Yeah, it's easy to forget, but you definitely need to remind yourself of that before you make an investment. Actually, on that same topic, Jack Ma makes his first trip outside of China after the big Chinese tech crackdown, it's been a while. I think it was almost a year or so, since he disappeared, fell off the radar, resurfaced in probably pretty planned coordinated effort with the Chinese government. Anyway, so yeah, that whole story, as we've touched on a little bit here and there, the whole Chinese tech story, redistribution and whatnot is definitely an interesting one to watch.
Justin Dyer:
Netflix in the news for a number of different reasons. Dave Chappelle stirring up some controversy with Netflix employees. On the flip side, they had some pretty strong earnings, we're in the heart of earning season here and earnings are looking pretty good, net net. Netflix is no exception to that so far. And then the new hit show with Squid Games. I have not watched it, not sure if I will, but I've heard interesting things, let's call it that.
Justin Dyer:
Then of course, Bitcoin, a new ETF launched in the US, we've mentioned that there are far better ways to get access to Bitcoin if that is something that tickles your fancy, this is what's called a futures contract-based ETF, and it will not track Bitcoin the dollar for dollar. In fact, it could deviate from the price of it quite significantly. So, definitely one of those things, buyer beware. But anyway, on the news, the Bitcoin advocates definitely have bid up that price to new record highs.
Brandon Averill:
Folks, if you don't know what a futures contract is, we probably shouldn't be buying the Bitcoin ETF, just FYI. You need to know what the underlying instrument is if you're actually going to pull the trigger here.
Justin Dyer:
Yeah. And I mean, again there are way better ways, to get access to that asset, or commodity, or cryptocurrency, whatever we're calling it nowadays. On the positive front and the sports front, MLB agrees to provide housing to the minor leaguers. I mean, that's great news for those guys out there, struggling in the minor leagues. Really happy to hear that one.
Brandon Averill:
So, that might even ... I don't know how this is a lead in to why we actually invest, but we'll take it from there. I think for everybody listening, we went through this series over the past couple of weeks and I think it dawned on us, we haven't actually taken a step back and said, "Why do we actually invest in the first place?" We've been super tactical. We've talked about the vehicles, who you should get your advice from, when you should actually pull the trigger and make an investment. But we just thought it'd be good to dial it back because this is probably the most important question, is why are we investing?
Brandon Averill:
We so often jump to, "Hey, I want to buy Bitcoin as an allocation, as an investment," which as everybody knows, we don't think it's an investment but ... or, "We want to buy large US companies, or small US companies, or venture capital, or public markets," but really at the end of the day, I think when you get into the weeds of that subject, if you're not taking a step back and really identifying why we're investing in the first place, I think you're making a mistake. Because we all know, and this is kick off the discussion a little bit, I'll let you jump in Justin, but is that money is just a tool, and it's a tool that's used differently for everybody, but it is a tool to help you accomplish your priorities.
Brandon Averill:
So, I think that's where a lot of people really get it wrong is they start with, "Hey, I've got a couple of hundred thousand dollars. Where should I invest it?" Well, I don't know because I don't know you, I don't know what your priorities are and anybody that's giving you advice, to bring in the earlier weeks' episodes, and doesn't sit down with you and try to figure out, "Well, what are you actually trying to accomplish? Why are we actually investing?" I think is really giving you poor advice. So, I'd love for you to build off of that, Justin. Money is a tool, where do we go from there? Why are we investing in the first place?
Justin Dyer:
Yeah. Well, let me hit on something you did say, and then I'll go from there. But it really is important for any individual. The individuals listening to this podcast, the individuals who are interested in working with a financial professional, to ask the question why. Your why is going to be unique to yourself? It's not going to be the same for each and every person. There's going to be flavors of overlap and some commonalities and common themes, but it's incredibly important if you're saying, "Hey, I want to invest," or, "I am invested and am I doing it right?"
Justin Dyer:
This is such an important conversation to really at the end of the day, make your wealth work for you and meet your priorities. If you're not asking this question, if you're just buying Bitcoin because it's the hot, hot thing out there, buying GameStop back earlier this year because it is a meme stock, I mean, at the end of the day, you're doing yourself a disservice.
Justin Dyer:
You could be lucky. You could get it right. You could have bought Bitcoin at whatever, $5,000, or you bought GameStop as well, but that is speculation versus investing. So, it's important to really take a step back and also define these two things, which we have and I'm not going to go down the rabbit hole on that. But investing serves a purpose. Speculation is essentially gambling. Again, you could get lucky. You could really, really benefit from speculation, but it's not investing.
Justin Dyer:
So going back Brandon, to how you handed it off, why are we investing? Well, I mean, at its basic level, you want to invest if you have excess assets, excess money sitting around, you want that money to at least maintain or keep up with inflation, with purchasing powers, is the term we use, which is essentially keeping up with inflation over time and not just having your money sit, especially nowadays this is incredibly true, sitting in a checking account, earning next to nothing as inflation is, what, somewhere around 2%, 3% in the economy, your money sitting there is actually losing money over time.
Justin Dyer:
That's okay in some cases, because you actually might need access to cash and there's an opportunity cost, or a potential cost of investing that, let's say, in the US stock market, as opposed to keeping it in accessible cash for something short term, but really that core building block of why is, we want to make sure we're keeping our ... or maintaining at least, our purchasing power.
Justin Dyer:
And then we build from there, obviously money is a tool, like Brandon said, and that's where we start to add a lot more, let's call it nuance, to this whole conversation. Where money is a tool, yes, that is definitely the case, but it's a tool to be used in a unique fashion for each and every individual. That to Brandon's point earlier, if come to us and say, "Oh, I have $100,000 dollars, how should I invest it?" Well, you have that tool, you have that $100,000. That tool can be used at a number of different ways.
Justin Dyer:
You can use it, whatever, to build a mansion, you can use it to put food on your table, donate it, whatever it is. And that's where it becomes a nuanced conversation around your priorities and your focus. What brings value to you and what value do you want to impart on the world?
Brandon Averill:
Yeah, I think that's a fantastic point to think about, because you may have somebody that's got, let's say $10 million, and their portfolios are going to look completely different because their whys are different. You have one client that wants to be famous and wants the glitz and the glam and people to be impressed by them, et cetera. They're going to want to make sure that they can afford that higher level of lifestyle. Conversely, to probably what most people would intuitively think, what that means is that their portfolio probably actually needs to be ... hopefully they've got enough money to support that, but it needs to be a lot more conservatively allocated because they want that money there for them to be able to spend versus somebody that has wealth like that, but is more concerned with, let's say multi-generational wealth.
Brandon Averill:
This is who we more often resonate with. Our clients are people that look at it and say, "You know what? I've been blessed with having this amount of money through hard work and we've earned it, but we don't want it to die with us. We want to make an impact. We want to have a greater impact." That can be multi-generationally through their families, or it could be through being able to gift during their lifetimes. But at the end of the day, they want to take this tool that they've earned and they want to build it for maximum impact. And how do you do that? You right-size your life. It allows, "Okay, well, if I only need to consume this tool to a certain level, then everything in excess of that, now I'm able actually to go allocate towards things that will grow over long periods of time." And like we've talked about before, the longer time horizon you have, the more it affords you to take advantage of opportunities that should provide even greater excess returns over time, thus turning into more impact.
Brandon Averill:
So, it's this cycle, but I think sometimes at least when I was first getting into this business, it just seemed backwards because the people that really wanted to consume a lot, I would have thought, "Well, shoot, they really got to grow their money. They really got to grow their money." Whereas the people that live, let's say, a little in a different way, maybe able to take a more conservative approach, but it's actually flipped on its head, interestingly.
Justin Dyer:
Yeah. I mean, I'm going to go back to this and hit on a repeat. The money as a tool analogy, I think it's incredibly valuable to think in that framework. Exactly what you were just alluded to right there, when the traditional way of thinking about money and investing is it's perverted in a way. If you think about it through this tool framework, it should provide you a lot more, let's call it comfort, understanding, appreciation, focus, on how your money is invested, because you have that why figured out ahead of time, as opposed to flipping that on its head, where your money is invested, just say like, "Oh, I want to ... " If you come to us and say, "I want to maximize my returns." Well, again, we can't truly answer that question without the why.
Justin Dyer:
If we just go and say, "Okay, we're going to maximize that return. We're going to put it in a globally diversified equity portfolio." And then at the end of the day, something really important comes up and you figure out your why. Well, there's a potential that that tool is not there to support that why, that need. So, it's incredibly important to think about the tool, think about what your why is, what impact you want to have in your world. And then we build that portfolio custom to that. If you understand that, let's call it a virtuous cycle, you should have such a better appreciation for the performance of the assets, the expected performance of your overall portfolio.
Justin Dyer:
Why are you holding short term fixed income or cash in some cases? Kind of like I alluded to at the outset, instead of just comparing yourself to the S & P 500, or Bitcoin hitting new highs, or whatever, Tesla and its performance over the last two years or something like that. So, having the conversation around the why, understanding that the tool, money, your portfolio, is then built to truly support that why in the highest probability fashion, really possible available to us in the given marketplace, should be an incredibly comforting and confidence building exercise and conversation.
Brandon Averill:
I think that you hit on that perfectly because at the end of the day, the why question, what it does, it provides a framework then to evaluate whether you're accomplishing success or not. I think so oftentimes, we're picking the wrong benchmark. You said, the S & P 500 or the Bitcoin price, who cares? Who cares? It doesn't matter, it really truly doesn't matter. At the end of the day, what matters is did I identify my priorities and were the outcomes towards those priorities, what I wanted? That is success. It's that personalized benchmark of really understanding that, hey, yes, this tool I have and how do I make it for the biggest impact, the best life, whatever you determine your priorities are going to be, and then set up your systems in your portfolio. So that way, it gives you the highest likelihood of succeeding, of actually achieving those outcomes.
Brandon Averill:
I think we hear it all the time. I asked a prospect this this morning, it was like, "What's success to you, what do you ... " and it's like, "Shoot," this was the first time they ever really thought about it and that we were like the fourth meeting that they've met with these financial people, but everybody throws a portfolio at them, it's some amount of money and they're like, "Oh, you seem like a pretty moderate risk tolerance type person. I think based on your age, we'll go with the 60:40." It's like, "What does that even mean?" You know?
Justin Dyer:
Yeah. And again, at the end of the day, the term we've used a couple of times here is impact, which could be a big term for some, but again, it's nuanced, it's unique to you. That impact could be your children. It could just be a charity. It could be multi-generational which again, is something we run into quite a bit and it's incredibly powerful to think about it in that way and again, ask the question, what does success look like for you? Or rephrase that to what is the impact you want to have? Money is an incredibly powerful tool and anyone, of all different wealth levels, can have a true impact. Sometimes their circle of influence is a little bit smaller than others and even some of the wealthiest people want to have an impact, but their circle of influence is just their family.
Justin Dyer:
So again, it's nuance, but there there is so much power within this, if you think about it the right way. I mean, God, goodness, it should be something you get excited about too, and light bulbs should be flashing and it should be a really, really interesting conversation to have, kind of like that example, you just highlighted with that prospect, Brandon, where it's unfortunate more people don't frame it that way. Because if collectively, let's just say we as an industry, or investors truly thought about it that way.
Justin Dyer:
I mean, think about the change that we could have. Again, some people care more about the local level. Some people care more about the global level and there's all sorts of different flavors in between, but thinking about impact as opposed to just maximizing returns and chasing fads and getting caught up in the media. It's pretty powerful if you think about it the right way.
Brandon Averill:
I think that's a good point and probably something we could close on is, it goes back to one of the conversations on who. Unfortunately, our industry is not set up to do this because it doesn't scale. So, you need to find a solution or advisers really, that are willing to put the time and effort into this relationship with you, to help you identify truly what your priorities are and come through with an impact. I think that's why we set our business as a family office, because that is a structure that allows you to actually dig in with your clients, to understand what the priorities are, to build customized portfolios. It is really unfortunate that most of our industry is structured in a way that it is much easier to have that risk tolerance conversation and put you into a model portfolio and then move on to the next one.
Brandon Averill:
So anyways, just wanted to mention if you are in that position, if you are a multi-generational, have that mindset, or you want to have an impact, whether you have a little or a lot of money, really look for that advisory firm that will take the time to help you develop your priorities and then build out that customized portfolio to those priorities. We've talked about it a lot, certainly that family office model adheres to that or provides for that. So, along those lines, as many of you know, if you head on over to awminsights.com, you can actually download a free giveaway that talks about the value of a family office, how you can actually implement some of these strategies and then helps you to go out there and find the family office solution that's really valuable and impactful for you. So with that, until next time, own your wealth, make an impact and always be a pro.