athlete wealth management

Professional Baseball is a Business | MLB Draft #2

What is the difference between amateur and professional baseball? Money.

Overnight, with your name being called in the MLB Draft and the signing of a contract, you instantly transform into a professional. Even though this might be your first decision based on money, you have been a part of the industry of baseball for years. Everyone around you has been making monetary decisions about you for years. A few examples include:

Perfect Game has estimated revenues in excess of $80 million
Name, Image, and Likeness (NIL) is creeping into the amateur ranks
MLB is an almost $12 billion dollar industry and they have been spending tens of thousands of dollars to evaluate you
Agents are making financial decisions about what you are worth to their business and whether you are a good investment

The industry of baseball has been preparing for you, but have you been preparing for the industry of baseball?

With everyone else placing a value on you and trying to maximize their return on investment, do you know how you can maximize your value to yourself, or even where to start?

Whether you have the skillsets or not and whether you are prepared for it, you are now the CEO of a multimillion-dollar business. As the CEO, you have the responsibility of whether the business of you will succeed or fail. That is a lot of pressure, but the earlier you recognize this fact, the better you can prepare yourself to handle this responsibility and maximize your opportunity.

One of the most important jobs CEOs have is surrounding themselves with the right team. As a professional baseball player, you don’t just need to hire a team, you need to hire the right team.

Your team should consist of:

Trainers
Physical Therapists
Dieticians
Pitching/Hitting/Fielding Coaches
Agents
A Financial Team
Mental Health Coaches
Recovery Specialists

A team like this will put you in the best position to be one of the few players that makes it to arbitration and free agency as well as to avoid the 4 times more likelihood of bankruptcy that MLB players face.

This harsh reality isn’t meant to scare you. Rather, it is to help educate and prepare you to seize the opportunity in front of you. Whether you succeed as the CEO of the business of you is dependent on understanding the opportunity in front of you.

It’s time for you to get to work!

Athlete Wealth Podcast

enNovember 28, 2022

mlb draft

baseball

draft

Why Your Portfolio Can Beat the Competition | AWM Insights #134

As a pro athlete or successful businessperson, you have heard this statement a thousand times, “control what you can control.”

Why?

It’s because every fiber of our being wants to react to the “noise” good or bad. We are easily caught up in the emotion of an event or views of the crowds.

This is where the pros are separated from the amateurs. The amateur reacts to what’s happening outside of themselves. Typically, rewarding themselves with feelings of comfort.

Yet, the pro resists. They know it’s all a distraction.

A pro is only concerned with what they can control. They choose to suffer through the feelings of doubt and discomfort. Investing is no different. Few will earn the returns they deserve.

What can you control?

A negative market provides one of the greatest tools to maximizes your long-term after-tax returns.

enOctober 29, 2022

portfolio

How Your Portfolio Is Built To Win During Bad Markets | AWM Insights #133

The S&P 500 is down ~23% year-to-date which has felt like an exhausting marathon.

Would you believe us that the -23% return has been created by only nine days? There are 254 trading days in a market year.

It’s a silly exercise but if you had the ability to avoid those nine days, you'd actually be up 9% year to date in the S&P 500.

Unfortunately, these were not nine consecutive days. And more importantly, avoiding the worst days means you risk missing out on the best days all but guaranteeing you destroy your long-term returns.

From 1/3/2000 – 4/9/2020:

Six of the seven best days occurred after the worst day.
Seven of the ten worst days were followed the NEXT DAY by either top 10 returns over the 20 years OR top 10 returns for their respective years.

Given this reality, if someone leaves the market after experiencing a poor return, it is literally impossible for them to get invested in time to benefit from the best day that may follow.

Over that same period if you stayed fully invested you would have earned 6%. However, if you were to miss only the 20 best days you would have wiped out your entire return. There are 7,398 days over that period.

The cost of being wrong is catastrophic. It’s not just that you don’t earn the returns you deserve it’s that you have less money putting at risk your ability to pay for your priorities.

It’s why we don’t player a loser’s game of attempting to predict the market.

We use the power of data and evidence to build your portfolio to earn higher expected returns and provide you with the highest confidence to achieve your priorities.

The key to staying in the market during difficult periods is know your portfolio has been built knowing in advance these periods would come.

Listen in to hear how your protective reserve is uniquely customized and the role bonds play in your portfolio.

enOctober 21, 2022

Is Ultra-High Net Worth Advice Different? | AWM Insights #122

How do you establish a family legacy that transfers to the next generation? This is the most difficult task ultra-high net worth families will face. Of course, technical expertise is important when creating a legacy that will last generations, but the next generation must be prepared to steward wealth. Waiting until it’s too late is the worst thing you can do as a wealthy family.

If transferring your family culture is important to you, the right team with the right experience can prepare your family for generational wealth transfer decades before it actually happens.

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:

(0:54) Why do you have an advisor? From just starting out up to ultra-high net worth ($30MM+), what is different in the advice?
(1:11) Mo money mo problems. With more wealth, the situation can become complex.
(1:37) Tax planning is essential for everyone but for UHNW it can be a huge impact.
(2:09) For UHNW, should you set up a foundation, or is a donor-advised fund better?
(2:58) The estate tax and estate planning allow you to leave more to your second generation or leave more to charity.
(3:25) If you’re wealth is illiquid, being thoughtful about how to manage that illiquidity is vital.
(3:54) Real estate is an illiquid investment that can take days or months to turn into cash.
(4:15) Determining how you set priorities and who is making decisions is an incredibly important part of the process. This is a complex and unique situation for each family.
(4:46) There are two categories, technical expertise is the most obvious and involves the expertise and team of experienced and qualified individuals.
(5:15) An example of technical expertise: our tax team found a $150,000 missed QBI deduction for a new client because of more eyes and more expertise for the client.
(6:40) The second category is the transfer of wealth. The family governance concept is crucially important to avoid the “shirtsleeves to shirtsleeves” problem where generational wealth is squandered.
(7:36) The next generation is an afterthought in almost all wealth management.
(8:11) Waiting until it’s too late to educate the second generation is a huge error because, by the time they are in their 20s or 30s, they have already established much of their principles and values on money.
(9:02) Our clients, whether on the field or in the boardroom are the best in the world at what they do. We want that same mindset to bleed into every aspect of life. High performance in every aspect of life maximizes the impact you can make in your life and the legacy you leave behind.
(10:42) If multi-generational wealth is important to you, get to the core of how that is going to happen. Technical expertise is a must but there has to be a focus on the transfer of wealth and a stewardship focus for the second generation.
(11:20) Future episodes will focus on the principles and values to help the generational wealth transfer.

enAugust 11, 2022

The Only Free Lunch | AWM Insights #119

“Don’t put your eggs all in one basket”

Everyone has heard this saying but are you doing it as efficiently as possible with your investments? Don’t fall in love with one single investment category because this overconcentration is an unnecessary risk.

Intelligent diversification is implemented across countries (ex: US, Developed International, Emerging Markets), asset classes (ex: stocks, bonds, real estate, alternatives), and also factors (ex: relative value, small-cap, profitability).

This diversification reduces the uncertainty of hitting the priorities that matter to you and avoids devastating outcomes that resulted from the lost decade in the US, the Japanese stock bubble, and the crash of US real estate during the Great Financial Crisis just to name a few.

EPISODE HIGHLIGHTS:

(0:44) We commonly say the only free lunch in investing is diversification but why is it a free lunch?

(1:05) Diversification is easy to misunderstand when it comes to investing in risky assets. Don’t put all your eggs in one basket seems logical but the details of how you diversify intelligently will have an enormous impact.

(1:20) Jim Cramer is commonly featured on CNBC and tells people to buy one stock from each sector of the US economy (tech, industrials, etc). This isn’t smart enough diversification.

(2:10) In public markets, there are thousands of companies within this opportunity set.

(2:55) Identifying the winners within 1000s of companies has been proven to be a loser’s game when you look at the chances of outperforming over 1, 3, and 10+ year time frames.

(3:47) Don’t fall in love with one single investment category.

(4:00) Other countries have grown faster than the US even though the US has done well.

(4:20) When building portfolios, we look at the opportunity set. We want roughly 60% of equity investments in US but the other 40% should be diversified into international developed and emerging markets.

(4:35) Home country bias is evident across the globe and it is the reality that investors tend to overweight whatever country they live relative to the market capitalization of that market in the world economy.

(5:43) The lost decade is a decade of poor returns for the S&P 500. Large cap US stocks performed terribly and didn’t make investors any money.

(6:17) Emerging markets did amazing and returned over 400% during the lost decade for US large-cap stocks.

(6:50) Country returns are difficult to predict ahead of time. US markets have been a great place to invest but other markets almost always top the US when it comes to annual returns.

(8:05) Given what happened over the last decade, international and emerging markets

(9:07) If you have an advisor that is only comfortable putting you in US stocks because it is easy to communicate, is a really lazy approach. You deserve a globally diversified portfolio.

(10:10) You deserve this kind of portfolio because it delivers a higher level of confidence in achieving your priorities. Uncertainty about meeting priorities is reduced with global diversification.

(11:10) The distinction here you are not rewarded for trying to guess the region or stock that will outperform. With smart diversification across global equity markets, you increase the chance of achieving the returns necessary to meet your future needs.

(12:25) A client asked if large-cap growth outperforms? No, it actually doesn’t. The data shows it underperforms large value over the long term.

(12:53) US real estate is very popular and many people believe it always does well. The reality is in 2019 it was in the middle of the pack, in 2020 it was in last place, and in 2021 it was in first place. There is a lot of randomness in these annual returns so you want to participate across many asset classes.

(13:20) Even the US real estate market is more than just residential real estate.

(13:30) You don’t just want the S&P 500. During the lost decade of 2000-2009 it lost 9% cumulatively over that decade. Large value companies over that time returned 48%. Emerging markets were up over 400%.

(14:31) Diversification should be done intelligently across the globe, asset classes, and within the factors discussed in last week's episode.

(14:56) You need to have an investment strategy you understand. It takes more work to understand true diversification but an advisor that has your best interest at heart will spend the time explaining why it matters.

enJuly 20, 2022

s&p 500

family office

Factors of Returns | AWM Insights #118

Investing in index funds or ETFs is a great place to start, but can you do better?

There are segments of the stock market that have proven over time to deliver better results than the averages. This is backed by almost one hundred years of data and research across time periods and found in markets globally.

Exposure to these parts of the market, known as factors, in a cost-effective way can provide higher expected returns rather than just settling for market returns. The caveat is that you have to be a long-term investor to capture these premiums and the patience required for most investors is maybe the hardest part. If it was easy every investor would be doing it.

EPISODE HIGHLIGHTS:

(1:17) What are the actual drivers of returns in the public stock market? Why is there compensation for putting your money at risk?
(2:25) If you want to get into the details and go deeper on investing, text 602-704-5574 for a longer conversation.
(2:55)) An index approach is the epitome of letting the markets work for you.
(3:13) A broad index market approach is a good place to start. However, there is evidence in the research of other factors that drive returns.
(3:55) When you analyze the data there are groups of companies that perform differently than the whole.
(4:08) The data shows there are parts of the market that underperform the general index and parts of the market that outperform the index. These are well researched and acknowledged factors in finance.
(4:51) Company size is one factor measured by big companies versus small companies.
(4:57) Valuation or relative value is another factor and is based on paying less money today for future earnings. If you pay a substantial premium for future earnings the evidence shows your returns could be better if you instead bought at a discount (lower relative price).
(5:09) Profitability is another factor that is intuitive. Companies with higher profits tend to outperform companies that have lower or negative profits.
(6:10) These groupings of similar stocks continue to show up in the data in a persistent way. Meaning they show up across time periods, across the world’s stock markets (not just the US), and across the different market cycles. For a factor to be valid, it has to be sensible and backed by the data. It can’t be an opinion and it has to be cost-effective to implement.
(6:36) These factors also have to be cost-effective to capture. If the taxes generated eliminate any benefit then the factor isn’t valid for the investor. Trading costs can also eliminate the benefits of other researched factors.
(7:38) Small companies are defined as having a smaller market capitalization. Market capitalization is the number of shares multiplied by market price. This is the size of the company or what the market determines is the fair market value of what a company is worth.
(8:39) If you rank the smaller companies (smallest 10%) versus the biggest companies since 1928, they have outperformed by almost 2% per year. An extra 2% compounded per year for that many years delivers staggering differences in wealth.
(10:23) The price of a stock comes down to what you pay for the future earnings of a company. If you pay a lower relative price you are considered a value company. A higher relative price is a growth company. Relative price always relates to their expected future earnings.
(11:27) Early-stage technology companies tend to fall into the growth category.
(12:18) Do these factors show up over shorter time periods?
(12:35) There will be periods where the factors underperform and that can be thought of as the cost to pay for higher expected returns than the index.
(13:05) If you can generate between around 2% for small caps and 3% for relative price, that is 5% of additional performance, why don’t we go fully into small-cap value?
(13:23) Comparing it to baseball and hitting. You can’t expect the factors to hit every year but you do want to give them more at-bats so the odds over time are in your favor.
(14:31) The third factor is profitability. The group of profitable companies have higher rates of return over long periods of time when compared to the group of less profitable companies.
(15:40) Multi-generational investing allows for these factor premiums to be captured because of the long time periods and patience that can be assumed.
(16:15) These factors also provide diversification when implemented together. When one factor is underperforming another factor may be outperforming. This reduces dispersion of returns and lowers volatility.
(16:50) These factors implemented in your portfolio can target higher expected returns than just settling for what the market index will give you.
(17:07) Don’t run out and buy the first small value fund you find. Make sure you choose a good manager that uses a systematic approach index like approach.
(17:45) You don’t have to play the game of which sector of the market will do well. Rather you can own a well-diversified portfolio that over time has proven to provide statistically better returns. This is a great investing experience that lowers uncertainty and increases your chances of achieving your priorities.

enJuly 13, 2022

Pursue the Better Investing Experience | AWM Insights #117

Results are what matter at the end of the day. We want to play the game that gets us the best results. The evidence presented in the last several podcasts has made it clear what you should focus on as an investor if you want the best results.

Average returns in capital markets have produced phenomenal results. Allowing the market to work for you in the long term can generate shocking results.

Do you have a strong financial structure? Are your short term priorities protected from bad markets, acute distress, or high inflation? Are you underinvesting for your long-term priorities? Do you hold too much cash? A clear and quality financial structure addresses every single of these concerns and increases financial wellness. This is how you build a better investing experience.

EPISODE HIGHLIGHTS:

(0:27) Play the game that gets the best results. Picking stocks and attempting to time the market does not have the odds in your favor.
(0:58) What do you get by allowing the market to work for you?
(1:29) What’s the data show? A single dollar invested in the S&P 500 in 1926 and let it ride until 2021 (95 years) would have grown into $14,076.
(1:49) This is a phenomenal rate of return so the question becomes why don’t we just accept that?
(2:06) There are ways that can target higher expected returns than just the average but the key is to make sure they’re evidence-based. Most strategies don’t have any evidence to back them up.
(2:25) Picking stocks and market timing don’t have any evidence to generate reliably better returns.
(3:01) Everyone should work with an advisor. The reason most investors don’t receive good returns is because of behavioral issues. They panic and sell at market bottoms, fear losing money so hold too much cash, and get emotionally attached to their positions.
(3:14) Professional athletes have coaches, executives have coaches, and it makes sense to have an advisor that serves as an investment coach.
(4:03) A lot has happened over the last 95 years including wars, crises, and revolutionary inventions but if you stayed a long-term investor in the capital markets it was a really good thing for you.
(4:25) Inflation fears are elevated right now but to put inflation in perspective, inflation turns the one dollar into $16. That is a tremendous loss of purchasing power if you don’t invest in the capital markets to outpace it.
(5:12) Fearing inflation and pulling your money out of the market is the worse thing you could do. Even just putting it into T-bills or short-term treasuries would have allowed you to narrowly outpace inflation.
(5:33) One of the best places to put your money to beat inflation is the capital markets. The data and evidence show you are rewarded over the long term for taking risks.
(6:17) Markets don’t always go up and to the right. Investors must understand markets will go down and accept the risks and volatility to get the higher expected returns.
(7:15) Capital must be put at risk to get the higher expected returns. Smaller caps are riskier and so should be expected to produce higher returns over the long term.
(7:49) Markets climb a wall of worry. If you appreciate the data and the opportunity of bear markets you will be rewarded in the long term.
(8:16) A coach (advisor) can reframe what’s important and why you’re investing in times of adversity.
(9:12) Markets rarely ever deliver close to average returns. Only 7 times in the past 96 years has the market returned between 8-12%. Annual returns are always very different than average.
(10:19) For our clients, market volatility does not worry us because we put the right financial structure in place that has been planned for these market periods.
(11:15) Not having the money or liquidity when you need it is poor financial structure. That is a big risk that isn’t necessary.
(11:52) Protecting essential spending or an adequate protective reserve is crucial to a strong financial structure. When you have this you can put the rest of your money at risk in private and public markets to target the better expected returns.
(13:15) An adequate protective reserve allows you to stay disciplined and put money to work efficiently and deliver a better investing experience for the long run.
(13:55) Are we trying to generate the absolute largest return and ignoring priorities?
(14:34) Establishing a strong financial structure allows you to take on more opportunities in the capital markets.
(15:02) Sitting on a ton of cash usually doesn’t align with priorities. Tying priorities to financial resources eliminates much of the fear of losing money in the short term.
(15:45) It is a powerful thing to reduce the risk of meeting short-term priorities and increase the odds of achieving long-term priorities. This is building a strong financial structure.
(16:20) Sitting on cash for too long can be a huge risk to priorities and usually indicates a lack of building the financial structure of the family.

enJuly 06, 2022

finance

Finding the Right Advice | Molly Sewald | Athlete Wives #4

Molly Sewald, the wife of Mariner's closer Paul Sewald, has a unique story to share of their experience in the minor leagues and stewarding their wealth. Molly and I discuss a topic that can be difficult or exciting for others to talk about - choosing a financial advisor.

Molly first shares important context and background on their personal story, which weaves into what feelings they felt when choosing an advisor. Their biggest hurdle was paying another fee to someone else and to quote Molly, "do we really want to pay someone to invest our money?"

Molly shares that after hiring a family office, the value is obvious and far outweighs the cost of the service - and even goes as far as to state that a competent advisor is 'a lifeline' for their family.

Her advice to others who may be experiencing something similar is simple - seek guidance. You never know where you can receive help for your specific situation.

Episode Highlights

1:30: Molly shares how she and Paul met in the Arizona Fall League, and how Molly at first thought that Paul was a student at ASU, not a professional baseball player.
4:37: Molly discusses her and Paul's time in the minors, and how Paul had to continually prove himself time and time again for every minor league promotion.
6:00: In his final year as a minor leaguer, Paul & Molly experienced what may be their biggest emotional setback in that he didn't make the team out of spring training.
7:51: A common theme for non-prospects is that they feel like they need to be perfect - Molly shares the weight of that stress of rooting for Paul to be perfect. She even goes as far as to share how her heart would sink if she received a phone call from Paul at the field, fearing that they were going to get optioned.
9:45: Molly shares the weight of her stress was recognizing Paul's stress.
11:53: Molly shares about when Paul's contract was non-renewed, she was relieved and excited for a new opportunity.
14:32: New opportunities bring new options and new confidence - Molly shares the confidence that Paul gained in Seattle, where he became the most important reliever in their bullpen.
17:13: Molly shares their personal story of how they handled finances prior to hiring an advisor, which was to save as much money as possible - a plan that every human should have!
18:01: When choosing an advisor, Molly shares how their eyes were opened to a lot of planning that is available to them as their wealth grew - tax planning, investments, automation, and even protecting their wealth.
18:17: She shares that hiring an advisor was a way for her and Paul to educate themselves, and then ultimately have people on their team who help automate their future.
18:48: Knowing what they know now, Paul and Molly recognize that they would not be where they are today without the help of a trusted advisor.
20:47: Molly shares that her biggest fear when they were looking to hire an advisor was "do we really want to pay someone to invest our money." She felt like it would just be one more fee that she was not totally psyched about.
21:51: Molly admits that after learning about what a family office does and its services, the value created far outweighs the fee.
24:00: Simplicity is the goal - and Molly shares how an advisor's job is to simplify their matters and optimize their family's future.
25:15: Molly shares that the convenience of having all advice being in a one-stop-shop for taxes, savings, investments, communication with teams payroll, players' agents, etc. further expands on that level of simplicity that they desire.
27:00: Money is a tool to be taken of for what's important to you - and Molly shares that its services, and the security of their daughter is what is important to them in regards to money.
28:28: Molly's advice to other families is to seek guidance for your situation, and a competent team that works day in and day out for your family.

Athlete Wealth Podcast

enJune 30, 2022

mlb

mariners

athlete wives

The Costs of Market Timing | AWM Insights #116

Can you trade on the market inefficiencies and come out ahead after costs and taxes?

The evidence is clear and it isn’t good news for the market timers. These market timers are investors and advisors that promise to get out at the top and then get back in at the bottom. It sounds great in theory, but because the public markets are so efficient, the evidence is clear that it isn’t possible over the long run. Many investors have poor investment experiences because they try to accomplish the impossible rather than focusing on the things that they can control.

Jumping in and out of the market is a fool’s game and that shouldn’t be thought of as a negative at all. It’s an opportunity to reframe and focus on what you can control when it comes to investing. This includes tax efficiency and minimizing costs, but also goes deeper into diversification and properly protecting your financial house from uncertainty.

EPISODE HIGHLIGHTS:

(0:28) Athletes at the highest level know they are playing the game at a different level than the amateurs. This is the same in the investing world.
(1:10) Not trying to outguess or time the market. Don’t outsmart yourself here.
(1:29) Eugene Fama. famous for the efficient market hypothesis. famously quipped “I’d compare stock pickers to astrologers but I don’t want to bad mouth the astrologers.”
(2:15) The outright number of competitors playing the “investing game” are intelligent and skilled adversaries with everyone on a level playing field of information.
(3:21) Markets are not perfectly efficient, but it is the best model to explain what is happening that has been created so far.
(3:30) Can you actually trade or invest on market anomalies and come out ahead? The answer in the data is no. Not when you factor in the costs and taxes.
(4:30) A great question commonly asked is “where is the market going?” No one has a crystal ball to answer this question and if somehow they could accurately predict the market, they would be making money off of it and not divulging their secret power.
(5:00) Going to the evidence proves over and over again that it is a fool’s game.
(5:42) The cost of missing one week in the market at the wrong time can cost you as much as 15%.
(6:48) If you jumped out of the market during the global credit crisis, which many did amidst the uncertainty, missing just 6 months was a massive cost in lost wealth.
(7:31) The positive of all this is the fact that market returns are actually very good. Getting those expected returns and focusing on improving them with tax efficiency and reductions in the costs that erode returns is a good use effort.
(8:04) Missing out on the factors that improve performance combined with the power of compounding can factor into leaving massive amounts of your wealth on the table.
(8:34) Market timing can be extrapolated out to emerging markets or real estate. Are you costing yourself by not being in certain markets?
(9:03) If you got a 20% return, is that good? Well, what did the market do? You may have cost yourself money because another market did even better than that.
(9:30) When market timing, you have to be right when you get out and then also when you get back in. You can play this same game across all markets.
(10:25) You have to be right at the outset, then you have to guess how long it will last. Then you have to be right when getting back in and to what market. If you get any of these decisions wrong you have created a massive cost to yourself.
(12:30) You still want to participate and buy good companies. Right-sizing the investment is the key to avoiding when to get in and when to get out.
(13:40) In March of 2020, few people predicted the market would recover so quickly with tech outperforming. Then the dynamic changed in late 2021 with tech crashing and underperforming.
(14:50) If you missed the 3 months of the COVID crash by pulling out all your money before the decline. You actually would have missed out on 30% of gains by being right about a global pandemic.
(15:22) It sounds good to avoid the losses and get out and then get back in but playing this game will cost you money in the long run.
(15:30) If you want a better investment experience turn your focus to what you can control. Don’t try to outguess the market and don’t chase performance. A data-driven investing experience lets markets work for you and grow your wealth. Don’t get in the way or let your broker get in the way. The capital markets have done this for over a hundred years.

enJune 29, 2022

Don’t Chase | AWM Insights #115

It seems natural that the most skilled and talented managers should be able to outperform on a consistent basis. In reality, the data doesn’t support this and it actually shows the opposite. In public markets, persistence, or the ability of the best to stay the best, just isn’t shown in the evidence.

If the fund managers with all their large payrolls, research, and connections can’t reliably outperform then the advisors picking stocks in their client accounts are at an even bigger disadvantage.

Index returns have been an amazing wealth creator over the last 100 years but indexes also have inefficiencies and pitfalls than can be avoided to target higher expected returns. Systematically targeting and improving the indexes allows for a more reliable way to seek returns above the index for long-term investors.

EPISODE HIGHLIGHTS:

(0:40) The data shows chasing past performance is not a good strategy.
(1:30) It is natural to seek out the best and pursue some advantage through skill or talent.
(2:00) What is missed by the industry is reporting on the best without doing the digging or investigating if the best actually have skill or happen to be lucky.
(2:45) Efficient markets make it incredibly difficult to outperform.
(3:08) If you find a manager that has outperformed, will they outperform in the future? Do they have some skill that will lead to future higher returns?
(3:30) Chasing outperformance hurts your returns and the growth of your wealth.
(3:50) Morgan Stanley, Merrill Lynch, Goldman Sachs, and the rest of the brokers built their value proposition on being able to allocate your money better than anyone else.
(4:33) The data provided by SPIVA illustrate the terrible odds of betting on US Large Cap managers to outperform their benchmark.
(5:24) The data shows only 15% can outperform the index so why not find that 15% who can outperform. The problem is there is no predictable way to find the outperformers ahead of time.
(6:46) Are there other criteria that can be targeted besides just indexing and taking market returns?
(7:10) There are funds and ETFs that are thoughtful about avoiding the inefficiencies of the index. Avoiding the pitfalls of indexes can be done in a systematic way.
(7:56) There are different segments of the market that can offer higher expected returns compared to indexes over long periods of time. The evidence is strong in the persistence of these factors or dimensions of returns.
(9:23) If the most elite fund managers can’t outperform with all their resources, you are at an even bigger disadvantage when a financial advisor is doing the stock picking.
(9:45) With advisors that are actively stock picking, it's equivalent to going from the NFL to high school or MLB to high school ball.
(10:20) Persistence, or the ability for the best to stay the best, is not there in the public markets. Only 21% are able to stay at the top just five years later.
(12:23) It is eye-opening for any investor that looks at the data in this area. It is not intuitive and goes against common sense in other areas of competition (especially in sports) but the evidence is clear and year in and year out continues to validate the lack of persistence.

enJune 22, 2022

How Does Market Pricing Work? | AWM Insights #114

When markets are down, it is natural to be concerned. Who determines these big moves in the market and what information can we learn from them?

Every transaction in the public market needs a buyer and seller. The transaction they make is reported and publicly available to access.

The market these buyers and sellers compete in is an extremely competitive and highly efficient marketplace. New information is incorporated into prices virtually instantaneously. Current prices reflect the collective knowledge and wisdom of an entire globe of educated and intelligent people competing relentlessly against each other.

EPISODE HIGHLIGHTS:

(0:15) Markets are volatile right now and can be unnerving. How should you go about investing in times like this? Is there anything I should be doing?
(1:18) How is market pricing determined and what assumptions can I take from these prices?
(2:15) Public market prices are easy to look up and are quoted daily in the news. The S&P, Dow, and NASDAQ are the most commonly referenced.
(2:50) The benefits of public markets with their liquidity and accessibility are also detrimental when markets become volatile. It is hard to ignore the headlines even for informed long-term investors.
(3:29) Market pricing is determined by a buyer and a seller. Millions of stock market transactions are completed every day.
(4:18) Markets are not perfectly efficient but markets are extremely competitive these sellers and buyers are setting prices.
(4:48) In 2021, there was $775 billion dollars worth of trades.
(5:24) War is going on and inflation has been impacting markets and reacting to new information virtually instantaneously.
(6:00) Efficient markets don’t mean prices are correct, it actually means the current price is the best estimate of the collective wisdom of market participants.
(7:20) An example is valuing Apple’s stock. There are 100s of analysts whose sole job is to accurately estimate the price of the stock. The numbers show even someone fully dedicated to figuring it out is usually wrong.
(8:30) Market information in public markets is regulated and insider trading is illegal. People are put in jail pretty often for using this competitive advantage to gain an edge.
(8:50) Investors as a group are very good at estimating using collective knowledge to pool all guesses together and the average ends up very close. Individually, the estimates are not close.
(9:30) Guessing the number of jelly beans in the jar is a classic example of the wisdom of crowds to find the right number.
(11:03)The model of using the power of markets and the wisdom of crowds to determine price leads to a better investing experience.
(11:30) Focusing on what you can control and listening to the evidence affords you the ability to spend your time and energy on areas where you can create value and impact.
(12:25) Next week will be on resisting chasing past performance. One of the most difficult things to do as an investor.

enJune 17, 2022

finance

Persevering Through Adversity | Stevie Rasmussen | AWM Capital Athlete Wives Series #3

Stevie Rasmussen, the wife of Ray's pitcher Drew Rasmussen, has a unique story to share of their experiencing true adversity in the big leagues.

Everyone at some capacity knows that there will be hard times for families in the minor leagues. Still, few families are prepared and equipped with the tools to handle the complex circumstances that families will experience.

Drew was drafted in the first round after his junior year - only to have this opportunity taken away due to a failed medical exam. Stevie shares how they have handled and persevered through many a trying time in baseball.

Stevie shares their vulnerable story of how they went from being overnight millionaires to having to return to Oregon State for Drew's senior season - and having to take out student loan debt to fund his senior season.

Stevie's simple yet profound advice to other baseball spouses going through similar circumstances - adversity in the game of baseball is inevitable. How you respond to that adversity and support your family is what truly matters.

EPISODE HIGHLIGHTS

2:44 - Stevie discusses how she didn't want to be dating an athlete while at Oregon State, but Drew changed her mind
4:18 - Sophomore year of college - Drew received his first Tommy John Surgery. Stevie discusses how Drew felt isolated and not part of the team
5:09 - Stevie talks about how prior to the surgery, she saw that her identity was built around Drew and baseball, and the surgery grew their relationship
6:12 - After rehab Drew returned to pitch in the College World Series and subsequently get drafted in the first round of the MLB draft
6:33 - Drew flew to Tampa Bay to be announced as the Rays first-rounder, only to find out that his elbow was blown out again, and Drew received Tommy John surgery #2.
8:45 - Stevie discusses the feelings she experienced during Drew's surgery
10:01 - Stevie goes deeper regarding how easy it is to have her identity wrapped up in Drew - even going so far as to introduce herself as "Drew's wife"
11:39 - Stevie discusses her feelings of Drew's second surgery - where they went from receiving a $2.1m signing bonus to working landscaping in Corvallis OR being in student loan debt
15:55 - Stevie shares the 2 different draft experiences - with the second time being drafted by the Brewers
18:40 - Drew's debut was in COVID of 2020 - Stevie, unfortunately, watched the debut in the hotel across the street.
21:20 - In 2021, Drew was traded to the Rays, and Stevie shares how this was her roughest part of baseball
22:30 - The wives' community is strong - and showed up when Stevie needed them most. Brooke Burnes, wife of Cy Young award winner Corbin Burnes, showed up and helped Stevie pack her entire apartment.
27:55 - The Power of the Baseball Wives
28:40 - Money does not fix our problems - money is just a tool to be taken care of for what's important.
31:50 - Stevie discusses how fortunate they are, and how they optimize their resources for their family, their community, and giving back.
35:26 - Stevie discusses the powerful perspective of families navigating the questions of 'can you' afford something vs. 'should you'
37:53 - Stevie's advice - adversity is inevitable. Lean on the community and ask for help.

Athlete Wealth Podcast

enJune 16, 2022

tampa bay rays

athlete wives

oregon state

drew rasmussen

Investing in Private Real Estate | AWM Insights #113

In last week’s episode, Brandon and Justin started the discussion on real estate investing – hitting on topics like where and how to invest, public vs private, and types of properties. With the foundation now laid out, they dive deeper this week into how to actually go about investing and assessing whether you’re getting the returns you deserve.

They continue their conversation by focusing on private real estate investment and covering how to think through real estate investment deals, finding specialized help, and understanding the trade-offs between investing on your own or investing in a fund.

EPISODE HIGHLIGHTS

(1:45) Refresher on the types of real estate investments
(3:48) Focusing on private real estate
(5:00) What does the due diligence process look like to vet deals?
(5:55) What stage is the property in?
(6:48) What’s your edge?
(7:43) Identifying value add properties – what improvements need to be done?
(9:20) The opportunities and tax implications of development projects
(11:06) Finding diversification through a fund
(12:08) Promoter carried interest and hurdle rates
(13:38) Understanding the costs of property and asset management
(15:29) Finding specialized help
(17:00) The importance of a good banking relationship

enJune 09, 2022

Risks & Returns of Real Estate Investing |AWM Insights #112

Real estate is a popular asset class and a huge wealth builder for many people. What are some ideal ways to approach investing in real estate? What can you expect for returns and what are the risks?

If you are directly buying properties and expect mailbox money without any work, you are in for an unpleasant surprise. A common misconception in real estate is the idea of this passive income. However, owning properties is akin to running a business, and you will either have to do the work or you will receive below-market returns.

If you don’t want to be a landlord (and have to deal with clogged toilets) but still invest in real estate, there are a multitude of vehicles that satisfy the objective. Real Estate Investment Trusts (REITs) are the simplest option and can deliver truly passive income.

There are also private funds for real estate that require adequate due diligence but offer the possibility of higher returns than public market options. There can be tax benefits built into these funds as well.

Returns in private real estate are nowhere close to venture capital, but the sources of returns are also different. Over the last 25 years, those returns have averaged 8.12% annually.

In this week’s episode, Brandon and Justin discuss all things real estate investing and detail the avenues you can use to invest in real estate and what your expectations for returns should be.

EPISODE HIGHLIGHTS:

(1:05) Is the only way to invest in real estate to go out and buy a property and manage it myself?
(1:19) There are many options to invest directly and indirectly in real estate. There are many vehicles and different options for accessing this asset class with some requiring zero work.
(1:32) Real estate investment trusts are the simplest and least complex way to invest in real estate. A REIT has a ticker symbol just like a stock and trades on a market exchange.
(1:51) REITs generally have a niche or focus of their real estate strategy. It could be a specific area like industrial, office, commercial, residential, or multifamily.
(2:24) There are also private market REITs. The only material difference being they are not publicly traded. This makes them less liquid.
(2:42) Real estate funds are another option to invest in real estate. There are a lot of options in this area due to the size of the global real estate market.
(3:38) Everyone wants passive income and a lot of people think real estate is the only way to create passive income. Going out and buying a property and managing that property isn’t very passive.
(4:07) Buying a REIT ETF or individual REIT in the public market is actually passive because you don’t do anything and just collect the income and price appreciation from the investment.
(4:44) Most real estate is an income-producing investment. Income is the primary goal and price appreciation is secondary. Real estate doesn’t hold a monopoly on passive income and many other assets produce reliable income.
(5:40) The misconception about directly investing in real estate is that there is no work involved and once you own the property you can collect the “mailbox money”. This isn’t true and the work involved is akin to running a business.
(6:10) Being a landlord and managing an efficient operation takes time, effort, and capital.
(6:21) Real estate can be a form of passive income. Investing overall for the long-term, no matter the asset class is passive income. It’s building an investment asset base for the future to create income.
(7:10) Passive income or passive growth of your investments is found in many places. If you buy a stock in your brokerage account like JP Morgan. They pay you a dividend every quarter and you didn’t have to do any work but buy their stock. Their share price is also expected to increase, which you could then sell when you need the cash.
(9:07) Residential real estate investing includes single-family and multifamily projects. Multi-family is usually apartment buildings or houses with multiple units.
(9:45) Industrial real estate can be anything from Amazon warehouses to the many storage unit operations. These are very large properties and a competitive market.
(10:20)Commercial real estate represents both retail and office space. This encompasses shopping centers all the way to massive skyscrapers full of offices.
(10:38) Evaluating whether an investment is worth it involves boots on the ground and projecting the costs that will incur to get a building up to code or navigating environmental issues to get the rents to satisfy investors' required rate of return.
(12:11) How should you look at the rate of return you deserve when investing in private real estate?
(13:06) Cambridge associates puts together a private real estate index and over the last 10 years the index has returned 11.2% annually and over a 20-year time frame, it has returned 7.8% annually. For 25 years the return is 8.12% annually.
(13:50) Private real estate is not the best performing asset class. The data and evidence is clear on this.
(13:58) Real estate is very dependent on leverage. You borrow money to purchase a property. This means taking on debt to boost returns. This is a double-edged sword because when returns are bad the leverage boosts them to the downside.
(14:39) Most people think it would be ridiculous to take out a loan to invest in the stock market. But that’s exactly what you are doing when you get a mortgage and invest in real estate. If things go poorly, the bank takes your real estate.
(15:40) If you’ve decided to invest in real estate, start with the public market premium of a comparable REIT index. You then should be compensated if you make a private deal for an illiquidity premium. This is extra compensation for tying up your money for a long period of time. Going through this exercise will help you decide if a property is a worthy investment.

enJune 01, 2022

real estate

finance

real estate investing

passive income

The Rundown on Private Equity | AWM Insights #111

Investing in private equity (PE) boils down to buying ownership in non-publicly traded companies. Venture capital is just a small subset of private equity and sometimes the lines can be blurred between the two. Within Private Equity, there are multiple niche areas where the PE funds and managers put their focus. Private equity also deals with more mature or later-stage companies than venture capital.

Expected returns in private equity are much different than venture capital, normally with less downside at the cost of the potentially bigger upside. Access to the best PE managers and funds still matters just as it does in VC.

In this week’s episode, Brandon and Justin go deeper on what it looks like to invest in private equity deals, how it’s different than venture capital, and why deals should ultimately be vetted by an experienced investment team to avoid most or all of the returns going to managers rather than you.

EPISODE HIGHLIGHTS:

(0:58) How is private equity different than venture capital? What are the expected returns in private equity? How do I have success in PE?
(1:16) VC or venture capital is a subset of Private Equity or PE. Private equity is an entire ecosystem of non-publicly traded companies.
(2:30) Private equity can be much more mature companies and sometimes have been around for decades.
(3:01) Later stages of venture can bleed into private equity as startups turn into much larger and mature companies. Hedge funds have also been getting into PE.
(3:33) Private equity is incredibly well-diversified across different types of companies. Venture capital is almost always focused on tech.
(4:22) Private equity firms sometimes come in and buy a company that is public they view as not performing optimally. The PE managers come in and take the company private. An example of this right now is Twitter.
(4:46) The stage of the company doesn’t always mean funding size. Mature companies aren’t always bigger.
(5:25) Middle market private equity is sometimes family-run and geographically focused businesses. Helping owners hire a CEO and exit the company is what they try to solve.
(6:00) Return profiles are vastly different for venture capital and private equity. Early-stage venture capital is the riskiest and therefore has the highest expected returns. It also has the largest range (dispersion) of returns. Something can 10x or go to 0.
(6:40) Private equity returns are not like VC. Most of the companies at least return what you put in. The upside is also limited, at least when compared to VC. It might be a 4x for a best case, base case a 2x, and downside return of .9x.
(7:30) Venture capital funds wouldn’t take a best-case return of 4x like is targeted in PE because it’s not enough return to justify the risk.
(8:40) The drivers of returns for PE are also much different than VC. A lot of the value-add from the PE firms comes in the form of financial engineering and improvement of operations.
(10:40) How do you access the best private equity?
(11:10) The access and specialty of the firms still matter in PE just as they do in VC. The persistence of returns from the best funds is not as persistent as venture capital but is still there.
(12:14)Relationships and what value a limited partner can add will win a lot of deals. Athletes have been able to gain access to exclusive deals because of what they offer besides money.
(13:40) There is pressure when owners take money from private equity. This money comes with expected results.
(15:09) Staying private and growing without PE money allows for independence and the ability to avoid conflicts of interest from outside managers that may not have the same goals as the original owners. This is very important in the wealth advisory industry.
(15:40) Companies that have sold to private equity have pressures to grow and sometimes that comes at the cost of clients.

enMay 25, 2022

venture capital

venture

private equity

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.

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?

enMay 18, 2022

venture

athlete finances

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.

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.

enMay 11, 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.

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.