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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.
Justin Dyer: Hey everyone.
Welcome back to a WM Insights.
It's our last episode in the series we've
been doing on, uh, building a sound,
human-centered investment portfolio.
Hopefully it's been, uh, been, uh,
uh, entertaining and, uh, informative,
probably more so than entertaining.
Uh, but, uh, with, with.
The, without further ado, we're gonna dig
into this the last, um, topic here, which
is really focusing on the building blocks.
The, the, how this all comes together,
actual asset classes and, and specific
assets in some cases that we pull together
to build and construct this resilient,
human-centered, purpose-driven investment
portfolio that we've been talking about.
More kind of in concept over the last,
uh, what is this, four weeks now.
Um, we started off with why.
Talk a little bit about how, from
a high level, um, certainly hit on
human centered and why that is super,
super important in our opinion.
And then again, we're bringing
it all together with the building
blocks conversation, uh, here.
And the first level of building
blocks are, uh, asset classes.
Why that matters.
You can think about asset
classes as your team rosters.
Certain players on that roster
serve certain roles, offense,
defense, special teams, et cetera.
Um, and when you bring this all together,
you, you have this really robust
portfolio that has growth and stability.
Accustomed to your priorities,
your human-centered nature, uh, put
together to manage risk and, and
really accomplish long-term growth
and ideally multi-generational wealth.
So, Mina, let's jump into it, uh, and
give us the, the high level definitions of
these asset classes I keep talking about.
Yeah, I'll
Mena Hanna: yeah.
And the lay of the land.
We'll start with cash because
cash is the OG asset class.
It is just fundamentally
needed in everyone's portfolio.
It doesn't make you a lot of money.
It's not very interesting.
But, you know, you need cash to, to
pay your bills, to pay your mortgage.
Um, you're not gonna pay American Express
with, you know, apple stock or maybe a
little parcel of land from your backyard.
You need, you need cash.
So.
Justin Dyer: hard, hard, cold cash.
Cash is king, right?
Mena Hanna: is king.
Um, so yeah, that's, that's really one
the, the starting spot that we should use.
And then in terms of investible
asset classes, there's fixed income.
So fixed income's really the
backbone of your portfolio.
You know, we talk about it all the time.
It provides stability, it provides income.
Not flashy, but needed in market
downturns like we saw two months ago.
Um, and it creates, creates a bayou.
Justin Dyer: Right?
And also known as bonds, or
really, these are, these are
just loans to, to someone else.
It could be the federal government,
it could be to the state
government, it could be to apple.
Uh, bonds are just
loans in your portfolio.
Yeah.
Mena Hanna: And then next we start
getting into the more, more interesting
asset classes, public equities or stocks.
You know, those are the primary
growth engine of the majority
of people's portfolios.
And there's a lot of different kinds.
There's, you know, US stocks,
international stocks, merging market
stocks, some real estate stocks.
Large and small companies.
So there's a wide range
plethora of offerings.
Um, but yeah, those are, those are
generally more used for growth.
And then
Justin Dyer: to add, right,
those stocks or equities, that,
that's ownership in a company.
Um, it could be public or private,
and you're gonna get into the
private side of the world.
In a second, I imagine.
Yeah,
Mena Hanna: Yeah.
Publicly traded companies are
traded on exchanges, very liquid.
You can buy and sell them easily.
Private market assets and alternative
assets just in general, harder to sell.
They're less standardized,
less commoditized.
You can think about those as
private real estate, private equity,
venture capital, some of these just
non-traditional investments a lot.
Um.
Yeah.
And, and they differ from public
stocks and public equities in the
fact that they're not standard.
It's harder to buy and sell them.
And, uh, it does create getting
ahead of myself, but it creates a
little bit more opportunity, I would
say, for, for outsized returns.
But that also comes with risk.
Justin Dyer: Yeah, that's good.
And that's good.
We can leave, leave a teaser out there.
Um, okay, so I know for a decent number
of you all, um, that was pretty basic,
but we, we always like to start with
first principles and make sure we're,
we're all in a level playing field.
Um, and so now that we have the, the
common definitions down, let's get
into bringing these all together.
Truly kind of the, the heart
of this conversation today.
One framework that I always
like to say, maybe it's helpful
for you, maybe it's not.
It.
Is when we go to build
an actual portfolio.
One way to think about how we
how we do that is, is start with
the foundation first, right?
You can use an architecture analogy
or you could use, i, I often say
Maslow's hierarchy of needs or, or
Maslow's hierarchy of portfolio needs,
where we want the basic needs met.
First and foremost, and I mean, I'd love
it, I'd love for you to walk through
that thought process for, for everyone
today around how we bring these together.
What are the basic foundational
assets that we use first and why?
And then layer on risk, to your point,
and, and take op, take, uh, advantage
of opportunities in other places.
Mena Hanna: Yeah.
And I guess starting on the ground
level, um, in the hierarchy,
you know, we talked about cash.
Cash is, there needs to be
in your checking account.
So when you swipe your card,
it doesn't get declined.
Uh, if you're using a checking account.
If you write a check again,
does not get declined.
It's there to meet your really short
term needs and cover your bases.
But I would say there's also a
psychological element to, you
know, logging in and knowing
that you have multiple months
of coverage is, is important.
So that's also one thing that, that we
help our clients with is just making
sure that they have enough cash but
not too much cash, where it's, it's
a general drag on their portfolio.
Um, so that's, that's the ground level.
Moving up to the second
floor fixed income.
Um, yeah, we talked about how.
Fixed income or bonds act as a, a
defensive part of the portfolio.
They dampen volatility.
They're, they're a little bit
more predictable in terms of the
income streams that they provide.
You know, I'll tease this out now,
but fixed income is probably the
most, uh, passive form of, uh.
Passive income.
So there's that, and, and you get
that just from the coupon and the
interest payments primarily from
governments that you lend money to
municipalities like, you know, cities,
school district, corporations like
Apple, Nvidia, when they issue bonds.
So.
Yeah, there's still risk in them.
Um, you can throttle up or down
the risk that you, that you want to
take, um, that impacts the return.
But ultimately these are, are safer
assets and if we do actually need to, you
know, replenish a client's portfolio, uh.
Justin Dyer: uh, a
Mena Hanna: Client's cash portfolio.
We typically do that with fixed
income because it's pretty steady,
Justin Dyer: right?
In our portfolios we're, we're using
fixed income as that true ballast
we're not taking a lot of risk.
There we're matching fixed income with
shorter term super important priorities in
a very kind of dollar for dollar manner.
Right?
Mena Hanna: Yeah.
And, and it's really helpful because
like if an unexpected priority comes
up, you, you need to buy a new car.
Uh, even though you lent money
to the federal government, we're
easily able to get that money
back at a pretty stable value.
And there's really, there's really
no, no damage dealt, um, even if
markets are not in a good place.
Justin Dyer: so once we have that
foundational piece, cash fixed income,
really dialed in to meet short term
needs, what we call the protective
reserve liquidity, um, and spending
potentially over the, the, uh, near term.
Where do we turn to next
and how are we scaling?
You know, I'm gonna lead, lead the witness
here, but how are we scale scaling risk
and, and, and potential return from there.
Mena Hanna: Yeah, and we're,
we're scaling it by time.
You know, if you don't need assets for
multiple years, then we can use those
and put them in the growth portion
of your portfolio and have, create
multiple drivers of growth that lead
to hopefully excess returns over,
you know, longer periods of time.
There's always gonna be
fluctuations in value, but.
The longer that you hold growth assets for
historically, the better that you'll do.
So
Justin Dyer: The good old adage of
compound interest being an incredible,
uh, incredibly powerful force.
Mena Hanna: compound interest and, uh,
patience and discipline, definitely,
uh, add and create a lot of value.
Um, so public equity stocks, like we
were talking about, that's really,
uh, the most simple way of doing
it and the best way historically
to actually take advantage of.
The stock market and public markets
in general is to diversify, and
that's diversifying across sectors.
So you don't want, you know, only
to be investing in energy or tech.
You want broad-based diversification.
We've seen that, you know.
Apparently, um, and pretty
profoundly since COVID.
Uh, so yeah, that's one, that's
one really core principle.
And then you also want to be
geographically diversified.
We've seen that this year
where you don't want all your.
Justin Dyer: public
Mena Hanna: portfolio to be in US markets,
you need international diversification.
And IT this year, if you were
not internationally diversified,
you know, you were hurt by that.
So international and geographical
diversification, super important.
And then there's also diversification
in different size of companies.
You know, a lot of people look
at the s and p 500 and think
there's only 500 companies that.
You should buy and you should
only focus on the big names that
historically, uh, has not been true.
So diversifying and owning as much
of the global economy as possible
is really the most effective way in
playing the game of the public markets.
Right?
Justin Dyer: And it's important to hit on
the, this idea that's the most important
way to play it in the highest probability
or most confident manner, right?
We want to do things and with
confidence in mind, with confidence
in expected returns that support the
human and and the human's priorities.
Mena Hanna: Yeah, absolutely.
And then we shift, if
we shift to real estate.
There's both public and private real
estate, um, and real estate's interesting
in that it provides a blend of, of
income and capital appreciation.
It also provides inflation
protection and some tax advantages.
So you can access that
either publicly or privately.
Um, are.
Methodology as, as you guys can all guess,
is you need a diverse blend of both.
Um, can't really just
focus on on one area.
You can't be under diversified, overly
concentrated into a single property,
single market, single type of real estate.
There has to be broad level
diversification because there are
risk factors that are unique to
real estate leverage, illiquidity.
Concentration.
You know, if you have too much real estate
in Florida and a hurricane comes through,
that can impair your portfolio forever.
So we definitely don't want to do that.
And then moving on to the last real
main asset class private markets.
Private equity and venture capital are
the markets that we, we really focus on.
Um, those offer a different set
of diversification benefits.
You're owning smaller companies
from, from a relative standpoint
to the public markets.
Um, and you're typically getting into them
at advantageous times if you're investing
with the right private market manager.
So.
That creates, uh, I, I would say an
interesting component to the team,
and you can think about it as having
like a great special teams unit,
like a great kicker, great punt
returner, great kickoff returner.
They can really add significant value
to your team over long periods of time.
Uh.
And if you don't do it well, it
could be an absolute disaster.
So making sure that that side
of the ball is dialed in is,
is super important as well.
Justin Dyer: no, you're gonna let
it, let it get to Jeff's head there.
Um, so all right.
That's super helpful and
Mena Hanna: and, and
Justin Dyer: as we start to bring this
to a conclusion, land this plane here.
Um, one thing we want to hit on
briefly is, is how we go about
selecting the actual, um, assets that
fulfill these, these, these asset
classes that we've talked about.
One key principle we've hit on,
it's a, it's an analogy that I
love is, is we think about really
trying to be the casino, right?
Where can we stack, I said it earlier,
where can we stack the odds in our
favor, the probabilities of success
in our favor, where we're we're.
Operating with a much
higher level of confidence.
So our clients, you all can meet
your actual goals and priorities.
That is the, the standard in
which we set ourselves to.
We don't want to show up at the
casino and be the gambler and, and,
you know, play this game and this
game and this game and just kind of
chase our tail, play whack-a-mole
and then end up with, with nothing.
Right?
Those are the, the extremes of this.
And so as we think about the
characteristics that we look
for, it's really data-driven.
Um.
Academic leaning
Mena Hanna: in nature.
Justin Dyer: What is the data say?
Where can we see data telling us a
really, really, really strong story?
Thinking about costs, whether they
be actual management costs or taxes.
We want efficiency there.
'cause any cost.
From the portfolio is not ending
up in, in our client's pockets.
And then where can we take more risk or
less risk and different types of risks.
So you talked about the
private markets, right?
The manager there matters a ton and
that's a, that's a, a risk we're
calculating and deciding to take.
Whereas in the public markets,
you don't really want to.
Put risk in somebody's
ability to pick stocks.
It just doesn't make sense there.
And then of course, diversification,
systematic rebalancing, bringing it all
together into a customized portfolio
that has a risk managed approach
tailored to, to you specifically in your
priorities, in your human-centered nature.
So.
Mena Hanna: um,
Justin Dyer: hopefully this series
overall, all overall was super helpful
for everyone and, and gives you a
pretty good glimpse into what it takes
to build a sound investment portfolio.
And, and most importantly,
kind of the human centered,
uh, sound investment portfolio.
Um, we really view investing and,
and, and wealth, um, the best.
Way to, to manage wealth to be done
through a purpose-driven lens in
a disciplined, long-term fashion
that will drive multi-generational
wealth, that will drive comfort and
hopeful, hopefully understanding
and the ability to sleep at night.
Um, and, and really at the end
of the day, hopefully, um, just
a better understanding of, of all
that goes into this overall process.
So, uh, I'm gonna wrap there.
Hopefully again, it was helpful
if you guys have questions.
Definitely, definitely, uh, reach out.
Um, and we will, we will continue
insights beyond this and, and back to
kind of our regularly scheduled program.
But until then, own your wealth,
make an impact, and always be a pro.