Wealth-Building Made Simple

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Host: Phillip Washington, Jr. 

Guest today: Alison Reiff-Martin CPA Owner of Reiff-Martin Accounting
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Guest today: Cody Payne, SVP Colliers International
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Guest today: Sean Tate Founder, Tate Legal Consultants
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Guest today: Mike Brown Host of "The 3P Theory Podcast"
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Guest today: Terrence Maiden CEO Russell Glen
 
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Guest today:B. Octavius Fair (Author of F.L.I.P.)
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Guest today:David Willey (Employee Benefits Broker)
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Guest today: Vicki Blanton, ERISA Law Expert
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Guest today: Chris Nemeth, Law Partner at McDermott, Will, and Emery
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Guest today: Lori Williams, President/CEO of the Mansfield Chamber of Commerce
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Guest today: Leah Frazier, CEO of Think Three Media
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Investing principles that guide our decision making process: "Asset allocation is the major driver of returns"
An entire book can be written on all the major asset classes, but to avoid nerding out on you, let’s stick to the major stock asset classes used by the research company Morningstar that many financial advisors and institutional investors use to analyze portfolios, plus bonds and a few specialty asset classes.  
Major stock asset classes (Click on asset class to link out to the Investopedia definition)
Size:
Large-Cap
Mid-cap
Small-cap
 
Style:
Value
Blend
Growth
 
Bonds: Interest rate sensitivity
Limited
Moderate
Extensive
 
Bonds: Credit quality (like credit score)
High
Medium
Low
 
Specialty:
Precious metals
Commodities
 
The economic environment is the major driver of which assets outperform and under-perform.  
I’m going to simplify the economic environments as well:
The global economy is expanding and inflation is falling.
The global economy is expanding and inflation is rising.
The global economy is in recession.  
 
Keep in mind that many times (if not most of the time) different economies are in recession and/or expanding at different times.  
If you really want to get fancy, you can build a portfolio placing micro bets on different economies. However, there’s also a major global trend you can build your portfolio around as well and also do well overtime.  
The global economic trend is the trend I like to focus on and what I’m referencing in this post.  
Here are the asset classes that tend to do relatively well in each economic environment:
The global economy is expanding and inflation is falling:
Large-cap stocks
Growth stocks
Bonds
Credit quality: High
Interest rate sensitivity: Extensive
 
The global economy is expanding and inflation is rising:
Small-cap stocks
Value stocks
Precious metals
Commodities
 
The global economy is in recession:
Bonds
Credit quality: High
Interest rate sensitivity: Extensive, Moderate, and Limited
 
If Asset allocation is the major driver of returns, and the economic environment is the major driver of which assets outperform and under-perform, then understanding how to determine the economic trend is EXTREMELY important in investment process for Stone Hill Wealth Management.  
How to determine the economic trend (not predict it) that's mostly an art, but here are the 4 core things I analyze that have the most impact on determining the trend:
Global trade trend
Valuations
Central bank policy
How different asset classes are moving relative to each other
 
Phillip Washington, Jr.  is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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During college football season, people always ask me, "Phillip, why do you like Alabama Football? You didn't even go there and you're from Texas."
Well the truth is, I don't really like Alabama football. I like Nick Saban. He is a process guy like me. The success of his team has less to do with his superior player selection. His success comes from his process.  
He has designed a simple, consistent process that allows his teams to be a championship contender year in and year out. He did the same when he was at LSU.  
You see the same thing in investing. The best investors are not great stock pickers.  
They are the best at sticking to their well thought out and evidence based process.  
Principle 1) Asset allocation is the major driver of returns
Definition: How much money you put into different asset classes
Principle 2) The economic environment is the major driver of which assets out-perform and under-perform
Economic expansion
Economic recession
Rising inflation
Falling inflation
Principle 3) Lower cost funds tend to outperform higher cost funds over time
I don’t necessarily look for the lowest cost fund, just the funds that score relatively low that also scores well on all of my other criteria.  
Principle 4) Low tracking error is important when selecting funds that track an index
I don’t necessarily look for the lowest tracking error fund, just the funds that score relatively low that also scores well on all of my other criteria.  
Principle 5) A culture of stewardship is more important that rules and regulations
You can tell a lot more about a fund company (or stock) by watching, listening, and/or speaking to the leaders and employees. You can fake numbers. You can’t fake a culture of stewardship (putting the needs of the people you serve ahead of your own).  
Principle 6) There is no such thing as a “safe” investment therefore, diversification is one of the best risk management strategies to implement when looking to grow and protect your wealth. 
Principle 7) Patience is a required character trait of successful investors
 
How do I use these principles to create portfolios?  
Here are the steps I use:
Create a financial plan and/or an Investment Policy Statement based on my clients’ goals, timeframe and objectives. 
Use fundamental, economic, and technical analysis to determine which economic environment we are currently in (no need to predict the future) which allows me to know which asset classes I would like to invest more money into and/or less money into.
Select a diversified group of investment funds that invest in the asset classes I need to build the portfolio that are low cost with low tracking error from a company with a culture of stewardship. 
Encourage and advise my clients to be patient. I have yet to meet anyone who has built long-term wealth overnight.  
There are a lot of systems and moving parts behind the scenes that go into building and managing this process, but it’s as simple (not easy) as it sounds.  
Phillip Washington, Jr.  is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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You have two options as a business when it comes to dealing with millennials:
1) Complain about not understanding them and how spoiled they are.
2) Understand what they want and how to give it to them to attract and retain the best and brightest of their generation and win in business.
That's it.  
My guest, Rhlonda Washington owner of Double R Consulting, and I discuss how to recruit and retain this new generation.
Let me know what you think!
 
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This episode is brought to you by Stone Hill Wealth Management.

This episode is brought to you by Stone Hill Wealth Management.

This episode is brought to you by Stone Hill Wealth Management.

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This episode is brought to you by Stone Hill Wealth Management.
 

This episode is brought to you by Stone Hill Wealth Management.

This episode is brought to you by Stone Hill Wealth Management.

This episode is brought to you by Stone Hill Wealth Management.

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Here's a link to my LinkedIN page (Phillip Washington, Jr.) with the blog post I reference in the episode: Currency hedge examples

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