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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.
AWM Insights: Hey everyone.
Welcome to a special episodes
of episode of a WM Insights.
It's been a while.
Uh, it's good to be back, uh, under,
uh, some fortunate circumstances.
Uh, but we're here to, to help,
uh, give some perspective on the
current market environment, which
is, uh, um, pretty negative.
Uh, right now, um, we're gonna go through
how we think about it, kind of what's
going on high level, um, but really
how to reframe this and, and think as
a long-term investor, which, you know,
is really our, our, uh, our mo here.
So, um.
Just really jumping into
it, uh, immediately here.
Um, what is a tariff?
What are we talking about?
You know, uh, quite simply, a tariff
is a tax imposed on imports, um,
attacks by the government imposed
on imports into the United States or
in, in any country for that matter.
Um.
And we, we all know probably that,
uh, there have been, um, new tariffs
issued really across the board,
sweepingly across the board by the US
government, uh, against pretty much
every trading partner that we have.
So, um, the, the market reaction to
that has been, um, fairly negative.
Uh, tariffs were announced
on Wednesday of this week.
We are recording this on Friday.
Uh, the idea initially for those
tariffs were to, to bring, uh, our
jobs back to the United States.
Time will tell if that actually uh,
happens, but certainly the market doesn't
like what, what is happening right now.
We're gonna unpack that a little bit.
Um, furthermore.
Countries have responded
with retaliatory tariffs.
Uh, and that is concerning
markets, I would say even more.
So we're questioning whether or not we're
entering into a trade war, uh, or is this
a, a, uh, a move by the, the US government
where they're, they're hoping to escalate,
to deescalate, hopefully relatively
quickly, um, and, and appease markets?
We will see.
I would say so far, markets
aren't believing that.
Uh, that general narrative, but,
um, we're gonna get into that.
Meina is here to, to talk through about
a little bit why, uh, we think markets
are react, reacting, neg negatively.
I shouldn't say we, I think this
is a general interpretation of
market participants, but why don't
you take it away Mina and, and
go through the, the nitty gritty.
Yeah, and we've talked about it before.
Markets are a voting machine.
And right now they're voting
not in favor of tariffs clearly.
So really because of what you define
a tariff as it will increase the cost
of imports, markets are factoring
in that there is going to be less.
International trade and things are going
to be more expensive for consumers.
We saw this with inflation where prices
for goods were going up across the board.
We might see something
similar just based on tariffs.
Now the price increases
aren't due to inflation.
They're due to price tariffs, but.
Nonetheless, consumers are
going to be paying more.
Prices are going up.
Yeah.
For products.
Yeah.
Um, and this really hurts companies and,
and revenue and earnings across the board,
which hurts valuations for companies.
So we have seen some indexes pull back 20%
plus, uh, which is called the bear market.
We've seen some indexes pull back 10%,
so they're in correction territory.
Um, the, the difference
really between those is.
Companies that were just more
expensive and at significantly higher
valuations with a lot of optimism
and speculation have been hurt
more with all of this uncertainty.
So.
And I just want to play
on that word a little bit.
You know, the last few days, certainly
a very, uh, uh, uh, vicious reaction,
but that uncertainty has been present
really since the beginning of the year.
I know we've said it, uh, on this podcast.
We probably say it in conversations
with with clients all the time,
but markets do not like certainty.
Businesses or certainty, excuse me.
Markets do not like uncertainty.
Businesses do not like uncertainty.
We want to plan ahead.
To make decisions.
And when the, the playing field is a
little bit shaky and uncertain, it's
really, really hard and, and create
some nerves, that's definitely a huge
factor that's also, uh, at play here.
So what'll happen from here?
Uh, exactly what you were saying.
No one knows.
We don't have a crystal ball.
No one has a crystal ball.
Really.
Time will tell what happens
and at what magnitude?
Um, because this is a very
complicated, complex situation with.
A lot of moving pieces, so,
um, yeah, only time will tell.
Let's talk about actual client portfolios.
You know, how do we think
about times like this?
Um, when markets are correcting?
Are we making changes?
Uh, yeah.
Can you give us the kind of nitty-gritty
under inside baseball that's used that,
uh, that terminology to, to explain
like, we come in on a day like today,
you know, are we buying and selling?
What are our internal conversations?
Yeah, and I think it comes
down to our approach and
really preparation in general.
If you are trying to prepare for an
event like this, when the event actually
happens, you're absolutely setting
yourself up for failure preparation.
And this is what we've done by
establishing a protective reserve for
our clients by adding that, that buffer
zone for their portfolios where they can
actually ride out storms like this is.
Is key and essential and really the
only thing you can do because being
reactive in a market like this,
it's, it's already too late to make
changes and steer clear of the danger.
The best you can do is, you know,
make sure that your portfolio is
a boat that can weather the storm.
Mm-hmm.
Yeah, that's exactly right.
And then additionally, we do have some.
Um, recurring activities that we're
always on the lookout for, to take
advantage of within the portfolio.
From a training perspective.
Maybe go through some of those.
Yeah, a few of them.
So tax lost harvesting, we can take
advantage of moments like this to
actually help reduce clients' future
tax bills, which is a benefit.
There's also repositioning
and rebalancing.
We've seen different markets
move at at different rates.
So we can take advantage of potentially
lower prices in certain markets and
invest money there and, and move money
around just in, in an optimal fashion.
The other part, which is in our benefit,
this baseball season is just starting so.
We're receiving inflows, clients
are protected, and the dollars that
are going into the market now are
going in at much, much more favorable
valuations and just better entry points.
So in terms of the baseball season,
it's actually paychecks are hitting
at, at a decently favorable time.
Yeah.
And we're obviously
emphasizing US markets.
Uh, right now.
The, the, the de the decline is
pretty broad based around the world.
Presently.
Um, but it's, it is important and you may
have hit on it, but it's important to make
sure we, we revisit the, the time tested.
Tried and true benefits
of diversification.
It has been a great, um, uh,
source of actual returns in
portfolios so far this year, uh,
being diversified outside the us.
That's been a, um, it's been a story
that that's been, I think questioned
I would say maybe over the last few
years 'cause the US has done so well.
It's not to say other markets
haven't performed positively, but
the US has been the dominant, uh.
Market.
And that certainly has not
been the case so far this year.
And so diversification truly
matters in times of crisis.
Um, and, and you know, we're happy to
see those results, uh, so far, year
to date, again, I know a lot of the
decline is pretty broad based right now.
Um, that happens in times of stress, but
overall, it's been a great benefit to
portfolios so far, year to date being,
being more in that diversified position.
Um, let's, let's start to
wrap things up here with.
Some, um, some core tenets of kind
of, uh, uh, of investment, um, let's
say, uh, investment, um, foundations.
So starting with this idea of uncertainty,
we say markets don't like uncertainty.
You can't get rid of
uncertainty, period, right?
There's this, a great quote around risk.
Risk is what's left over when you've.
Forgot about or when you've thought
about everything else, right?
That, and that's exactly what we're
seeing today or in times of crisis.
Uh.
But why is uncertainty, why
is risk important within the
broader context of, of investing?
Risk is important because some people
can't stomach it and the people that
can't stomach it, unfortunately don't
reap the benefits over the long term risk.
You know, as we're seeing right
now is, is short term movements.
It's movements down.
I think Covid was a great example
where people over a couple weeks saw
their portfolios go down by 30%, but
then in, in the next 12 months, saw an
incredible rebound and that's, that's
both sides of risk playing out with the.
Downside and the reward element when
you are able to, to weather the storm.
So this uncertainty in, in
your outcomes really is, is how
financial markets reward you.
Um, and investing in, in investments
that don't have uncertainty like.
Fixed income like bonds, you still
realize a return, but it's a lot lower
than the route that involves risk.
Yeah, exactly.
We always like to say risk and return
are related and you know, I think
that that can be maybe interpreted
as a cliche at times, but when, when
we're in environments like this,
whatever the catalyst for those
crises or corrections or marketing
movements are, that is risk that.
You are rewarded for taking over
the long term and drives longer
returns by being invested from being
invested in, in equity markets.
To your point, um, a couple other things
I just want to hit on before we wrap
here is, you know, the, the idea of
reacting to a crisis where, where it
can feel really, really uncomfortable
in the moment we know from the past.
I mean, this is really tried and true.
Uh, throughout time reacting
in the heat of the moment.
Like you said when we were talking
about per portfolio construction, you
don't wanna react when the crisis hits.
You wanna be prepared ahead of time.
It's too late to react kind of
when you're in the moment here.
You need to have that plan ahead of time,
uh, and structure ahead of time and, and
really at the end of the day, reacting
is another form of market timing, which
we all know is, is a fool's errand.
You have to get it right two times.
Right when to get out and then
okay, when to get back in.
And you'll have all that
crazy anxiety there as well.
So, um, it, it's just good to
remember we're getting higher
expected return to your point.
By taking on risk, risk manifest
manifests itself in many ways.
Right now.
It's a pretty, um, uncomfortable
market correction, but it,
it's normal, I would say.
Um, and reacting, we know is, is
the wrong way to, to deal with this.
Be patient, be disciplined, take advantage
where you can, you know, the great old
adage control what you can control.
Uh, it is what we do in times like
this and how we, we stay disciplined.
So we can capture those higher
expected returns over the long term.
The, the final takeaway I would
say is, you know, many will say, we
will probably hear in the news, um.
In, in opinion pieces, et cetera,
that this time is different.
Uh, and we know that history never repeats
itself perfectly, but it does rhyme.
And certainly within the
markets that is the case.
The cause for crisis, the cause
for negative returns can be
different, is often different.
But we know.
Discipline is rewarded over the long term.
I do think there's going to be continued
volatility in this present day, in this
present market because we're really,
uh, you know, in the middle of, of
a new, um, geopolitical environment.
And exactly how that all unfolds
is, is yet to be determined.
So volatility and uncertainty
are gonna be present, but.
Staying disciplined, controlling
what you can control, how we can take
advantage of certain movements in the
portfolio is, is what we're here to do.
And, and, and certainly
answer any questions.
So please reach out if
you do have questions.
We are, we're here, we want to make sure
everyone understands the logic o of, of
how we are building portfolios, how we're
trading within this environment, and,
um, and really stored in your wealth.
Uh, forward.
So with that, uh, we wanna wrap
and say, own your wealth, make
an impact, and always be a pro.
AWM Insights Intro: The information
in this podcast is educational
and general in nature, and does
not take into consideration the
listeners' personal circumstances.
Therefore, it is not intended
to be a substitute for specific.
Individualized financial, legal, or tax
advice to determine which strategies
or investments may be suitable for you.
Consult the appropriate
qualified professional prior
to making a final decision.