AWM Insights Financial and Investment News

In this episode of AWM Insights, Chief Investment Officer Justin Dyer and Portfolio Manager Mena Hanna revisit the fundamentals of building a resilient, multi-generational investment portfolio. Using the “100-year home” analogy, they break down why bonds and fixed income form the bedrock of lasting family wealth, drawing parallels between solid financial foundations and future-proofing against life's surprises. The conversation offers engaging stories, practical wisdom, and a timely look at how decisions by the Federal Reserve can impact your long-term goals. If you’re looking for expert advice on safeguarding your wealth for generations, this episode delivers fresh perspective and actionable insights.

Chapters
(00:00) The Foundation of a 100-Year Portfolio
(03:00) Importance of Building With Foresight
(07:00) Flexibility and Adaptation Over Time
(09:00) The Role of Interest Rates and Inflation
(12:00) Federal Reserve's Influence on Bonds

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Creators and Guests

Host
Justin Dyer
Chief Investment Officer and Chief Operating Officer at AWM Capital
Host
Mena Hanna
Senior Investment Analyst at AWM Capital

What is AWM Insights Financial and Investment News?

A bite sized discussion on timely financial news and investment topics, to help you maximize your net worth and wealth for the next generation with Justin Dyer and Mena Hanna of AWM Capital.

Mena Hanna: The starting place,
the foundation, is fixed income.

They're bonds.

Not very sexy, not very interesting.

No one's ever gonna give you a
compliment about your home's foundation.

I don't think anyone really will
look into the crawl space and be

like, "Dang man, that's a nice one."

But at the end of the day, it is what's
responsible for keeping your home upright.

Justin: Hey, everyone.

Welcome back to another
episode of AWM Insights.

It's your host, Justin Dyer, chief
investment officer here at AWM Capital,

and joined as always by Mina Hanna,
our portfolio manager here at AWM.

And today we're gonna, we're gonna
actually talk kind of a, an extension

of an internal meeting that we,
we gave to the team yesterday, um,

around just, like, the fundamentals,
going back to the basics.

It's always great to revisit,
uh, revisit those fundamentals,

whether you're investing or, you
know, playing baseball, football.

Choose your sport, choose
your, your profession.

You know, it's, it's always, uh,
um, a very, very healthy exercise

to, to challenge yourself on
the fundamentals and, hey, do we

have the basics dialed in here?

Um, and you know, really w- without
giving too much of the conversation

away, the fundamentals of building a
best-in-class, uh, investment portfolio,

institutional grade investment portfolio
really starts with the foundation, right?

You can…

And we'll probably talk a lot
about, uh, uh, the home analogy,

home, home building analogy.

You can't build a hundred-year
home, a hundred-year family without

the proper foundation in place.

And what that then ends up looking
like from an investment perspective

is i- is investing in bonds and
fixed income, as, as we call it.

It-- there is such a close relationship
between fixed income, interest rates

throughout the economy, and inflation.

And interest rates and inflation
are both very, very important

to the Federal Reserve.

I'm sure you all know that name, and,
uh, this is also kinda teasing out

a, a conversation or an interview
we're gonna have over the next couple

weeks with someone who knows that
whole world exceptionally well.

And so really kinda laying some frou-
uh, groundwork today, but also going

to the fundamentals in anticipation
of that conversation down the road.

So we're gonna get into that today.

Mina, um, always do, I guess, let,
let's start with, with the basics

and build on that conversation.

So building a best-in-class
institutional portfolio.

I, I referenced the house, building the
house analogy, building that hundred-year

home, that hundred-year portfolio.

How does, how do, how do we do that in,
in, you know, uh, a summary-type term

Mena Hanna: Yeah, and I wanna, yeah, I
wanna sort of stress the hundred-year

home piece because if you're building a
home, you ideally want that to be there

for, you know, if this is, if this is
your family home forever, if this is

a multi-generational home, you want it
to be there still and you want it to

be upright, uh, in a hundred years or,
or in however long it actually takes.

Uh, we're, we're sort of very fortunate
to live in Southern California, but

there's downsides like earthquakes.

If you are going to build a home here,
you're gonna build it up to spec and up

to code, especially from a foundation
standpoint, so it can weather the seven,

seven point five earthquake that is
inevitably going to hit California.

Now, we haven't had an
earthquake that's that big.

Uh, it's kind of like
financial markets actually.

Like, the last real, uh, sell-off that
we've had in equity markets that's been

prolonged has been two thousand and eight.

The last, call it, substantial
earthquake that we, uh, that we

had here was twenty nineteen.

We are in a period of time where we're,
we're spoiled, and a lot of people in

these periods of time get complacent and
don't focus on, on the fundamentals, on

the foundation of the system, which is,
I would argue, the most important thing

if you wanna make sure that your house
is, you know, upright in a hundred years.

So the starting place, the foundation, as
you, as you referenced, is fixed income.

They're bonds.

Not very sexy, not very interesting.

No one's ever gonna give you a
compliment about your home's foundation.

I don't think anyone really will,
uh, will look into the crawl space

and be like, "Dang man, that's
a, that's a, that's a nice one."

Uh, but at the end of the day,
it is what's responsible for

keeping your home upright.

It's responsible for also, you know,
laying out the framework of all of

the other interesting things that
you're gonna have in your home, your

kids' bedrooms, so that they don't
have to, you know, sleep in your

room and you don't have to hear them.

Uh, the, the pool house, you know,
we, we always make that analogy.

The garage for me.

So all of these things, all of these
things end up kinda being meaningful.

Um, but they, they start and
they fundamentally need to be

established by a foundation
that's not all that interesting.

Justin: Yeah, I mean, I, I would,
uh, pull on that analogy even a

little bit further as well, right?

Like the-- not only is the foundation
e-exceptionally important for all the

reasons you're talking about, figuring
out the right foundation you want ahead

of time is arguably just as important, and
maybe those two things go hand in hand.

But, you know, the, the analogy here
is like you, you build, uh, a, I

don't know, a three-- a foundation
for a three-room house, and then

five years later you're like: "Oh,
I actually need a second story."

Well, guess what?

If you didn't build the foundation
to deal with the second story, you're

potentially in a pretty bad situation,
or you have to start all over again,

or something like that, right?

Like that is, that is also really,
really important in this conversation.

And the, the true analogy here is,
um, or the true reality, that's the

analogy, but the true reality is
w-we We need as much precision as

we possibly can around priorities.

What, what are important to our clients
so we can build that proper foundation.

Yeah, we know that life is not 100%
predictable ahead of time, but let's,

you know, err on the side of caution, if
you will, or let's try to capture as much

hypothetical or potential as possible so
we can start that foundation, especially

if s- if someone is early in their
investing career or playing career or,

or professional career for that matter.

If we can start with as many, as much
precision and, and erring, erring

on the side of conservativeness,
then that foundation is very much

set up for that 100-year journey.

The portfolio is, again, is set up
for that 100-year journey, uh, through

the, the protection and, and solid
construction of a bond portfolio.

Mena Hanna: Yeah, the cool thing too
there, um, and you, and you sort of

highlighted it, was if you set up the
foundation in the right way, you're

actually setting your odds up of, of not
just overall success, but you're giving

yourself the opportunity to pivot even
when there is, there is potentially

a disaster, when things do go wrong.

If you have a kid when there's, there's
a natural disaster, people, you know,

your home hopefully was built in
the right way, it's still upright.

You don't have to be rebuilding.

But if you have a kid, you need to add
that extra bedroom while everyone else

in the market is rebuilding and you
weren't thoughtful about planning, you're

gonna have a terrible time trying to
find, you know, a contractor or someone

that's willing to take on that project.

Getting ahead of things, establishing
the foundation in the right way, I

would argue not only just protects you
in the long run, but helps you with

these kind of nimble decisions that
sometimes just our clients have to make.

A lot of our clients are just, you know,
honestly on the, on the younger side.

There's, there's just a lot
to life that's happening.

There's a lot of shifting
that's happening.

There's marriages all the
time, kids being born.

There is the desire, and I would argue
the need to be nimble and, and to shift.

Setting your foundation up in the right
way, having the right site plans, having

the right land, the basis for, you
know, this, this hundred-year family

is amazing for you over the long run,
over that hundred-year time period,

but also adds a lot of just convenience
and I would argue also ability to, to

shift and pivot when, when necessary.

So it, it's, yeah, it, it's multifaceted
in terms of the benefit that a

well-thought-out foundation can add.

Justin: Cool.

Well, I, I, I think we've, we've
used this housing analogy, home

Mena Hanna: Yeah

Justin: home build analogy enough.

Maybe we'll, we'll, we'll

Mena Hanna: Thank you very much

Justin: in one or one or two more times.

But let's, let's take the conversation
to, okay, we've talked about the

foundation, we've talked about that
being bonds, which again, bonds are,

are loans to, in many, most cases in,
in this point, uh, in this conversation

are, are loans to the federal government.

So very, very safe loans that you
get paid back at some point in time.

Interest rates are a critical part
of those loans, those bonds, right?

We-- you, you make an investment,
buy a bond, you get an interest rate.

Um, very closely related to that is
inflation and the Federal Reserve.

Let's talk about the inner workings
of, of those, let's call it three

components, three variables,
however you wanna define it, Mina.

Mena Hanna: Yeah, and they're
all, they're all tied together.

The analogy that I've sort of come up
with is the Federal Reserve is in charge

of the traffic and movement of money.

So they have their, their target.

They ha- they set a two percent
inflation target long term, and they

are in charge of making sure that
that money and, and sort of traffic,

if you will, flows at that rate.

Now, we live in LA, we
have a ton of traffic.

What the Federal Reserve can do during
periods of time is open up new lanes in

the freeway to make sure that, you know,
money is flowing through and inflation

is around that two percent number, which
you can effectively think about as like

a sixty-five mile an hour speed limit.

If there's too much traffic, if, you
know, the economy is not functioning

appropriately, they're going to open
up more lanes and help, you know,

traffic flow ideally at, at the speed
limit and get, get the economy moving

back at the speed that it actually
ideally should move, and that long term

is at a two percent inflation rate.

The other thing that they also try
to fight is people that are going a

hundred miles an hour on the freeway.

You can't open up twelve lanes
in every which way or else people

are going to, to move too fast.

In a period of time is, is sort
of the two years after COVID.

Inflation was at nine point
one percent year over year.

It peaked at that number.

That's sort of like if the average
speed on the freeway is one twenty.

Totally dangerous.

That destroys value, that
destroys purchasing power for

investors and for consumers.

So what they do in a situation like
that, they hike interest rates.

They try to reduce the
speed of the freeway.

They close down some lanes, and that
hopefully gets the market back down

to a spot where traffic is still
flowing, but it's flowing at, at

the rate that they want it to flow.

So the, the real lane opening, closing
is, is the lever that they can pull on.

They wanna make sure that
the economy is, is moving.

There is the right amount of flow.

Um, there isn't a traffic jam,
which would be essentially a

recession or an economic slowdown.

There isn't kind of the Wild Wild West
of the Nürburgring or, or, uh, I, I can't

remember that road in, in Germany that has
no-- the Autobahn that has no speed limit.

Um, that's, that's the opposite place.

But so yeah, they are trying to
find that sweet spot and manage

inflation to be at the right level.

Justin: Yeah, that's super helpful.

And so kind of bringing
this together, right?

We have foundational aspects of, uh,
the 100-year home, the 100-year family

being the bonds a portfolio, the
fixed income part of p- the portfolio.

The way we allocate those are generally
speaking to US government bonds, which

are very, very closely tied to the, the,
the variables and forces that you're

talking about when the Fed increases
interest rates to try to slow things

down, well, that impacts the bonds you,
you are holding and, um, they're trying

to make sure that there's a little bit
of a, uh, a r- r- return or, um, yield,

as we call it, over and above inflation,
so we're at least keeping up on that.

And then you're able to accomplish
what is most important to you

with those dollars, right?

That is exactly what we're trying to do.

Money is a tool to accomplish
what's most important to you.

We protect the most important things,
uh, certainly over the short term

with income and bond type investments.

Those investments are directly impacted
or for, for the, the better and sometimes

the worse in, in times of stress by
what the Federal Reserve is doing.

So really, really important.

A lot of nuance to all this.

Hopefully, we didn't go too deep into,
um, the various aspects of Federal

Reserve policy setting, inflation,
interest rates, a- and fixed income.

We really wanna try to stay high level
and pretty, pretty basic here and build

on it and, and have someone who, um,
was really boots on the ground and

understands, uh, the motivation behind
the Federal Reserve coming on the

podcast in, in the next couple weeks.

So we're really excited about that.

We're gonna do our best to prepare
you listeners for that conversation.

Um, but also let us know any questions you
may have, both res- with respect to this

topic, this conversation, or otherwise.

We love talking about it.

Mina will give you the

Mena Hanna: Yeah.

Justin: text

Mena Hanna: 626-862-0355

Justin: Awesome.

And until next time, own your wealth,
make an impact, and always be a pro.

Thanks for listening