Episode 26
WHAT DO SUPER BOWL WINS AND FINANCIAL SUCCESS HAVE IN COMMON?
Episode Description
In this captivating episode of The Big Bo $how, Big Bo (a.k.a. Jason Blumstein, CFAⓇ; CEO & Founder of Julius Wealth Advisors, LLC) bridges the gap between the strategic maneuvers of Super Bowl champions and effective financial planning. This episode isn't just about celebrating a victory on the field; it's about translating the discipline, strategy, and foresight of championship teams into managing and optimizing your wealth.
Here's what we cover:
Understanding Liquidity: Like having a star quarterback, mastering liquidity can pivot your financial destiny. 🌊
Optimizing Your Balance Sheet: Learn the playbook for analyzing and maximizing your financial assets, akin to an NFL coach's game strategy. 📈
The Power of Emergency Funds: Discover the defensive line of your finances, ensuring you're ready for life's unexpected plays. 🛡️
Strategic Investments: Dive into Berkshire Hathaway's crisis-era moves and how strategic foresight can lead to financial victory. 🎯
By the end of this episode, you should see the unmistakable links between achieving greatness in the world of sports and securing financial success.
Whether you're strategizing for the next Super Bowl or planning your financial future, the principles of success remain the same. Tune in to transform these insights into action and bring your financial game to a championship level!
Episode Transcript
Hello everyone, and welcome back to the Big Bo $how your go to spot for all things finance relatability And most importantly, fun. We've breezed past Valentine's Day and the Superbowl, but buckle up because this year's just getting started.
And we got plenty more in store for you. Today, I'm tackling a question that's as old as money itself. Where should I keep my money? It's a question that clients, friends, and even the person next to me at the coffee shop seem to ask once they find out what I do. In the world of finance, the simplest questions often have the most complex answers.
And what should I do with my money is no exception. The go to response? Well, “it depends,” as I always tell people. But don't worry, I'm not leaving you with just that. Today, we're diving into the concepts of liquidity and balance sheet optimization. What is it, how much you need, and the pivotal role it plays in your financial strategy.
These aren't just fancy finance terms. They are the backbone of savvy wealth management and the secret sauce to maintaining financial flexibility, no matter what life throws your way. Whether you're a financial guru. are just starting to navigate the waters of personal finance. Understanding liquidity and balance sheet optimization could be the game changer and how you approach your wealth.
So grab your favorite beverage, find a comfy spot, and let's unravel these mysteries. Together by the end of this episode, you should not only be able to grasp what these terms mean, but also how to smartly balance it within your portfolio to meet your immediate needs and your long term goals. So let's get episode 26 of the Big Bo $how on the road.
Let's go.
Okay, let's get into all things liquidity. First things first, what is liquidity? In the simplest terms, liquidity in the world of finance refers to how quickly you can convert an asset into cash with as little impact on its value as possible. The cash that you have in your wallet right now, for example, has a high level of liquidity because you can go out and buy something With it whenever you like.
On the other hand, your home doesn't have a great deal of liquidity. Sure, it may be worth a lot, but selling it for the right price will take a bit of time. Both of these examples are common places that people keep their money. But where is the best place? The short answer is that there's no single place that you should keep your money.
The trick is to find the right balance of assets that have differing levels of liquidity. This is because you may need to access some of your money at any given moment. You might be lucky enough to have five million dollars tied up in a high value wealth generating asset, but if you get a sudden medical bill tomorrow, you can't get this money immediately.
Conversely, you may have a healthy sum of cash. Sitting in a savings account, which is incredibly liquid, but given historical returns from these accounts, this won't be building your long term wealth. This is why balance is so important. To find the right balance, you need to start with your balance sheet.
Balance sheet optimization is something we do. With clients here at Julius Wealth Advisors, when looking at your balance sheet, you'll be able to see your assets, which are things that you own, your liabilities, which are things that you owe, and when the various pieces sit in terms of liquidity buckets.
The only way that you can calculate the liquidity that you need is with this full view picture. Once you've done this, You can look at the following items to help balance the scales of your liquidity. Number one, an emergency fund. No matter how wealthy you are, you always need The only thing that you can predict with certainty in life is uncertainty.
Try as we might, we simply can't see what's around the corner, so we need to prepare as best as we can. This is why it pays to be prepared. So you can limit the impact of unfortunate events on you and your family. If you haven't done so already, you need to set up an emergency fund. This is a sum that you should be easily able to access, like in, for example, a savings or checking account.
The general rule of thumb is that you should have three to six months worth of living expenses ready and waiting for a rainy day. To be clear, this should cover things like your mortgage, bills, and outstanding loans that you may have. This number will differ from person to person, of course. I tend to call this not just your emergency fund, but your psychological safety bucket, as it should be the amount of cash you need to rest easy about the short term.
This then frees you up to focus on building your wealth for the long term. This money shouldn't sit idle, though. It's worth looking into things like a high yield savings account or a money market account. Things that might have higher returns in keeping your money in a traditional bank savings account.
However, of course, whenever you look at different solutions, Always remember and consider things like FDIC and SIPC insurance whenever you look at where you're placing your cash for your emergency or psychological safety bucket.
The next thing you can do is open a line of credit. And an example of this is what's called a HELOC or a home equity line of credit.
This is a loan that allows you to access the cash or equity in your home for certain uses. This is just one example, but whatever you choose, be sure to avoid too much leverage or risky high interest.
Other things you can consider are liquid investment options. One example of this investment is what's called a short term bond. Or a treasury bill. These are assets that offer a fixed yield and can typically be sold without a significant loss in value due to things like duration or credit risk which is an example of good liquidity.
There are of course trade offs here just like everything in life. There's pros and cons to everything. The returns from these investments aren't often as high as other options like owning publicly traded. businesses. So keeping the maturity of your portfolio in these assets may not yield the long term results that you are looking for. Again, focus on balance.
Another potentially often overlooked area that you can access liquidity is within a Roth IRA. Any contributions you make to your Roth IRA can be withdrawn tax and penalty free. At any time, which can provide an extra pool of funds in time of need. This is just the contributions. Any appreciation or income has the potential to be taxed. And of course, we always recommend consulting your tax advisor for anything that does with taxes.
I do also advise caution in accessing the cash in your Roth IRA, as anything you touch now is taken from your future self. So, some of you listening to this will understandably be excited. In a roundabout way, I've just highlighted some pools of cash that you may not have realized you had access to.
However, accessing these pools, like most things in life, Come with consequences and ramifications to your overall wealth and financial well being. It all comes back to balance. Life is ever changing, as are your liquidity needs. This is why a tailored financial plan is so crucial, as it can help you navigate the ebbs and flows of life as you progress towards your financial goals.
So let's take a quick break. And when we get back, I'm going to share a couple of examples where proper liquidity and balance sheet optimization played a key role for an individual. And in the business world, we'll be right back.
All right, welcome back. Let's jump into a couple examples of the importance of building balance in liquidity management. I'm going to share a couple of stories with you. One about an individual and one about a business.
This individual story underscores the transformative impact of liquidity during life's unforeseen challenges. And unfortunately, We've been seeing more and more job losses over the past couple of years. So let's share a story about the power of preparedness and flexibility, particularly in the face of job loss, a situation that many find daunting.
So let's share a story about a person we will call “Bob” had embraced the principle of liquidity management and balance sheet optimization long before encountering a career hurdle. With guidance, he had established an emergency fund. Equivalent to six months of living expenses this quote unquote financial safety net was designed to cover his mortgage bills and other essential expenses.
When Bob experienced an unexpected job loss the situation was undoubtedly However, unlike many who faced this challenge, Bob was equipped with a liquidity strategy that offered him something priceless. Time. With his emergency fund in place, Bob was spared from the immediate financial pressures that often accompany unemployment.
This buffer allowed him to approach the next career move with intention rather than desperation. The true value of Bob's liquidity was not just in covering his expenses during his job search. It was the empowerment it provided him to wait for an opportunity that aligned with his career aspirations and personal values, rather than feeling compelled to accept the first offer that came his way.
This strategic positioning enabled Bob to eventually land a role that was not just a job, but a stepping stone in his long term professional goals. Now, let's shift gears and talk about the concepts of liquidity management and balance sheet optimization in the business world, with my favorite example that listeners of the Big Bo $how know about in Warren Buffett and Berkshire Hathaway.
Berkshire Hathaway, under the astute leadership of Warren Buffett and the late, great Charlie Munger, has long been emblematic of strategic financial management, particularly during times of economic stress. The 2008 financial crisis presented a tumultuous period for business and investors worldwide. Yet it also offered unique opportunities for entities poised with significance.
Berkshire Hathaway exemplified this by deploying a substantial cash reserve to make strategic investments that not only demonstrated confidence in the market's recovery, but also aligned with its long term investment philosophy. These strategic investments included Goldman Sachs. In a move that signaled strong confidence in the financial sector amid widespread panic, Berkshire Hathaway invested 5 billion into Goldman Sachs in September of 2008.
This investment was structured as a preferred stock. Along with warrants to purchase additional shares of Goldman Sachs at 115 per share. This infusion of capital not only provided Goldman Sachs, which much needed liquidity, but also offered Berkshire Hathaway significant returns. They made over 6 billion on this investment.
Reinforcing the value of strategic liquidity. The next was in Bank of America. In 2011, amidst the ongoing repercussions of the financial crisis, Berkshire Hathaway made a similarly strategic investment in Bank of America, injecting 5 billion dollars This investment, also in the form of preferred shares, came with options to purchase 700 million shares of common stock of Bank of America at 7.
This move has yielded substantial gains as Bank of America's stock recovered and grew in the years following. Currently, Bank of America's stock sits at 33 per share. A substantial windfall for Warren Buffet, Berkshire Hathaway, and Berkshire Hathaway's shareholders.
So, what are some lessons learned from these examples?
Number one, the power of preparedness. Both Bob's emergency fund and Berkshire Hathaway's capital reserves illustrate the unmatched value of being prepared. For Bob, a well stocked emergency fund transformed the potential financial disaster into a manageable setback, highlighting liquidity's critical role in personal finance.
Similarly, Number one, Berkshire Hathaway's readiness to deploy funds during the financial crisis underscores their strategic advantage of maintaining liquidity in corporate finance. Number two, strategic flexibility for future opportunities. Bob's ability to navigate the job loss with financial security and confidence and Berkshire Hathaway's opportunistic investments during market downturns both demonstrate the importance of strategic flexibility.
For Bob, having financial cushion provided the freedom to select a job that aligned with his long term career aspirations rather than immediate necessity. In parallel, Berkshire Hathaway's liquidity enabled it to seize unique investment opportunities that aligned With its long term vision and number three tailoring strategies to unique needs.
The story of Bob's tailored emergency funding Berkshire Hathaway's bespoke investment choices during the financial crisis revealed the necessity. of personalized financial planning. Bob's approach to liquidity management was customized to his specific lifestyle and financial goals. Just as Berkshire Hathaway's investment strategy was tailored to its corporate objectives, this bespoke approach underscores the effective liquidity management must be adapted to the unique Circumstances and goals of each individual.
So now, let's take another quick break and come back with everyone's favorite segment, Bonos! Where we're gonna tie these concepts of liquidity and balance sheet optimization into the Kansas City Chiefs recent victory. In Super Bowl 58, we'll be right back.
All right, let's get after everyone's favorite segment bow nose And today we're drawing parallels between winning strategies in the financial world and on the football field. Inspired by the Kansas City Chiefs recent Super Bowl victory under the leadership of Taylor Swift and Travis Kelce. I mean, sorry, Patrick Mahomes and Andy Reid.
The first lesson, as we touched on earlier, is the power of preparedness and adaptability. Just as Bob's Emergency Fund and Berkshire Hathaway Strategic Reserves illustrate the importance of being financially prepared, the Chief's triumph can be attributed to the readiness and adaptability. This was obvious in what we saw.
In overtime, this is the only, the second Super Bowl game to go into overtime. And the San Francisco 49ers didn't even know the overtime rules in the Super Bowl. This was openly admitted by players on the team. post the game. And the Kansas City Chiefs players said, yeah, we knew about all of it. We practiced it.
We practice it during the regular season and during this past couple of weeks to prepare for the Super Bowl. They took the ball. They, as in the San Francisco 49ers, took the ball first in overtime during the Super Bowl, which only makes sense under regular season overtime rules when a touchdown can end the game.
But the Super Bowl overtime rules are different. Each team will get the ball no matter what. So even if the 49ers scored a touchdown, the Chiefs had the ability to come back and score a touchdown to then make it go into sudden death. This example mirrors the financial wisdom of having liquidity for unexpected turns.
Ensuring that when life throws you a curveball, you're ready to swing. Or in this case, march down the field and score a touchdown to win the Super Bowl. Next parallel is in strategic flexibility for future opportunities. Mahomes flexibility in the field, much like Bob's ability to pivot after job loss in Berkshire Hathaway's investment strategy, underscores the value of being poised to capitalize on opportunities.
The Chiefs offense has proven to be versatile and unpredictable and leverages openings as they appear. For example, the team focused on running the ball and shorter passes this past year and in the Super Bowl, versus prior years focusing on large chunk plays when they had receivers like Tyreek Hill.
This is much like smart liquidity management, which enables individuals and corporations to seize financial opportunities that line with their long term goals. The lesson, whether you're navigating a defense or the market, flexibility and a keen eye for opportunity can lead to significant gain.
The next parallel is tailoring strategies to unique needs and again, this isn't Taylor Swift strategies.This is Andy Reid's strategies and his coaching philosophy. Much like the personalized planning seen in Bob's liquidity strategy and Berkshire Hathaway's investment decision, emphasizing the importance of tailoring strategies to specific strengths and situations. As discussed, Redesigned plays on offense that highlighted Mahomes unique talents and the team's overall dynamics and more importantly One can easily argue that this Chiefs team won this year more based on their defense than their offense.
This reflects the bespoke nature of effective financial planning. Whether it's a game winning touchdown or achieving financial independence, success comes from strategies that are customized to the individual. Strength and goals. As we close out another insightful episode of the Big Bo $how, let's wrap this up by highlighting takeaways from today's journey through liquidity and balance sheet optimization.
Number one, preparedness is key. Number two, flexibility. Number three, personalized strategies for success. Number four, long term vision. Success in finance, like in football, requires a long term perspective. Berkshire Hathaway's investments in the Chiefs building under Andy Reid's leadership both reflect a commitment to a vision that extends beyond the immediate gains and emphasizes sustained growth and success.
And finally, teamwork and leadership. Just as effective liquidity management involves coordinating various financial tools and strategies, the Chiefs Super Bowl win was a result of teamwork under strong leadership, both in finance and on the football field. Leadership. That fosters collaboration and strategic execution is indispensable.
Which is why we highlight the importance of coaching here at Julius Wealth. So I hope you enjoyed episode 26 of the Big Bo $how about the balancing act of liquidity and balance sheet optimization. And I'm gonna end this show as I do all the shows. To tell you to live a life of integrity. Always live a life where you're obtaining as much knowledge as possible.
And of course, always live a life that you're passionate about. Until next time, all the best. Thank you for tuning in to The Big Bo $how!
Disclosure:
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