You Can't Out-Return Bad Money Management

In last week’s AWM Insights, Brandon Averill, Erik Averill and Justin Dyer highlighted more hopeful news from the week – this time out of the UK, as they become the first country to approve a COVID-19 vaccination with it rolling out this week and through the end of the month. With additional vaccines now being distributed around the world, a recent report showing a drop in unemployment, and continued conversations on a potential additional stimulus package in the US, the big question is: how does this impact portfolios in the short and long term? Here is a breakdown of the 4 key takeaways from the episode:

Vaccinations Begin

The vaccine rollout and potential impacts on the economy are fully in the news cycle this week. Obviously, this is great news and a testament to the strength of the pharmaceutical industry to create a vaccine in such a short period of time. If you think you can make easy money now in any of these vaccine stocks, you are about nine months late to the game. These stocks have reacted and adjusted for this reality since the search for a vaccine began way back in March.

Stimulus and Debt in the Economy

Is all this stimulus good for markets? Brandon weighs in on the short term implications: “And I think it's too difficult to say. The markets are going to adjust to whatever the impact is there while they may be very beneficial short-term. And I think that's largely why the decision is being made to introduce stimulus to help buoy the economy to help get businesses or keep businesses open through such a difficult period of COVID.” Short-term help for the economy can provide a bridge to the other side of the pandemic and the economic expansion the market is currently pricing in.

The long-term results of massive spending are less obvious. “Additional debt is not necessarily a good thing longer-term, and that's kind of what the Republicans have hung up on. Now, you have to balance that with the fact that we're going through a pandemic and there's kind of a trade-off between two just bad options, right? More debt, or shutting down the economy, impacting the economy, hurting households and individuals,” said Justin. The long term impact of this debt on future investment returns will be determined over the next decade but it is logical to expect lower future returns than have been realized in the past.

You can’t out-return bad money management

As Erik describes, investing helps build wealth but is not a silver bullet: “it's worth actually implementing what's going on in the markets today in the most appropriate way is saying it doesn't sit in isolation. It actually impacts you. You have to save money, right? The stock market and investing in general is not some magical machine that's going to overcome your lack of core money management principles, right?” There are many asset classes to allocate capital to and they must be continually evaluated on their future return expectations. Allocation to a diversified strategy has been discussed frequently on AWM Insights, the latest being here.

It’s about your long-term plan and customized financial structure

The term financial structure is mentioned frequently on the podcast and it is ultimately what drives your wealth creation. Focusing on only a portfolio is not enough to build and maintain wealth. The comprehensive financial aspects of your life must be evaluated and then optimized in a coordinated manner. Investments is just one part; human capital, tax optimization, risk reduction, insurance, are some of the other parts that just scratch the surface of protecting wealth. Each plan is a customized and flexible service that seeks to win the outcomes you want.

Big brokerages are not a good fit for athletes because they are for the masses; not specialized situations. Erik ends the podcast with what happens at those places: “And you end up in a 60/40 that looks like the other 40,000 people that are clients at the big brokerage houses. And I think that's the difference is you've worked hard for your money, you demand excellence of yourself at what you do, and you deserve that on the advisory side. You deserve customized, tailored portfolios to meet your specific needs.”