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AWM Insights Financial and Investment News
22 minutes | May 18, 2022
Finding the 10x Fund in Venture |AWM Insights #110
There are around 2,000 venture capital firms managing about 4,000 funds. It’s a small market in the grand scheme, but many aren’t worth investing in. The return difference between the top 25% and bottom 25% is staggering. This is a game of professionals. It’s no different than elite athletes competing at the highest level in professional sports. The same separation of talent exists in the venture capital arena. Investors with the best access look for 5x or more in returns. What else does it take besides capital to invest in venture? Are you an accredited investor or a qualified purchaser? Are you investing as an individual or an LLC? Are you making directs, allocating to funds, or even diversifying into a fund of funds strategy? Justin and Brandon give you the details on how the whole process works. 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. On an iPhone? Click HERE to join. EPISODE HIGHLIGHTS: (1:02) How do I find the next all-stars and Hall-of-Famers in venture capital? (1:45) It is difficult to find the best-performing managers, funds, and even more so portfolio companies. And you are only rewarded if you can get into the best ones. (2:18) There is persistence in the data. This means the best managers in VC are able to repeat their performance. This is NOT like the public markets and their managers. (3:03) A different ecosystem in the venture space creates the opportunity to keep outperforming. Informational asymmetry and access to top-tier networks are the most significant drivers of persistent returns. (3:32) Is a VC manager going to keep outperforming his competitors? (3:55) Just getting access and an allocation to the small group of winners can be extremely difficult. (4:50) If someone is banging down your door to invest in their fund, that’s a red flag. The best funds returns speak for themselves and don’t need to search for capital. (6:40) When you finally decide to invest in a fund as a limited partner, what happens then? (7:00) You must be an accredited investor and many of the top funds require you to be a qualified purchaser. (7:16) Next, you need to read and sign a lot of documents including an operating agreement that establishes the role of the general partners. (8:08) A lead investor or anchor investor is the person or group that takes the largest stake. They help negotiate and establish parts of the partnership agreement. (9:16) How are you coming in to invest, are you an individual, trust, or LLC? (10:12) What is a fund of funds structure? A fund that can get access and diversify into many different VC Funds. (10:49) Trade-offs for fund of funds are possibly lower rates of return because the diversification caps your upside on the winners. The expenses also reduce returns to you the investor. (11:40)Venture capital funds look to return 3x to their investors. To get that kind of return with the fees charged, VCs must find companies that can do greater than 10x before fees. (13:56) Venture capital’s return profile is called a J-curve. (15:32) In a perfect scenario, the venture investment turns into a hockey stick and goes mostly vertical before the exit. (16:00) What are the fees in venture? Usually 2% of committed capital and a “carry” of 20% of profits on the exit. (17:11) A $9M appreciation in a portfolio company would deliver $1.8 million to the VC and $7.2M to the investors. This is the carry and why so many smart, competitive people are in the space. (18:22) The best VC firms can be selective with who they allow as limited partners. (18:44) Just being a professional athlete is not enough to get an allocation to top VC funds. What else do you bring to the table to help achieve a successful outcome? (19:04) If you’re an athlete can you provide a unique way to add value to venture firms?
16 minutes | May 11, 2022
Why Does a Founder Raise Capital? | AWM Insights #109
Why would a founder raise money? To turbocharge growth of the company. The company can grow faster from taking outside capital. In exchange, the founder is giving up partial ownership of the company. What should investors be looking for? The majority of companies in venture fail. It is wise to be skeptical and thorough. It isn’t enough to see a teaser pitch deck and start writing checks. Access to the data room and diligence in reviewing financials, management team, and legal documents leads to better outcomes. The best venture capital investors and founders look for a win win scenario. The VC investors get outsized returns and the founders get to build and grow their startup into a successful, sometimes dominant business. They also usually exit with millions or sometimes billions in liquidity. 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. On an iPhone? Click HERE to join. EPISODE HIGHLIGHTS: (0:55) Why is a founder raising capital? What is the money for? (2:00) A venture company doesn’t have to raise outside capital but to grow and scale to become (2:22) Venture capital and tech are synonymous. (2:47) Deciding how much money to raise is a tough question for a founder. The more money a founder asks for the more ownership he or she will have to give up. (3:15) Owners and founders try to minimize their dilution of ownership. (3:50) Current market conditions are a big factor in to how much to raise and the valuation a company can raise money at. (4:41) A founder and client who just raised money before the market tightened is setting strategy on how fast to use the capital. Using the capital will create more growth but will also lead to the need for another fund raising round fairly quickly. (6:10) Example: A Web 3.0 company is trying to raise a $100 million at a $500 million valuation. For the math to work and to return a 10x, the company would need to be valued at $5 billion in the future. It is very difficult to create a company that grows to that kind of valuation. (8:05) You must be thorough. A teaser deck is often what you see being sent around to get you interested. An investment should never be made off this incomplete information usually produced by the marketing team of the company. (9:05) Investing directly in companies and their founder is very similar to investing in venture capital funds. The due diligence if requirements are very similar. (9:31) A data room is created, usually hosted in the cloud, and access is granted to investors to be able to download and review. (9:42) Financials with revenue and expenses, the formal pitch deck, legal documents, and information on founders are normally in the data room. (10:40) Proper time and research needs to be spent reviewing this information and being skeptical can save you from making poor investments. (11:50) Reviewing a teaser deck is not enough to decide whether to risk your money. (12:47) If you get an opportunity to invest in an early stage company, immediately gather more information. Just asking for access to the data room will weed out a lot of the pretenders. (13:42) Venture capital as an asset class has been very good in recent times for investors. (15:12) Individual investors shouldn’t be making investments directly into startup companies. These direct investments take an incredible amount of time, experience, and resources to be successful. The better way to participate is through venture capital funds.
17 minutes | May 11, 2022
How Does Venture Capital Investing Work? | AWM Insights #108
You’ve decided to jump in to private investing. You’ve already asked yourself if you should invest at all and discovered how to participate. Now that you’re ready to invest - how does it actually work? Who is giving money to whom and what are they trying to achieve? First, you start with a venture capital founder - an entrepreneur that starts a company with an industry-disrupting idea. Think Zoom, Peloton, and Coinbase as recent examples. The company must grow, scale operations, and eventually become profitable to become successful. Second, the Venture Capital Firm (VC) - a group of people who specialize in finding the next trillion-dollar company before they even have profits - funds the founder with the capital necessary to realize their potential. In exchange, they become equity owners of the business and work in partnership with the founders to increase the chances of success. Some of the most well-known VCs include Accel, Bessemer Venture Partners, Lightspeed, Sequoia, IVP, Benchmark, and a16z. Third, the investors, like AWM and other family offices, then put money to work with venture capital firms to target the outsized returns. The ideal end result is an exit (sale) that generates for the investors, VCs, and founders an outsized return. Without the idea and execution, the VCs and investors would not be able to capture this return. Without the capital invested, the company would fail. In this week’s episode, Brandon and Justin dive deeper into this process on how the venture capital investing works, the different seed and funding rounds, and what to expect throughout as an investor. 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. On an iPhone? Click HERE to join. EPISODE HIGHLIGHTS: (1:15) Who are the players in venture capital? Who are the players in these deals? (2:03) Venture dates back to post-World War 2 with wealthy families investing in very early companies. (2:22) The venture capital managers specialize in finding the best new companies. The VC aggregates money from investors and searches for portfolio companies to make investments in. (2:33) RIAs and family offices, like AWM, deploy capital to these venture capital managers to find outsized returns. (3:05) The maturity of the company is divided up into seed, early, and growth stages. A company will usually raise money multiple times before it IPOs, is acquired, or fails. (3:36) The other key player is the entrepreneur. This is the company founder(s) that have a great idea or business model and needs capital to make the business successful. (5:10) There are different flavors of venture capital managers. They usually specialize in a niche or maturity level of the company. (5:30) In general, venture capital is high-risk high reward. Most small businesses are not considered venture capital. Venture capitalists are looking for companies to generate outsized returns. (6:30) The earliest stage of venture capital is angel investing, pre-seed, or friends and family. The next stage is generally called the seed round. (7:20) After the seed round, they start calling the funding rounds A, B, C, D, and even sometimes E and F. (8:50) Most venture capital first stays in its sweet spot and focuses on a certain maturity stage of portfolio companies. (9:02) The investors (VCs) are making a bet that the founders will take the money (capital) and grow the business and sell it in the future for a much higher price. (9:37) The founder or entrepreneur knows they need the capital to grow and invest in the invested capital in right people and resources to help the company continue to grow. (10:46) The marketplace is getting more competitive when it comes to how venture capital firms can add value to the founders and help increase the chances of success. (11:22) The best VC funds knock it out of the park, the worst VC funds do worse for investors than the public market. This is why understanding the dispersion of returns and getting access to the best managers avoids the crap of Silicon Valley. (12:05) Founders picking VC firms to work with and investors deploying the capital to VC firms know there is persistence or repeatability by the best firms in VC. This makes getting access to the best difficult and competitive. (13:00) Founders with the best ideas will take capital from many of the best VC firms to gain the diversity of thought and value that can be gained from the VC's expertise. (13:35) An example is if you are a young cloud company you would want to partner with Byron Deeter and Bessemer Venture Partners because of his expertise and track record. (14:24) There is a lot of money chasing Venture Capital right now because it is sexy and easy to sell. It is hard to get into the top funds and the top funds are even reducing LPs to maximize their relationships.
17 minutes | Apr 28, 2022
How to Participate in the Private Markets | AWM Insights #107
Last week, Brandon and Justin answered the question “Should I Own Private Investments?” In that episode, they gave a framework to consider before an investor jumps into the private markets. This week we continue our private markets series by answering the question of How to participate in the private markets. Private equity consists of all the companies that are not publicly traded. These companies are too new or too small to trade in the stock market. Private debt is just the bond equivalent in the private world. It is a very broad world of investing and carries different sources of risk but the potential for higher returns. Venture capital is one subsection of private equity and focuses on early-stage companies that are looking to change the world with new technology, ideas, or business models. Private equity can be mature companies that are bought to improve efficiency, operations, and financial structure. These companies can even be publicly traded, then bought out, and taken private. We’re seeing this in the news now as Twitter has apparently accepted Elon Musk’s bid to buy it. Private real estate is another massive area of private investing. These private real estate deals can be used to produce income, capital appreciation, or a mixture of both. The key is to know the tax implications and do the tax planning ahead of time. Private investments are an area a capable team can add significant value by providing the resources and the analysis necessary to do it well, but what are the areas you should be aware of before you jump in? Join Brandon and Justin in this week’s episode as they discuss. 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. On an iPhone? Click HERE to join. EPISODE HIGHLIGHTS (1:20) Venture Capital is one subsection of private equity that has been rewarding for investors in the past. The highest historical returns have existed in early-stage venture capital. (2:30) Venture investing is simplified as becoming an owner in startup companies. These companies are disruptors and you’re backing new ideas or business models. (2:55) Different Stages of raising money: angel, pre-seed, bridge, series a, b, c, d. These rounds line up with the maturity of the company. (3:50) These companies need fresh capital because in the early stages they are not usually profitable. Once the business matures, they normally look to exit in a liquidity event. Possibly an IPO or an acquirer. (4:00) Private debt is another area of private investing. Rather than sell equity in their company, the company can take on debt to finance their operations. (5:20) Twitter is a good example of a company that is publicly traded but could be purchased by Elon Musk and taken private. (7:18) Private equity usually buys mature companies, takes on debt, and tries to improve operations and financial structure of the company. (8:40) 40% of publicly traded companies have been venture backed since 1980, and over 50% since 2000. (9:40) Private real estate is massive and is more than just the shows on TV that usually involve flipping residential housing. (10:10) Residential real estate investing returns are not very good because of the amount of competition. The juice isn’t worth the squeeze here. (10:26) Better areas of real estate investing can be found in multi-family, commercial, and industrial. These areas better compensate investors in the long-term. (11:15) Various stages of these markets exist. Value-add, income producing, farmland, and developmental land all have different intricacies. (12:25) Understanding tax impacts of different real estate investments is crucial. Income producing properties will be taxable at ordinary income rates so normally won’t make sense for those in the top tax brackets. (14:05) In private markets, you must do all the due diligence yourself. It’s an uphill battle and takes time and experience to become proficient. (14:45) If you don’t have an advisory team that can do the analysis of these private deals be very cautious. You will have to do the due diligence of reading through the reports, requesting data room access, and making the call on whether the potential reward is worth the risk. (15:20) For those that have built a strong financial structure, private investments can be a good place to take compensated risks for the potentially higher expected returns.
19 minutes | Apr 20, 2022
Should I Own Private Investments? | AWM Insights #106
Just because you qualify on paper for private investments doesn’t mean you should have them in your portfolio. Ignoring current spending and future income can lead to poor results that can and should be avoided. Just as Maslow created the “hierarchy of needs,” portfolio construction can follow a similar pyramid. Liquid assets reside at the bottom and illiquid (private investments) at the top. Investing for your priorities in alignment with a strong financial structure will increase the chance of achieving the outcomes you desire. 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. On an iPhone? Click HERE to join. EPISODE HIGHLIGHTS: (1:21) What is private investing vs public markets? Should I be investing in private companies? (1:44) Many private investments are sold to people without a full understanding of the risks. (2:23) Why invest in the private side? Data shows higher expected returns! (3:27) The range of returns is very very wide. This variance of returns is the norm in private deals. (4:01) Public market managers do not have this same dispersion of returns. (4:50) “Every single company is a technology company whether they like it or not” is a common saying in private markets. (6:11) Why invest in private companies if the downside could be so bad? (6:35) With more risk, comes a higher expected return. (7:05) Buying ownership in companies that are just starting out. This is especially true in venture capital which has a high failure rate. (7:55) LIquidity is the ability to sell your investment with little time and cost to get the money. Publicly traded stocks are very liquid. (8:39) Everyone has the same information in public markets. If not, that is insider trading and people go to jail for that. This isn’t the case in Private Markets. Smart investors want an information advantage. (9:10) Information is king and access to the best information leads to the ability of the best to continue to outperform. There is no requirement to equally distribute public information. (10:20) Who can and should invest in private markets? (10:40) The SEC also regulates private securities and you must be an Accredited Investor or Qualified Purchaser to even be legally allowed to participate. (12:06) Illiquidity or locking your money up for 5-10 years is a trade-off of private investments. (13:10) Important priorities including your essential spending need to be sufficient before you can commit to these illiquid investments. (14:08) The investment “hierarchy of needs” in portfolio construction is a good analogy to think of when working your way up to private investing. Venture capital lives at the top of the pyramid. (15:09) According to the SEC, two people with identical situations could technically qualify to invest in private investments. But that ignores the priorities and spending of the family. They may spend so much per year that they cannot afford to have their capital locked up for 5 or 10 years in the private deals. (16:56) Your financial structure has to be set up to invest in these opportunities that can take up to 15 years to reap the rewards.
19 minutes | Apr 12, 2022
How Should You React to Market Adversity? | AWM Insights #105
Easy answer: Stay in your seat! If you are contemplating making a change, your financial plan is severely lacking. Now is not the time to adjust your plan. Any solid philosophy already has the game plan in place and is positioned for this adversity. Preparing for times like this is the most important part of your disciplined strategy to win the game. Stock and bond markets can and do go down together. This is normal and uncertainty in risk assets is a constant. It is the price we must pay for higher expected returns. If there was no chance to lose money, you would not be compensated for taking the risk. In this week’s episode, Brandon and Justin discuss the unsettling headlines in mainstream financial media, why they shouldn’t make you nervous, and how to set your financial plan to weather turbulent markets. 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 (0:59) Negative returns across stocks and bonds for the first quarter of 2022. (1:17) Unsettling headlines like “inflation hitting fastest clip since 1982” are scaring investors. (2:00) Should you bail on your investments or change your portfolio? (2:42) If you are reacting to this market adversity, then you weren’t doing it right, to begin with. A real financial plan addresses adversity before it happens. (3:44) Stay in your seat. (4:30) The uncertainty and volatility of the past three months are normal. If anyone is telling you differently, they are selling you something or are uninformed. (5:25) There is a reward for investing in risky assets. (6:55) 1-year returns are positive 75% of the time, 5-year returns are positive about 85% of the time, and 10-year returns are positive about 95% of the time. (7:40) Investors that stay the course are rewarded for their discipline. (8:08) If you could perfectly move in and out of the market, what money could you make? Or, if you missed every move, how much would you have? (9:11) Nobody has the crystal ball to be able to time the market. Tactical asset allocators claim to be able to do this. The data shows these managers cost their investors 2.7% per year over 10 years. Link (11:30) Unexpected inflation is what you need to worry about. Not expected inflation because that is priced into the market. (12:48) Treasury Inflation-Protected Securities hedge against unexpected inflation. (13:50) Over long periods of time, equities outpace inflation. It is the best way to protect purchasing power for the long term. (14:41) Having a plan to deal with situations like right now is critical to a successful investing experience. (15:15) A customized portfolio solves the problem of having too much or too little exposure to bonds. A standard 70/30 is probably not a fit for your priorities. (16:26) An advisor staying on top of your plan will have addressed your future liabilities immunized your bond portfolio from these types of losses. (17:00) While this quarter wasn’t good for returns, smart investors know this is just noise for those with a competent advisor creating resilient financial plans.
18 minutes | Apr 5, 2022
What Is An Index Fund? | AWM Insights #104
You have probably heard of the S&P 500, Dow Jones, or Nasdaq. These indexes are created to track the performance of a group of public companies. While you can’t invest in an index itself, you can invest in strategies that mirror the performance of an index. Warren Buffett, the greatest active investor of all time, is a fan of index funds. Warren understands how difficult it is to beat the market and has directed his estate to buy index funds when he is gone. There are also weaknesses with index funds – specifically with their strict mandate of tracking the index. In this week’s episode, Brandon and Justin discuss the strengths and weaknesses of index funds and the many small areas of improvement and efficiency that provide opportunities for long-term investors. 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. On an iPhone? Click HERE to join. EPISODE HIGHLIGHTS: (1:10) What do we mean by indexing or “passive” investing? (1:55) An index is a rules-based classification that organizes companies (stocks) into a common basket and measures them daily. (2:35) The Nasdaq, the Dow Jones, and the S&P 500 are the most commonly quoted by the media. (3:02) The S&P 500 index is the 500 largest companies in the United States. (5:00) It isn’t possible to buy an index directly. It is only data and a representation of a basket of stocks. (5:57) You should select several indexes when building your portfolio to ensure global diversification. (6:20) You can buy an “index fund” in an ETF or mutual fund wrapper. Not all ETFs are passive index funds. (7:18) A significant advantage of index funds over active stock-picking is the lower expenses. These higher expenses and transaction costs decrease your returns. (7:55) Many active funds generate large tax bills that do not make sense for those with large amounts of assets in taxable accounts. (8:50) Warren Buffett has stated many times that his investments will go into passive index funds when he dies. He is the best active investor of all time, and he advocates buying index funds. (9:30) What are some of the downsides or negatives of only passive vehicles? (10:02) Indexes must be reconstituted periodically, allowing other investors to front-run this known event. (11:10) Tesla’s recent addition to the S&P 500 index is an example of an area of improvement. (12:10) Adding just 20 basis points of long-term compounding annually contributes substantially to the growth of wealth. (13:08) Can Indexes be improved if you systematically exclude underperforming companies to increase returns? (14:20) Flexibility and leverage when buying a car provide you with a better opportunity to get the best price. This holds true in the stock market. (15:15) As an investor, you want to have a philosophy that you can believe in and stick with. If you can't do that, you are set up for failure. (15:55) Takeaways: Check your portfolio for global diversification; just an S&P 500 index fund isn't good enough.
18 minutes | Mar 24, 2022
Are You Better Off Buying an Index Fund? | AWM Insights #103
The most recent SPIVA Report for 2021 was just released and once again the same conclusion is reached. “Passive” has beat “Active” and only 15% of active managers that are paid to beat the market, did not. Passive investing, sometimes referred to as indexing, doesn’t engage active stock picking. Active management attempts to beat “the market” through the fund manager selecting the stocks. The great news for investors is that this competition between active managers creates efficient markets that are cheap and easy to buy through index funds. All you have to do is listen to the evidence. 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. On an iPhone? Click HERE to join. EPISODE HIGHLIGHTS: (0:32) Brandon and Justin discuss stock picking and marketing timing. Is active or passive investing winning? (1:44) Active investors are trying to beat a benchmark. The most common benchmark is the S&P 500 Index. (2:06) An index is a defined collection of stocks. The Dow Jones Industrial Average has been around for over 100 years. (3:20) Active Management is commonly compared to these indexes to determine if the cost of research and implementation is worth the return. (3:50) You can’t actually buy an index itself but you can buy funds that very closely track its return. Plus, they have cheap fees. (5:20)Dispelling the myths of stock picking. (5:45) Active managers believe they can read the tea leaves and predict what’s going to happen. They also overweight or underweight sectors to “beat the market”. (6:25) The evidence every year shows it’s impossible to beat the market consistently. (7:09) SPIVA stands for Standard & Poor Index Versus Active report. (7:30) The report compares the many S&P benchmarks to the actively managed funds and identifies which ones outperformed and which underperformed. (8:50) 85% of active managers underperformed the S&P 500 over the last year. (10:35) Can you find the small percentage of managers that do outperform? (11:40) You can find better odds of winning than the 10 or 15% chance of picking the next outperforming active manager. You can get close to 50/50 in Vegas. (12:20) If for some reason you decided to try to identify which fund will outperform in the future, what are the characteristics to identify? (13:28) Taxes are frictional costs that drag on investor returns, and do not show up in these numbers. These hurdles also hurt investors' gains. (14:22) The powerful takeaway: If you’re smart enough to take in the data. You can have a perspective change which will help you avoid the silly game of attempting to outperform the S&P 500. (15:22) The amount of intelligent people with virtually unlimited resources is the reason the indexes are so hard to beat. This competition is what creates this efficient market which is a plus for investors that listen to the data. (15:53) If stock-picking isn’t the right way to beat markets, should you just buy an index fund or is there another way to find outperformance?
20 minutes | Mar 15, 2022
Is Your Advisor Competent? | Brandon Averill, Justin Dyer | AWM Insights #102
All advisors are willing to try to help. The problem is many do not have the right ability. Vetting an advisor for competence is a must for those wanting to create wealth. It also isn’t easy due to the incredible amount of designations or certifications that can be obtained with little effort involved. If you are serious about putting the right team around you, the minimum is to require a CFP®, CFA, CPA, and CPWA® on your team. This is the minimum an advisor can do to prove to you they are serious about having proper knowledge. An advisory firm that really cares about you and your money will require their advisors to have these before ever advising. It is lazy for any advisor in the industry to not obtain one of these, all they require is effort. After that, it’s time to evaluate what their experience level is with people like you. Hiring someone that doesn’t specialize in people in your situation is a recipe for failure. If you are a professional athlete, you will leave a lot of money on the table by working with someone that doesn’t focus on pro athletes. There are too many nuances and insider knowledge that comes from years of working with professional athletes that can only be learned through experience. Trust your instincts and if they sound more like a salesman or sounds too good to be true, don’t settle. There are competent, knowledgeable advisors that are in it for the right reasons and have your best interest at heart. 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. On an iPhone? Click HERE to join. EPISODE HIGHLIGHTS: (0:52) How do you look for competence in an advisor? (1:30) How do you sort through 130 financial designations? (2:58) Cutting through the noise and requiring your advisors to have the best designations is a smart strategy. (4:14) CERTIFIED FINANCIAL PLANNER™ or CFP® should be the minimum that you require when it comes to general knowledge. (4:46) Certified Public Accountant or CPA specializes in taxes and is an integral part of tax planning. (4:54) Chartered Financial Analyst or CFA specializes in investments. This is the gold standard for investment management. (5:00) CPWA® or Certified Private Wealth Advisor® covers the most advanced strategies that are needed by the ultra wealth to manage taxes and implement proper estate planning. (6:30) You can’t rely on designations alone but if they aren’t at least putting the work to pursue these then you must question why they should be your advisor. (7:33) Does their process work? Are they a salesman or do they really add value through comprehensive financial planning? (9:09) Integrated planning should maximize after tax return and net worth. (10:00) If you only look at a statement’s rate of return you are missing out on the big picture of wealth creation. (11:15) It’s common acceptance that no one can predict the future except so many in the financial media claim to be able to do it every single day. (12:07) It is unproductive to try to predict the future. Planning for good outcomes and bad outcomes is where to focus your effort. (13:03) A crisis wouldn’t be a crisis if everyone knew it was coming. (14:45) If you are a pro athlete, working with someone that doesn’t specialize in pro athletes will cost you money and wealth. (15:23) Duty days, MLB, NFL, PGA retirement plans are all something many advisors have no clue on. (15:41) If you need heart surgery, do you go to an orthopedist or psychiatrist. No, you got to the best heart surgeon out there. (16:19) Use your B.S. meter. Trust your gut feeling and if they sound more like a salesman or it sounds too good to be true, don’t settle. There are competent, knowledgeable advisors that you can find to grow a strong personal relationship for the long term. (17:45) Sum it up: find an advisor that avoids active trading and market timing. Find one that develops a solid financial structure, that focuses on tailoring investments to your priorities, and keeps taxes and expenses low. This systematic approach will increase your likelihood of financial success for the long term.
16 minutes | Mar 8, 2022
Russian Invasion of Ukraine | Brandon Averill, Justin Dyer | AWM Insights #101
Russia has invaded Ukraine and war is the talk of the global news and financial media. Financial warfare has also been waged by countries around the globe with punishing sanctions placed on Russia. What does this crisis mean for your investment strategy? Brandon and Justin discuss what you should be thinking when it comes to unpredictable global events. 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. On an iPhone? Click HERE to join. EPISODE HIGHLIGHTS: (0:45) How does the invasion of Ukraine impact your portfolio and investment strategy? (2:00) Long term thinking and refocusing on fundamentals applies to money but also everything else in life. Fitness, business, sports, all benefit by reframing and focusing on the basics. (3:10) No one is immune to the pain of markets adjusting to new information. It is normal human nature to stress out when the unexpected happens. (4:04) If markets only went up and to the right, then there would be no risk and therefore no reward. (4:48) Risk and reward are always related. You should expect corrections and drawdowns as part of the cost of seeking higher returns. (5:50) If everyone knew something was going to happen you wouldn’t call it a crisis. (6:25) No two historical events are the same. (7:40) You can’t time the market. You have to be right too many times. Getting out, waiting, then getting back in. No one in market history has proven they can reliably repeat market timing success. (9:00) Is it worth it to try to find the next Warren Buffett? No, there’s a better way than trying to get lucky. (9:30) Diversification is the only free lunch in investing. (10:15) Complacent thinking and not diversifying happens all the time when markets or assets are going up. (11:40) In times of stress, like right now, the benefits of diversification prove why you need it. US Government bonds have done their job once again in this downturn in protecting capital. (12:51) Diversification saves you, it allows you to stay invested and not panic. (13:40) If you have invested money in the equity markets that you need in the next year, you should be nervous. Moments like today is why financial structure matters. (14:45) Do I do this on my own or with an advisor? (15:03) If you want someone to help remove the emotion and has developed a skill set and builds financial structure to weather these kinds of storms, then an advisor will be worth their weight in gold to you.
25 minutes | Mar 2, 2022
How Do You Find a Good Advisor? | Brandon Averill, Justin Dyer | AWM Insights #100
You are ready to hire a professional but with over 300,000 people calling themselves financial advisors, where do you start? Multiple studies have proven that a good advisor can add 3% or more in value per year to their clients. Finding a good advisor with the right competence and without conflicts of interest is harder than it seems. Brandon and Justin give you exactly what to look for once you’ve decided to start looking and detail the value the real ones can add. 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. On an iPhone? Click HERE to join. EPISODE HIGHLIGHTS: (1:05) If I don’t want to do it alone, how do I assemble a competent team? (2:32) There is no regulatory body that regulates who can call themselves a financial advisor like in the medical or attorney field. This is a detriment to the public. (3:40) Unfortunately salesmen in the industry can take advantage of clients very easily in this industry. (5:25) If you are looking at only investments and ignoring the big picture, you are leaving money on the table. (6:25) Doing things in isolation wastes a lot of time and creates unnecessary work for investors. (8:02)Elite athletes understand coaching elevates their game and it’s the same with finances. (9:10) Most people in the advisor industry are salesmen and don’t have financial expertise. (10:15) Conflicts of interest between advisor and clients is something to be wary of. (11:00) Competence is not rewarded in this industry. Many people start in the industry and “dial for dollars”. (12:30) Who owns the firm you are working with and what incentives are they driven by? (13:35) Law firms with strong professional standards are employee owned and that is not the case with most firms in the financial advisory world. (15:20) Designations and Certifications are the minimums for those committed to doing what's right for the client. (15:50) Simple questions like “are you held to the fiduciary standard?” and “are you investing your own money the same way you invest mine?” These are powerful questions to ask your advisor. (17:00) The benefits of working with a competent advisor is massive and have powerful studies that show as much as 3% of value added per year. (18:00) If the person you’re talking to is a broker then just move on. You want to find an investment adviser. (18:30) Brokercheck.com is how you can find out if they are a broker or investment adviser. (19:00) Next evaluate the person and firm for conflicts and advanced designations. (19:10) Then find out if you need only investment advice or financial planning. Looking for comprehensive planning is what people should look for at a minimum. (19:30) If you are seeking multi-generational wealth then you have to start looking at multi-family offices. (20:15) Credentials in the form of experience and expertise should be measured and demanded. (21:28) Fully integrated advice with one after-tax return and one net worth is true optimization. Independence from conflicts of interest is vitally important to align incentives. And individualized and customized advice designed specifically to your vision of success creates a better experience and outcomes for clients.
25 minutes | Feb 23, 2022
How to Invest Without Hiring a Professional | Brandon Averill, Justin Dyer | AWM Insights #99
Are you a Do it Yourself Investor? Are you ready to handle it all yourself? Fear and greed drive many of the biases that hurt investor returns. Overconfidence bias and confirmation bias are two others that are proven to cost investors money. Big companies spend millions every year to influence and disrupt the focus of investors simply using human psychology. You don’t have to play Wall Street’s unfair game. There is another option to achieve your success. Taking compensated risks while controlling expenses and avoiding taxes makes for a better investing experience. 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. On an iPhone? Click HERE to join. EPISODE HIGHLIGHTS: (1:16) What are the options to invest in the public markets? (2:45) Registered Investment Advisor Firms can give you holistic advice vs every other model. (4:15) Behavioral finance is the broad psychology of attitudes and biases interacting with decisions around money. (4:50) We are prone to biases that can make investing even for trained professionals difficult. (6:15) The most powerful of all biases being fear and it’s cousin, greed. (6:23) “Fear has a greater grasp on human action than does the impressive weight of historical evidence” - Jeremy Segal. (7:00) You can get an incredible investment experience with robust results without playing the Wall Street game. (7:40) Avoiding the hot stock talk or investor bubble turns out to lead to better outcomes. (8:30) Focus is constantly being influenced by large companies spending thousands of dollars to bring you into their game. (9:08) The data for investors underperforming is constant, 1984-1995 the S&P 500 was up 15% a year while the average investor only earned 6.3% a year. Why? (9:37) Investors don’t want to stand by and do nothing. They want to take action and the overconfidence bias is well-established. (10:31) The overconfidence bias shows up in character studies and when it comes to over-trading their brokerage accounts. (12:10) Confirmation bias is looking to verify the things we already believe. We ignore what contradicts that. (15:40) SPIVA active vs passive data is released twice a year. Every year active management is proven to underperform over the long term. (17:30) Do the outperformers in one year continue to outperform. No, there is no persistence. (18:30) There is a different game to play. Avoiding taxes, high expenses, and optimization of net worth can provide persistent results. (20:15) Your disciplined plan will keep you focused on the results that matter. Biases can be managed with the right focus. (22:00) Markets are extremely competitive. In public markets, information is known by everyone buying and selling the market. Where is the advantage? (23:20) Many of the gains in crypto are short-term gains which will be wacked by taxes. (23:51) “The car is going to get to the destination, unless you personally drive it off the cliff” - Peter Mallouk. (24:30) Submit your questions or feedback by text to 602-704-5574 and join the community.
28 minutes | Feb 16, 2022
What Does It Cost to Buy a Stock? | Brandon Averill, Justin Dyer | AWM Insights #98
Do you know how to buy a stock? How do you open a brokerage account and which account type should you select? Have you made an investment in private equity before? In this week’s episode, Brandon Averill and Justin Dyer answer these questions in detail along with the expensive costs you may not know about, and what to watch out for to become a savvy investor. EPISODE HIGHLIGHTS: (2:14) How do you buy an investment in public markets? (3:12) To invest, you go and open a brokerage account. Just like opening a checking or savings account. (4:35) A brokerage account is the most convenient way to buy publicly traded securities. (5:35) There are many different kinds of accounts and are mostly determined by the tax code. (7:03) Independent custodians hold the assets of independent RIAs and the separation is important. (8:00) Robinhood or other discount brokers allow you to trade on your own. (8:52) How do you actually make an investment? (9:30) How you go into your account and place a trade to buy. (10:38) Every stock, bond, ETF, and mutual fund you must know the symbol to be able to buy it. (11:35) How to buy a stock or ETF. (12:10) Bonds also have fluctuating market prices you will have to pay. (13:50) Trading costs in the form of a direct fee or the spread are transaction costs. (14:50) The bid ask spread is an overlooked cost to investors. (16:47) The accessibility of public markets is a huge advantage to investors today. (17:40) How do you make a private investment? (19:10) Be wary of who is presenting the deal to you and why it made it’s way to you. (19:40) Private markets consists of private equity, venture capital, hedge funds, and private real estate. (20:57) Transparency and lack of legal structure can lead to fraud if not careful. (22:40) Investing into a pool of money with other investors makes you a limited partner. (23:15) Limited partners give over decision making to the general partners. (24:00) When money is committed the general partner will make a capital call to the limited partners.. (24:30) Legal costs of creating these investment vehicles and the tax pain point. (25:30) Compared to an ETF, private investments and their structure are much more complicated. (26:45) Private investments have minimum net worth requirements or income requirements to qualify. (27:20) Access to the best private investments is extremely competitive. (28:12) Hidden costs of being lower down the cap table aren’t always acknowledged. (29:00) What are the advantages and disadvantages of being with different types of advisory firms. Which ones provide better access?
32 minutes | Feb 8, 2022
NFTs Explained | Brandon Averill, Erik Averill, Justin Dyer | AWM Insights #97
What is a Non-Fungible Token and should you be buying or creating them? NFTs and Web 3.0 have the vision to return ownership and value back to creators and their communities, but can that vision turn into a reality? After seeing news headlines like one of Beeple’s NFTs selling for $69 million, there are a lot of questions floating around this relatively new technology. In this week’s episode, Brandon Averill and Justin Dyer are joined by Erik Averill to discuss how NFTs work, why they are not a get rich quick scheme, finding the true value in the technology, and where they might fit in an investment portfolio. EPISODE HIGHLIGHTS: (1:01) What is an NFT? Should I create an NFT? Should I buy an NFT? (2:26) Always understand what you’re investing in. This goes for NFTs, too. (3:00) An NFT is a non-fungible token. A dollar bill is a fungible. They are all the same. Non-fungible would be if President Biden signed it specifically made out to you. This makes it one of a kind and unique to you. (4:28) NFTs offer the promise of being the only one of its kind in existence. (5:52) Beeple’s NFT sold for 69 million dollars. But it’s more than just a digital image. (7:10) You are buying more than a digital image when you buy an NFT. (8:05) This is not a cash grab or get rich quick scheme. If you approach NFTs that way you will not have a good investing experience. (9:11) Web 3.0 is the redistribution of ownership back to the community. Creators and the community want to cut out the middleman. (10:10) Beeple’s digital art is directly comparable to the physical art world. Just like the Mona Lisa is valued highly by the art community. (11:15) Signaling within the Web 3.0 community is driving a lot of these headline grabbing prices for NFTs. (12:05) NFTs like other collectibles (art, wine) will not end with good results for most investors. (12:55) Buying an NFT is buying into a community of people. This community can be where the real value is to NFTs. (15:00) There is extreme hype right now in NFTs and crypto. Top Shot is one example of that. (17:05) There is a ton of innovation that will change the landscape and disrupt many current competitors in the NFT space. (19:00) Be aware of copyright protection. As a creator, you want to ensure the value you have created comes back to you. (21:15) The technology is incredibly young but the innovation within technology is tangible to so many. (22:22) Applying the principles of other investments to NFTs is crucial. Investing in NFTs must be done in the same way as other assets. (23:38) Gary V, one of the biggest crypto supporters, believes 98% of them will go to zero. (25:00) It’s an exciting space but any money put into NFTs should be coming out of your speculative/entertainment bucket. (27:13) Picks and shovels. Investing in the companies that stand to benefit from creating NFT communities is a great way to gain exposure. (27:25) Returns only come from the top decile in venture. With private investments and NFTs this will likely be happening here too. (29:40) With NFTs, we would rather be good than lucky. What kind of value is being created? How do you create a community? Think of it like a business and how you can do the work to capitalize on the NFT business.
28 minutes | Feb 1, 2022
Vehicles of Investing: What Am I Buying? | Brandon Averill, Justin Dyer | AWM Insights #96
So now you are ready to invest and become an owner or lender, but what do you buy and how? Stocks, bonds, mutual funds, ETFs, hedge funds, and private investments all make up the universe you have an opportunity to invest in. To keep it simple, buying stock is ownership and buying bonds is lending. Both mutual funds and ETFs can be very efficient vehicles to access public markets but understanding the details is an essential step. Private investments like hedge funds, venture capital, and private equity can be a source of great returns but are also less transparent with much less information than the public markets. EPISODE HIGHLIGHTS: (2:01) Stocks are ownership and bonds are lending. (2:30) Stocks are direct ownership. Think Apple, Microsoft, Tesla. (3:34) Bonds are just loans. These loans can be to the US government, local government, or companies. (3:55) Publicly traded companies (Apple, Microsoft) also issue bonds to then use that money to create more value or feed growth. (4:40) There is a hidden cost: the spread between the bid and the ask price. (5:25) Access to public markets is incredible and as simple as it has ever been for investors. (6:05) Mutual funds, why they exist and what they offer. (7:27) Single stock risk and why the diversified portfolio outperforms. (8:30) Before diversified pooled investment vehicles, investors were overly concentrated in just a few stocks to the disaster of many during the Great Depression. (9:01) Diversification and the closest thing to a free lunch in investing. (9:08) Private markets have illiquidity issues and slower transaction time to complete a purchase or sale. (9:46) Mutual funds are only priced once a day. At the end of the day they are traded or redeemed at their Net Asset Value or NAV. (10:30) Exchange Traded Funds or ETFs are traded similar to a stock throughout the day. (11:45) ETFs have gained in popularity but have been around for more than 30 years. (12:30) The misconception of mutual funds due to some fund companies charging high fees in the past. Not all mutual funds are the same. They are just a vehicle. (13:20) There are expensive ETFs and inexpensive ETFs just like the mutual fund universe. (14:50) Derivatives. How ETFs use these to juice returns and the drawbacks. (16:10) The movie to watch on derivatives is The Big Short. (17:00) Hedge funds were originally started to hedge market downturns. (18:05) Hedge funds have evolved into a bet on an active manager that they can beat the market. There are many strategies that now fall under hedge funds but very few do any hedging anymore. (20:24) Private companies also sell ownership in stock or take money in the form of loans as bonds. (21:33) Buying stock of private companies or lending them money is called direct. (22:11) Buying into a private fund gives you the claim to ownership and the fund managers are responsible for finding worthy investments. (24:55) NFTs and how you should think about these crypto and web 3.0 talk. (26:30) Crypto is speculative because it is not ownership of a business or lending of money. This isn’t a bad thing, it just means it is speculative and buyers hopefully understand that. (27:13) There is tremendous hype and it's hard to know what you actually own with NFTs. (28:00) There is a disconnect between perception and where the NFT market is currently at. (28:55) NFTs will be covered in depth next week.
25 minutes | Jan 25, 2022
Are You An Owner or Lender? | Brandon Averill, Justin Dyer | AWM Insights #95
To understand investing, you must start with ownership and lending. You can use your money to either buy ownership or lend it to borrowers. Investors are either owners or lenders, anything else is a speculator. Ownership Participation in profits, growth, cash flow. You own the future of the business for good or bad. A stock, mutual fund, or ETF is your claim to the assets minus liabilities, but most importantly the stream of future profits. Lending Loaning out money in exchange for fixed payments and eventually a return of your initial investment. Individual bonds, bond funds, or bond ETFs do not entitle you to the growth of a company. But in exchange, if the company goes out of business, you have a higher claim on the company’s assets than stockholders (ownership). EPISODE HIGHLIGHTS: (1:05) The very first principle of investing. (1:53) Ownership versus lending. (2:25) Ownership is a claim to the company’s profits. And that means risk if the business does poorly. (3:30) Your equity in the business is assets minus liabilities and the future profits or cash flows from the business. (4:05) Companies may not be profitable now but have the potential for large future profits which will make the company valuable. (4:42) Real estate equity is the same math as equity in a company. (5:55) Rental real estate and the future income it provides is a great example. (6:15) Discounted Cash Flow explained. This is how you value an asset. (7:20) Valuation is the basic principle of financial markets. It’s the same process no matter what asset you choose to value. (8:08) When it comes to being an owner or lender, you can do it in the public market or private market. The biggest differences between the two is efficiency of information and volume of transactions. (9:08) Private markets have illiquidity issues and slower transaction time to complete a purchase or sale. (9:45) If you own the shares in a public company and they release reports about their expected future cash flows increasing. The value of your ownership has gone up. (11:49) Lending is called fixed income and/or bonds in the industry. (12:40) You lend your money in exchange for interest and your initial investment is returned at the time period. (13:00) Lenders have a higher claim than owners in the event of bankruptcy so it is less risky to be an owner. But you also are not entitled to profits if the company does extremely well. (13:57) Public Debt vs Private Debt (14:30) A good example is mortgage lenders and the specialization of lenders. (16:50) A good example of lending is Microsoft selling bonds to investors. Because Microsoft is so large and with a strong balance sheet. They are able to get a very low interest rate which the market sets. (17:30) Tax treatment is a huge area where lending versus ownership is much different. Ordinary income versus capital gains respectively. (18:30) What about gold, art, and crypto? (19:11) It’s not an investment if it doesn’t fall into either ownership of a business or lending. It is speculation. (19:11) Gold, art, bitcoin are all speculative because there are no future earnings or cash flow to expect. You only hope to sell at a higher price. (19:11) Crypto is not ownership nor lending. Your only return will come from selling at higher price (or lower).
21 minutes | Jan 19, 2022
Why We Invest in the First Place | Brandon Averill, Justin Dyer | AWM Insights #94
Why risk your hard-earned money? What if you don’t invest because you’re too scared to take any risk? Every person has different priorities and investing money to meet those priorities is crucial to not just our happiness but the legacy we leave behind. Just making money for the sake of making money won’t lead to a satisfying investment experience. Successful investors put themselves in position to weather downturns so they can capture long-term returns. This allows you to be conservative where you need certainty and aggressive where you need growth. You can tilt the odds in your favor to achieve desired long-term results by adjusting your strategy, optimization, and continuous planning. EPISODE HIGHLIGHTS: (0:30) Why even take your hard-earned money and put it at risk by investing? (1:25) Investors that don’t understand the why behind their investing strategy will not have a good investing experience. (2:30) Invest to maximize the odds of achieving your unique priorities. (2:53) The reason you invest is to take the capital you have today, optimize it, and invest with the odds in your favor to meet the priorities most important to you. (3:33) No one will ever be laying on their deathbed remembering how they beat the S&P 500 every year. They will remember the impact their money made on the lives of those they care about. (4:40) Everyone has priorities and money should be grown to meet those priorities. (5:34) We need money to grow. If not, purchasing power is lost every year. (6:50) Warren Buffett’s is no doubt a great investor but the key to creating his billions was actually time. (7:39) Chasing past performance or active management with a good story doesn’t end well for investors. It usually means future poor performance. (8:30) Short-term sound bites make for great media but are rarely right. These market predictors are almost never held accountable if they’re wrong. (9:50) Psychology of Money by Morgan Housel tells a great story about how being lucky but lacking investment strategy can literally ruin lives. (11:28) Headlines make for great entertainment, but shouldn’t drive your strategy. Pushing the odds in your favor for success will keep winning over the long-term. (12:00) Be conservative where you need certainty so you can be aggressive where you need growth. This is how you give yourself the greatest chance of success. (12:30) No one can predict the future but you can put yourself in position to achieve success over the long term. (13:50) Private markets have gained a ton of press but they should always be integrated as just one part of your long term strategy. (14:55) A protective reserve provides the financial security to take compensated risk and target higher expected returns. (15:56) Wall Street firms are creating private market products to sell to investors as an asset gathering tool. (17:25) Private markets are not a panacea of great returns. There will be good years and bad years, the key is to stay the course for the long term. (18:20) Plan for the plan to not go according to the plan. Adjustments are necessary and part of any good process. (18:20) Financial structure, including a protective reserve in place, allows the power of the markets to grow your wealth over the long-term. The power of the markets has been one of the greatest wealth drivers in human history.
15 minutes | Jan 11, 2022
The Big Picture | Brandon Averill, Justin Dyer | AWM Insights #93
Money is such an important part of our lives, impacting mental and physical health. With so much information available immediately and through so many sources, sticking to the data of what works for a good investing experience can be difficult. Zoom out and look at your big picture first. This will always help focus on what’s actually important and to ignore or block the things that don’t actually matter with a wider perspective. EPISODE HIGHLIGHTS: (1:45) Why is money even important? Why do people jump to invest before looking at the big picture? (3:20) With so much information out there, why is it so hard to filter out the bad? (4:05) The data and evidence for a good investing experience is out there. (5:23) Why do we invest? This is the first step to understand your big picture. (5:55) Everyone’s personal experience with money is different and defines how they behave in the future with their investments. (7:05) To help our clients, we reframe and guide to the long-term, to multigenerational growth of wealth. (7:45) NFT boom and Opensea. Is this a “sure thing” to invest in? (8:45) Nothing is certain in investing. No one can predict the future. If there is no risk there would be no return for the investor taking that risk. (9:30) Theranos and Elizabeth Holmes were seen as a great investment at the time. It ended with investors losing everything and Holmes convicted of fraud. (10:30) OpenSea’s valuation is very high. If you were to invest, keeping the allocation small and part of a bigger private investment portfolio is how you would do it. (12:00) Statements like “crypto is going to change the world” should trigger you caution reflex. (12:45) Be careful getting caught up in the flashy returns. Return back to what will give you the best chance of achieving long term wealth. (13:30) Not investing in private markets isn’t the right answer either. Proper allocation to private markets is where you can seek big returns, when done the right way. (14:17) At the end of the day, what are you trying to achieve. Determine your priorities and the investment decisions become simple. (15:20) Investing is to make money but many investments will do that. Next week will cover how to do it most effectively.
19 minutes | Dec 21, 2021
What Does Financial Structure Mean? | Brandon Averill, Justin Dyer | AWM Insights #92
Financial Structure is a household’s entire net worth, human capital, and tax rate evaluated in a comprehensive and holistic framework. No matter how many different accounts you have, you only have one effective tax rate. A portfolio is only one part of your Net Worth. Other assets should not be ignored. Human Capital, often the greatest asset on a personal balance sheet, should also be counted. Priorities are everything you want to achieve in life and the financial structure should be tailored to achieve those outcomes. EPISODE HIGHLIGHTS: (0:40) Markets are struggling and have finished down for three out of the last four weeks. (1:03) The Federal Reserve has pivoted to be more “hawkish” and is speeding up the end of QE and signaling faster interest rate hikes. (2:40) The Omicron variant is having less of an impact on the market as it is proving to be less deadly than previous variants. (3:25) HSBC and Wells Fargo are settling currency trades between each other on the blockchain. A great tangible benefit and use case for the blockchain. (4:05) Reddit has filed for an IPO and will go public early next year. (4:15) The Build Back Better bill currently in Congress is not going to pass before the end of the year. Joe Manchin has shut it down and will be pushed to January. (5:20) Fed Chair Jerome Powell has publicly said he can’t predict interest rates. (7:10) Financial Structure is the big picture of one net worth, one effective tax rate, and knowing the value of your human capital. (8:25) Planning is an ever present item. Waiting until the last minute means you most likely have already lost out on the opportunities. (9:00) Roth Conversions and Backdoor Roth strategies. (9:30) Mutual funds are required to pay out their capital gains in the fund. These distributions can sometimes be massive short term capital gains. (10:35) Turnover in funds, meaning they are churning their holdings through frequent buying and selling can mean a huge tax bill. (12:15) Because of the reporting, no one really sees the tax drag this causes for investors. (13:15) Tax loss harvesting is a strategy to bank losses to offset future gains while staying fully invested. (13:50) A dynamic trading system allows the opportunities to be exploited throughout the year and doesn’t wait until an arbitrary date. (14:40) Integration with tax planning, investments, financial strategy, insurance, and estate planning keeps. (15:40) Many times tax preparers don’t understand tax loss harvesting and many other financial planning strategies. (16:15) Donor Advised Funds and giving appreciated assets maximize impact for both you and the cause you care about. (17:10) Instead of selling and donating cash, gift the shares directly to the DAF and receive a deduction for the value of the appreciated asset. (18:40) A Donor Advised Fund explained.
18 minutes | Dec 14, 2021
Gambling vs Science | Brandon Averill, Justin Dyer | AWM Insights #91
Fundamentals are the science of investing. The data and evidence prove that long-term investors that stay tax-conscious win over the long term. Smart diversification, managing emotions, avoiding media pumping fear and greed, and letting markets work for you is the proven way to invest for wealth. Gambling and speculation will always be more “fun” for the risk-takers. It is also a good way to have poor returns, high taxes, and at worst, destroy your wealth. For every home run to be flaunted in the media there are hundreds of strike-outs. Risk and reward are always related. There is no free lunch. There are no shortcuts to build wealth. EPISODE HIGHLIGHTS: (0:28) News: US Inflation at highest level since 1982. Unemployment dropped to lowest level since 1969. (1:56) Starbucks employees at a location in Buffalo voted to unionize. (3:19) SEC Chair, Gary Gensler took aim at SPACs and the risks they pose to investors. (4:20) The indexes are near all-time highs which is hiding the carnage of many speculative stocks. Many are down more than 50% from their highs. (5:31) Are you a long-term investor or are you gambling to hit a home run. (6:03) There are over 6,000 different cryptocurrencies. Picking the few winners is too risky to bet your financial future on. (7:17) The fundamentals of an investment are the science and logic behind it. This drives a future value that should be your gain. (7:55) Crypto makes huge claims that are a stretch to ever be realized. (9:15) Crypto is only one use of the blockchain and it's possible to not even be the best use of the technology. (10:20) You can apply the same logic picking crypto to stock picking. (11:00) Over Allocating to too few companies or too few cryptos can unnecessarily risk your wealth. (12:00) If you have your core priorities taken care of, then you can take speculative risk. You can take chances on low percentage opportunities with massive upsides. Because if you lose it all, your financial security is not in jeopardy. (12:47) Markets have been said by some to be overvalued for the last decade. If you had acted on that information waiting your returns would be terrible. (13:20) Valuation data doesn’t correlate with forward returns. If they did, it would be easy to outperform the market. (14:20) Media never goes back to see if they were right with their predictions from the year before. Keep a look out for all these fortune tellers heading into the New Year. (15:30) Market valuations are high but that knowledge doesn’t help you with forward returns. (16:38) Speculating is fun when it comes to fantasy football, sports gambling, and casinos. Building generational wealth with science and data removes the uncertainty of hoping to get lucky. (17:45) The media loves to rile up investors predicting gloom and doom. They also feed greed. This is their business model. Your advisor should cut through the noise they create and give you the clarity you deserve.
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