A Wiser Retirement®
From retirement strategies to investing tips and financial planning guidance, our goal is to empower you with the knowledge you need to make smart financial decisions. Join us every week as we simplify complex financial topics, share real-life success stories, and guide you on your journey to financial freedom!
A Wiser Retirement® Podcast is produced by Wiser Wealth Management, based in Marietta, Georgia. We specialize in Comprehensive Wealth Management and Financial Planning Services. To learn more about our services, schedule a complimentary consultation to meet with one of our fiduciary financial advisors: https://wiserinvestor.com/schedule/.
A Wiser Retirement®
216. What are alternative investments? Should you be invested in them?
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
On this episode of A Wiser Retirement™, Casey Smith is joined by Andrew Pratt and Robert Swarthout. Andrew is the Investment Manager at Wiser and Robert is the Founder, CEO, and Portfolio Manager of Teton Crypto Capital. They talk about Andrew’s new CBDA designation, crypto volatility, Bitcoin ETF holdings, and alternative investments.
Podcast Episodes Referenced:
- Ep 206: Bitcoin ETF Launch Update, SEC's X Account Hacked, & Greyscale's Outflow
- Ep 208: How Direct Indexing Benefits High-Net-Worth Individuals
- Ep 195: Is the 60/40 portfolio really dead?
Other Links:
- Connect with Robert Swarthout: info@tetoncryptocapital.com, https://www.tetoncryptocapital.com/
Learn More:
- About Wiser Wealth Management
- Schedule a Complimentary Consultation: Discover how we can help you achieve financial freedom.
- Access Our Free Guides: Gain valuable insights on building a financial legacy, the importance of a financial advisor for business owners, post-divorce financial planning, and more!
Stay Connected:
- Social Media: Facebook | Instagram | LinkedIn | Twitter
- A Wiser Retirement® YouTube Channel
This podcast was produced by Wiser Wealth Management. Thanks for listening!
Evolving Landscape of Bitcoin and ETFs
Speaker 1you know it's. Uh, it'll be fascinating to kind of see that part evolve because, like as other etfs or crypto come on, like how that shifts the market. Do you see, yeah, a drawdown in bitcoin because you want to go to the ethereum or xyz, one that comes right um?
Speaker 2I totally see in the future there's going to be etf that has, like market cap, weighted coins as there should be yeah, wisdom tree. I don't know if they have a trademark on it, but they already have an index that does that there should be an SPY of crypto.
Speaker 1Yes, but we're so far away from that right now, correct, it's not even fun to think about. Well, we?
Speaker 2need the SEC to finish their version of cleaning house.
Speaker 2And, once they're done, doing that it'll be safe to do that. Welcome to a Rise of Retirement podcast. We believe the best financial advice should always be conflict free. I Welcome to a Wiser Retirement Podcast, where we believe the best financial advice should always be conflict-free. I'm your host, casey Smith. Guiding you to financial freedom today are my co-hosts Andrew Pratt and Robert Swarthout. Andrew is the investment manager at Wiser Wealth Management we call him the king of data and Robert is the founder and CEO of Portfolio Manager at Teton Crypto Capital. Hey guys, good morning Casey. So I broke out my hat today.
Speaker 2I think it's the first time I've worn this outside my office and I only wear my office briefly. Yes, but um, it was an award that I got as our firm passed a certain threshold in assets management. Yeah, and the team surprised me with this. This I'm wearing this gold hat with big dollars.
Speaker 1There's lots of listeners, not many viewers, so we need to describe this thing. You can see this on the youtube channel. Yes, yeah, maybe that's the draw to go look at youtube a wiser retirement.
Speaker 2Youtube, you can see my gold hat with a big dollar sign on it. So, anyway, today we're going to talk about alternative asset classes, uh, and should you be invested in them? Uh, as we get started, I will congratulate Andrew on completing a new designation, the CBDA. That's right, more alphabet soup.
Speaker 4I think they all have a C and an A somewhere. He's got so many designations now.
Speaker 2He had to expand his business card.
Speaker 1It wraps to the back it's like 8 by 10. Now Right.
Speaker 2Folds in half. Yeah, uh. So yeah, our, our friend, don friedman, has been on a crypto podcast a few times with us. His company, uh, has a certification for financial advisors to learn about bitcoin and blockchain, and so I guess, um, you tell me what were your biggest takeaways from going through the process?
Speaker 4So you know, I've always been open to crypto digital assets in the past. I knew a little bit about it, but the designation, I think, just shed a lot of light on understanding more the genesis of blockchain, bitcoin, and then also kind of described other digital assets that are pretty prominent in the space To me, though you know I was always just sort of iffy on whether it made sense to incorporate digital assets into a like a multi asset portfolio for clients on a broad scale, and I would say that there was a lot of takeaways in my opinion that they provided. That sort of made it OK to start thinking about that, and you can have a small allocation in your portfolio, even at 1%, and it could still have a meaningful impact to your portfolio's return. And then also, I think it's I need to do a bit more research on this but Bitcoin has had a lot of correlation to equities over time. I think it's sort of trended a little bit more closely lately, but, you know, even adding Bitcoin to your portfolio, that can actually improve diversification benefits also, so up to a certain degree.
Speaker 4So to me, that was there was lots of examples that they covered, and then, as allocation, you know, tools and methods that that they show. That got me more comfortable with that. And also to just we all know that Bitcoin can be very volatile, but just the explanation that you know, upside volatility is also good and we like upside volatility. So just kind of some points like that just to sort of help, um, you know, ease this uh harshness around the asset class. You might hear do you um?
Speaker 4so obviously you feel a little differently about crypto than when you when you first started the process I do and you know I kind of already mentioned it but uh, again, just sort of made me more comfortable thinking about it, you know, as part of a multi-asset portfolio, incorporating that into the portfolio. But you know, I think also that kind of combined with the launch of the spot Bitcoin ETS Before I was just really hesitant on there was a lot of compliance issues. You know whether it's best execution. There's hundreds of exchanges out there. You know where can you find the best one risk with potentially having wallets stolen with clients and then just operational complexity just from tracking your clients owning digital assets directly. So the launch of the SpotBitcoin ETFs kind of eliminates all those issues and so that, in combination with taking this course and learning more about the asset class, I'm more comfortable considering it down the road to be part of it, or maybe not part of our traditional model, but maybe adding a new model to incorporate that.
Speaker 2Okay, well, I know that's something that we've been stepping toward over the last couple years. Um is is learning more about this. I mean, this is the first new asset class that's been created in they say 150 years. What was the asset class created 150 years ago?
Speaker 1I think it was bonds. Oh, was it okay?
Speaker 2I always wondered, like this is the first one in 150 years, what was the other one?
Speaker 1yeah, no one no one alive then. That dealt with. That is around now, so it's functioning. A new thing.
Speaker 2Was it tulips? Yeah, exactly. Well, you think bonds is just a loan, but I guess as a bond itself that's what was created.
Speaker 1Okay, that makes sense. So I'm curious, if you don't mind saying so, before you took the class on a scale of one to 10, where would you have said your crypto education was at, with 10 being expert level?
Speaker 4I would say like a three, and now maybe like a six and a half seven. Wow, okay, so it was very worthwhile, then Right.
Speaker 4It was. You know I'd say it's a mile wide but like an inch deep. It just covered a broad base of topics and it really sort of focused on um, you know, incorporating into your firm's practice, and covered a lot of like different um, whether it's compliance, um, uh, you know, updating ADV or, you know operational situations. So that the track I did there's several different tracks, but the advisor track actually touched on those different areas. Awesome.
Speaker 2So, robert, um, before we start diving into into um alternative asset classes and what that all that even means, let's do a quick uh kind of crypto update. What's happening with uh. What's bitcoin at right now?
Speaker 160, 71, 71 000, wow yeah, so when we talked to literally a month ago, on the 27th of february, it was at 56,000. So you've 26% change, I remember when it was like at nine.
Speaker 1Yes, yeah, but a lot of volatility. In the last month we've been up to this level, actually a little bit higher Um, and then a drawdown that was about 15% and then kind of re ran back up um over the last literally 48 hours with massive inflows into the ETFs. It's been incredible to watch. Like you know, whether the issuers or the sponsors of these ETFs actually believed this and didn't say it, or they're also surprised. I would love to know. But you've seen, you know, the iBit, the BlackRock ETF, be the fastest ever to $10 billion of AUM. They did it in, I think, five weeks.
Speaker 3Wow.
Speaker 1For reference. I think the gold GLD ETF took three years to get there.
Speaker 4Yeah.
Speaker 1I mean obviously very different time. That was 20 years ago, right, but it's been fascinating, I think, early on, when these were right before they launched or right as they were launching the group of nine new products, because you have the grayscale one that kind of converted from a trust to become a 10th Right, they thought the asset class of those new nine, the total AUM at the end of 2024, might be about $5 billion. Well, we are well past that In one fund.
Speaker 2Yes, one doubled it.
Speaker 1So you know I've seen projections that it may be around 50 by the end of the year, um, which is pretty incredible and uh, it's, you know, largely inbound interest. There's no like sales teams really out there trying to sell this to clients and it sounds like it's retail, whether they're managing themselves or they're calling the broker and saying please put this in my account. So, right, yeah, at the um. You know it's how much of a factor this is having the market. I think is hard to say, but it feels like it's having a big, big impact.
Speaker 1You don't have typically, the kind of runs that we've seen in Bitcoin before having, which is about a month from now, in late April. And you couple that with how the altcoin market is working. It normally hasn't run it like like it has this early in a bulls market cycle for crypto. So you have all sorts of factors because you have the sellers of the bitcoin, so the etfs can be buying it, so some they're likely recycling their funds back into large cap. Um, altcoins is what it seems to be right now. So you know it's you try to make a projection on what you think may happen to a certain asset, but you know you have to put a big asterisk on it right now because it's definitely acting differently.
Speaker 4Did the BlackRock cut their fee? I mean, I know that I guess you don't have to pay the expense ratio for the first six months but. I thought their fee was like over 21 bips and I looked at at it yesterday, it was like 12 bips I believe that they have an introductory.
Speaker 1I don't know if it's up to a certain aum or certain time period, because some of them had played that game. Um, the only one that I know has cut their fee, and I believe it's down to zero or really functioning zero, is the, um, the one from valkyrie that actually had planned on shutting it down. I I can't figure out what their strategy is, but they have some inflows. So, you know, I don't understand how 10 of these can exist. At some point there's going to be some fee compression there. Right, these are exceptionally low fees for crypto. We'll be very clear. I know, for normal ETFs these are high, even you throw Grayscale out because they're 150. Right, they're different, but, yeah, grayscale's fees being 150 bps is high. When they were truly a trust, it was at 200. So they did lower their fees and you can see a good amount of outflows.
Speaker 1A large selling of the ETFs, or basically all the selling of the ETFs, has come down to Grayscale. They've almost sold about half of their holdings. Their investors in it have sold about half their, which was around 600,000 Bitcoin. So it was a huge holding. Part of it's coming from, you know, bankruptcies of different creditors. There's a lot of different reasons why it's being sold and obviously fees are part of it, so it's I look forward to seeing that kind of tail off and kind of then really seeing what happens to the price, cause you have don't have that sell pressure, so right.
Speaker 1But the um you know kind of. On the topic of um creditors, you know we'll kind of move down the list here. So jim and I, um was part of a lending. Well, jim and I had a lending program that genesis is the name of it the names are really confusing and they had been going through it, and typically in crypto. When there's bankruptcies like the confusing and they had been going through it and typically in crypto.
Speaker 1When there's bankruptcies like the ftx one that's going through like I believe we talked last month how the ftx creditors would be getting back their asset. It was a notional dollar value, the same that they had at the day of bankruptcy. That's great. But the problem is crypto is forex since then. So they they've lost out on that. In this case, the genesis bankruptcy, they're actually getting back their tokens one for one for what they had. So they technically haven't lost anything besides the ability to sell in the meantime. So that was a first in crypto to kind of see, in my opinion, a bankruptcy held, uh handled correctly when possible. Um, you know, that was not the case. It couldn't have been the case with the ftx one, but it was um something that's, you know, I guess, a good evolution of the industry.
Speaker 2I feel like Sam sitting in jail going. He's getting sentenced today or tomorrow, Is he?
Speaker 1Yeah, yeah, cause I actually saw his mom wrote a letter to the court. She doesn't come across as a sympathetic parent or feel like he did much of anything wrong, like I'm not quite sure the letter's doing him any service, cause she talks about all the things he was doing good for the world right and about his philanthropy. No, no, he was giving away clients money that's not philanthropy.
Speaker 4I'm sure his ex-girlfriend didn't write him a letter.
Speaker 1Yes, correct yes, so yeah, it's um this. You know we'll probably cover it maybe next.
Speaker 2But if he hadn't had the crazy trades he'd be, he'd be fine yeah, but he just had to get through that, that down period Right, but he was still doing illegal things.
Speaker 1They were gambling. Yes, they were not investing. They were gambling and they didn't. There was no proper risk controls and even from a corporate governance there was. It was a mess. It needed to go away, and glad I did so we could be in a better spot today.
Speaker 1So so jp morgan recently announced, on the last week or so, that bitcoin etf holdings have now surpassed gold bullion bullion holdings within client portfolios, which caught me off guard. I figured that number would be a lot higher for gold and it was um. I was like wow, this thing is really like a guy has put it in perspective. Uh, not not that I had a good perspective on what gold was before, but, like you just think, generally higher I would, in my mind at least.
Speaker 2So yeah, I I just this is what I'll insert this comment um what's the market cap of Bitcoin right now?
Speaker 4Close to a trillion oh it's over a trillion. Okay.
Speaker 2What's the market cap of? Let's say it's 1.5 trillion it's 1.39. Okay, so 1.4 trillion, the market cap of the U S dollar Zero? No, no, it's a big number though. Yeah, but if you have Bitcoin, grow to the numbers that you think that they're going to grow to or not, you specifically, but just the industry. What happens when it surpasses the market cap of the US dollar? What are the consequences of that? I don't know that we have an answer for that, but, yeah, I mean it's certainly a psychological barrier.
Speaker 1Um, I think there's other barriers along the way that would maybe help illustrate what might happen. People might think those kinds of things, you know when it. What cause is the dollar, I would assume, be higher or lower than the U S stock market, like there's?
Speaker 2others higher than right, so you get past you know you get past real estate.
Speaker 1I mean there's other barriers along the way, right, and the rate that the dollar is increasing, it's going to be a. It's hard to catch it.
Speaker 4Well, even the market cap of gold, I think it's. I just looked it up. It's like 10x from where it's at now.
Speaker 1Yeah, it's got a way to go. That's the one that I've heard a little bit talked about. It's like oh, when does Bitcoin pass gold? Is it this year?
Speaker 4I'm like it is not this year, if it passes gold.
Speaker 1I don't know who cares, right, I mean it's just the people that care are the laser eyes, bitcoin people.
Speaker 2Oh, oh, because they are. They're climbing the mountain. I just, you know, I've had this question posed to me what happens when bitcoin surpasses market cap of the us dollar, and does that mean that bitcoin takes over the world to one world currency? And I'm like, absolutely not. I don't see that because you don't really transact in bitcoin correct?
Speaker 1I mean it's not. It's not efficient from a transaction fee perspective, and there's they're trying to make it that way with some other versions of bitcoin, but it's a long ways off and they don't agree on anything but just wanting the price to go up so right, right, it's um. I don't foresee it happening personally. So yeah, it's a um.
Alternative Investments and Cryptocurrency Trends
Speaker 2I don't know. So now, now I feel like it's become. You know, before we're saying what is bitcoin? It's, it's a store value. And now I feel like we it's. At one point we said, oh, oh well, definitely not storage value. And then, but now it's starting to starting to make that case again, that it's. It's where you hold things Right.
Speaker 1I mean, you know I've talked a little bit about this in the past, about how crypto might follow the NASDAQ, maybe with a four X multiplier on the volatility. But like it's used to be, crypto would be, you might have a crypto weekend where it was like really hot and ran. That's kind of gone away. Like crypto follows the us stock market hours because of the etfs, that's only going to become more and more in sync, in my opinion.
Speaker 1Um, in some ways, it takes the fun out of it, but also gives you some downtime at crypto, which is nice yeah right.
Speaker 2Well, so I guess this etfs have brought some stability to it. You'll get that way too.
Speaker 4Well then early asset classes have a lot of volatility. I guess maybe bonds back in the day had a lot more volatility than they do now. But that's been an argument too is just because it's an early asset class and then as more institutional players come into the marketplace, that should just hopefully reduce the volatility there.
Speaker 1So the second biggest crypto, ethereum, is largely been flying somewhat underneath the radar so far this cycle. It's been kind of following the other large cap, even though it is certainly the biggest of the large cap, um big caps outside of bitcoin. And you know we've I I've kind of speculated in previous podcasts that I thought the last big lawsuit the sec is going to file is against Ethereum in some form. I didn't realize I was going to be within a month of kind of the smoke starting to turn into potentially a little fire, because it is now announced that the Ethereum foundation is under investigation. I I somewhat fear what this does to the industry, because Ethereum is so far reaching. There's so many tokens that are on it. It is certainly the biggest platform for smart contracts.
Speaker 1There's a lot of skeletons in this closet from everything that I've read, and I just wonder is the SEC willing to open the Komodo here? Or are they willing to like do an investigation in air quotes and find something? A slap on the wrist to move on, because the SEC could get implicated in this as well, from the way that they handled this in 2018 by calling it not a security, when it actually was quite a security back then and actually you can make a better case that it's a security today. Because of their move from proof of work to proof of stake. It's kind of getting in the weeds, but at the end of the day.
Speaker 4Um, it'd be interesting to kind of see how this one unfolds. Is that why other blockchains have been getting more notoriety lately because of this lawsuit?
Speaker 1um, I don't know if it's necessarily tied to lawsuits. Some other ones are doing some good marketing thing. I mean, solana is the one that comes to mind. It has had an amazing run from a price appreciation perspective. But I tell you what, like right now, the only thing that seems to be on Solana is a bunch of meme coins and it's like in, there's a bonk, there's bonk and there's even like election theme meme coins. So there's, they spell Trump wrong, they spell Biden wrong and they have these funky logos. I mean like it's a casino and you're almost at a slot machine. That's kind of like cartoon-based it's.
Speaker 1I don't know, it's not something that I necessarily participate in and follow all that much, but it's definitely been out there and you know, for the Solana investors, good for them. You know, at some point they probably should ring the cash register on that one. Actually, one thing in my notes here that I should have mentioned when we're talking about the Bitcoin ETFs is so iShares, ibit and FBTC, which is the Fidelity one, have taken in cash on 49 consecutive days. This was prior to yesterday. I believe yesterday would have been the 50th. That has only ever happened, with 30 um uh etfs ever and it's um, I think the longest one is something like 100 something. So like they're all well off the record at this point. But they are in uncharted territories and none of them have done it out of the gate at launch, so it's always been some period of time later.
Speaker 1So just another way to kind of look at this thing to see how big of a phenomenon it is so far been and that's net inflows, net inflows yes, yep, and I guess the last thing that I will bring up is the news from yesterday is the SEC, via Ripple case, is kind of making its way through the remediation phase and the SEC filed their suggestion I guess you would call it I mean, I'm sure there's a legal term for it about what the courts should slap Ripple with. So there's already like a $700 million fine or up to $700 million fine for some portion of the case that the SEC thinks they should pay. This is, I think, the punitive side of it, and they're asking for $2 billion. It's more than Ripple ever made from the sale of their XRP to institutional clients. Only, I don't know it's never going to be close to that number. Obviously, this is a negotiation. They're going to start high. Ripple's going to be like we think it should be zero or probably something close to zero.
Speaker 1The vast majority of the sales that happened were outside the United States. They were not really under the purview of the SEC, even though the SEC likes to think that they are. That's my read on the situation. We'll know in a month how Ripple feels, because that's when their brief response to this is due. So maybe two podcasts for now We'll have some bit of clarity. But this case seems to be wrapping up outside of an appeal by one of the sides, and you know, for the most part, the industry you know at least crypto twitter, I'll say this has um put this behind us. Um obviously still important to ripple in the shareholders there, but it's um something kind of bubbled up. It had been quite since literally july for the most part.
Speaker 2So thank you for that update. Yes, um. So let's kind of dive into alternative investments. So, when you think about stocks and bonds as your primary investments, alternative investments are things like real estate, crypto, which obviously we have covered pretty thoroughly already today Private equity, hedge funds, private credit. These are all things that are alternatives, including collections. So it could be cars, paintings, watches, even. There are people who invest in watches and call that an investment. I don't know about pooled money for that, but so you know, missy, when she speaks at some of her conferences, she comes back or she'll text me while she's here. She's like everyone's talking about alternative investments, everyone's talking about alternative investments. And then Robert sends me this article about the new portfolio is 40 stock, 30 bonds, 30 alternative investments and I afford it to you guys and you guys are like that's crazy who would put 30%?
Speaker 1of their money in alternative investments.
Speaker 2Um, so, honestly, when you get to ultra high net worth families 30 plus million dollars in liquid assets they're going to have probably private equity. Maybe they've invested in a hedge fund. They probably have a real estate portfolio that they use themselves that are all part of that. So we're not really talking about those families necessarily should they be doing any of these things. It's really more of everyday investors, because in some sense, as humans, we all inspire to have more right, Especially Americans. We all want to have more, more, more, more.
Speaker 2And in your Facebook feed you'll probably start seeing things for buying commercial real estate. You know it's almost like crowdfunding type type investments. I saw one for paintings. Invest in paintings. They say it's the new way of the future and, and you know, it's private art. And how you do that, by the way, is you buy up a lot of paintings, you put them in a warehouse. You don't hang them anywhere. They're all sitting in a warehouse. You document what you have and you wait 20 years and maybe somebody died. Something in your warehouse is worth money. That's how they do it, right.
Speaker 1That's how the average rich person does it. I've read recently about how the ultra wealthy do this. So they will get a painting, they'll have an appraiser appraise it for some crazy high value, then they'll gift it to a museum and then they get the tax write off, but those dollars never were created. Never the tax write off for it.
Speaker 2So, it's a fascinating world of IRS would probably like to shut that down, but that's currently the way that works.
Comparing Real Estate and Crypto Investments
Speaker 3Right. Are you curious why annuities keep coming up as a potential investment option? People are often told that annuities can effectively mitigate investment risks and help secure their financial future. However, annuities often benefit the salesperson and might not be the best choice for you as a consumer. To learn more about the various types of annuities, the negatives of owning them and better investment alternatives, we have a free ebook on our website just for you To download our ebook. Buyer, beware, why Do they Keep Trying to Sell you that Annuity? Simply click the link in the episode notes or visit wiserinvestorcom slash guides. Now let's get back to the episode.
Speaker 2So, anyway, how much is this Should we really be focused on? And I think, first of all, we need to kind of define some things. So real estate versus crypto, man, those are two different. Those are two different things. Like how do you compare that? But that that's. They're both in the alternate investment asset class.
Speaker 4Yeah, I mean I and I would say you know public real estate where you can just buy an ETF or maybe a mutual fund that captures the underlying companies, whether it's REITs or you know, I guess, like you know different types of REITs in that space. Or you know private real estate where you know you may be a sponsor is raising capital to invest in, like properties, or you know different types of sectors like multifamily or office. So there's lots of different types of real estate in general. You know, versus crypto, I think there's obviously some differences there. Usually real estate there's a cashflow component. You know whether it's, you know inflows, to just say, multifamily, you know paying, paying on rent and and cash flows are paid back to the investors. Or for public real estate, there's dividend yields, crypto. Unless you're staking, you know earning some yield on lending your assets, you're not generally going to get some sort of cash flow component to that. So obviously there's differences there, differences in the type of investment, cost of ownership, cost of ownership.
Speaker 1Cost of ownership. Big difference in liquidity, too, right? Liquidity, yeah, time to liquidity.
Speaker 4Yeah, so I mean there's obviously different risk and benefits there.
Speaker 2So the benefits of alternatives in your portfolio in general are typically what Like why wouldn't anybody invest? So to create the list hedge funds, private equity investments, private credit, which look at as loans like private loans, more structured than giving your loan to your cousin. Obviously, the crypto. And then we have traditional real estate holdings. Why do people have these outside of stocks?
Speaker 4Yeah, so you know, for the private investments private credit, equity and real estate in general you know these investors like these investments because there's a liquidity return premium associated with that and that's because these investments are typically locked up and they're not subject to just say, for instance, like a mutual fund and an equity mutual fund, when there's a significant market drawdown, usually investors flood to pull, you know, redeem their money out of these funds and the managers have to sell assets at favorable prices. And so when you invest in these illiquid, locked up funds, managers don't have to do that and they're not able to sell assets at unattractive prices. So there's this illiquidity return premium associated with these type of investment vehicles, although it's kind of hard to analyze. There's diversification benefits from these asset classes, even private equity and traditional equity. They're not as correlated they're not perfectly correlated, but it's kind of hard to track that. There's also diversification benefits with investing in different types of market segments that you can't get traditionally.
Speaker 4You know, with private credit. These are small to midsize companies accessing the capital fast and they can't get this capital from banks or leverage loan or they don't want to from the leverage loan or high yield markets. So there's usually a higher return, you know higher yield associated with that because they want the capital now. They need it to. You know, just say, a business needs cash, you know working capital to keep their business afloat. So and this actually kind of the genesis of this came out of the great financial crisis where there was a lot more regulations on banks and you know these companies needed capital to access capital quickly. So this market sort of exploded in recent years because of this, Um, but because you talk about also in general, sorry, this is more private credit.
Speaker 4Private credit.
Speaker 2Yeah.
Speaker 4Okay, um, but yeah, it's mostly just um diversification, diversification benefits and then also, uh, a return premium associated versus traditional investments.
Speaker 2So, when you think about the drawbacks of well, first of all, let's define private credit. So what about private equity versus hedge funds? Think about what private equity does versus what a hedge fund does.
Speaker 4Yeah, private equity is sort of similar to private credit. They're pulling money, but they're investing this capital into businesses, whether to take over the business or it's a strategic investment to save the business. And obviously these aren't publicly traded companies.
Speaker 2So it's getting access to companies that aren't publicly traded that hopefully have a higher rate of return, because your private equity fund is coming in to buy a company, to grow it or emerging with other companies inside their portfolio.
Speaker 4Yeah, they create synergies, whether it's cost cutting, you know, reducing workforce, you know, creating operational efficiencies there and then looking to bring it back to market at some place, you know, whether it's the public market, or selling to another private equity buyer at a higher multiple that they bought it for, and then the hedge fund does what. So hedge fund, there's lots of different types of strategies, but I guess you know, in a nutshell, hedge fund is, you know, hedging your risk in certain different ways. So you know, I think the most common hedge fund that everyone would type of strategy that everyone knows is long short.
Speaker 4So, basically, you're, you know you're long like public equity stocks but then you're also shorting stocks on the on the other side to reduce your market exposure and and that way, by doing that, there's well for one, more opportunities. You know the investment universe is bigger. You're reducing your market risk, but you're also trying to find companies that can reduce or increase your risk-adjusted return by doing that. So you're really hedging out your risk in some sort of way. But there's a lot of different types of hedge funds out there.
Speaker 2It's amazing with hedge funds is I've never quite understood why people would invest in a hedge fund. The perfect hedge is the short-term treasuries, right, so why wouldn't you just buy short-term treasuries? Yeah, I mean, I think If you're trying not to lose money right.
Speaker 4The main thing is.
Speaker 2Because hedge funds aren't going to give you crazy high returns, right.
Speaker 4No, I mean they're usually, I think a lot of times like a market-neutral fund. You're trying to have zero beta or zero exposure to the market. So I mean from a diversification standpoint, it can reduce your overall portfolio's risk adjusted return by incorporating that allocation there.
Speaker 2Or just buy short term treasuries.
Speaker 4You could do that. But you're also exposed to like credit risk and of the US government. Yes, yeah, and you know I guess it's not as much, but short-term you know, interest rate risk to some degree.
Speaker 2But yeah, I bet if you're buying three month treasuries? I don't know. I've just we've. We've looked at the into this before. Um, and I'm just like why? Why would you spend two, three percent in fees and lock your money up for, for the and you don't know what's in it, like they don't tell you, yeah, it's a black box usually, yeah, yeah.
Speaker 1You know, I was recently listening to a podcast. Everyone thinks of Warren Buffett as the best investor ever. I mean, he's certainly up there, but there's a private fund that no longer takes outside capital because they've been so good with growing it themselves. It's Renaissance Technologies. I think it's something like 67% yearly returns compounded since 1985.
Speaker 4Oh wow, and they're like a black box.
Speaker 1Yes, returns compounded since 1985 oh wow like and they're like a black box.
Speaker 2Yes, you have no idea what what's in that. Employees sign a lot.
Speaker 1Well, yeah, our bitcoin employees, that's true employees are signing like a lifelong nda like there's a ton of secrecy around it, but like it's pretty fascinating from what I've learned so far.
Speaker 2So you invest in it, you don't know what's in it.
Speaker 1It's made 67 a year and it's all paper returns. This sounds like made off right, yeah you have no online access?
Investing in Alternative Asset Classes
Speaker 2yes, oh goodness yeah, um, all right. So so that explains that. Uh, let we forgot to add one more. Let's talk about commodities for a second. Um, commodities are definitely alternative asset class. So you've, you've got. Um, you think oil automatically when you think about commodities and gold, um, you know, then the next thing would be like in my mind is forestry, right, but then you still have chickens and cows yeah, right all the other food, food, yeah, all things that fall into commodity.
Speaker 2You can buy, uh, etfs that represent the commodities market. Um, commodities, there's, there's, commodity, the futures market, right? Um, you'd be really careful that you don't screw that up, or else you're gonna have cows and oil delivered to your front door. So typically it's safer for everyday people to not trade on the futures market and simply to buy the ETF right.
Speaker 2No, I will say we incorporated commodities for a long time. We've been doing this for 24 years and many years ago I was like you know what? This is not a long-term, healthy asset class, like we're not making money here.
Speaker 4It's more of a trade.
Speaker 2And so, really, the only time you wanted to own it was the year of 2022 thus far, I mean, I've always understood the you wanted to own.
Speaker 1it was the year of 2022. Thus far, I mean, I've always understood the commodities wanted to be highly manipulated by it, because the government spends a lot of money to farmers to plow stuff back in the ground if they want to manipulate the price. Like, do I want to be fighting against the government when I'm making a trade? Probably not.
Speaker 2Yeah, probably not, then we get done. We talked about this a little bit earlier. But collectibles you issues there obviously high fees, um amount of money you're paying out. It's kind of an unproven process on. On collectibles, it's kind of like a house. I feel like your primary home is never like an investment. I mean, yes, it could go up in value, but you don't build or pick out the colors of your home based on the market and what the market might want. Right, right, you do what you like.
Speaker 2So so you know. But after that, yes, we should. You should be buying things mostly with a spreadsheet and say yes this is a good investment. This is not a good investment. Um, structured, uh, structured products. You want to define that one a little bit.
Speaker 4Yeah, I mean, there's a lot of different offerings out in the marketplace, but I think generally structured products, it's a basket of underlying securities that a bank will create a note and then syndicate it out. I think really there's only a few reasons why investors would be attracted to this. I think it's mostly because of optics, which is not really a good reason. A lot of times, clients that are a little bit nervous about investing in the marketplace. You know they think the market's near top. You know this. With a quote unquote, guaranteed return, with a downside protection. You know it seems somewhat.
Speaker 2It's like a CD almost it has. So we'll give you 5%, Right, or?
Speaker 4but your upside's capped.
Speaker 2But your upside's capped Sounds like an annuity too, or an index annuity could be another one. I wouldn't, yeah, yeah.
Speaker 4And there's an origination fee. There's some, probably some sort of um, you know, management fee spread that they're, that they're taking.
Speaker 2But there are cds for a while issued by big banks. That would give you whatever the smp did up to six percent, but you're guaranteed never to lose money. Um, that, that was really big.
Speaker 4I saw some of that during during covid, but during the financial crisis, when I saw it the most yeah, and I know, if you have the capital um you can work with like goldman or you lost big time yeah exactly.
Speaker 4Yeah, yeah, and that's the main risk is. I mean, we've seen what the market's done over the past 10 years, the sp500, and if you were capped at six percent, I mean you're losing out on a lot of potential return. And you know the other positive too is a lot of times they do have this downside protection. Yeah, I think not not a ton of them, but it all depends. Like you might, you might have a 5% return, a hundred percent downside protection. I've seen a lot where it's like 20% downside protection, but then again your, your return might be capped at like seven or something. So, um, but yeah, I mean again, upside is capped, you don't receive the dividend yield on the underlying basket, you don't own those holdings. Um, you know, you physically don't own the bank is out of business.
Speaker 2You're screwed right. Yeah, I mean we are.
Speaker 4We're talking like jp morgan, goldman, sack city, but yeah, but still there's, there's credit risk there as well. That should layman, yeah, lehman it can happen right you know um, yeah, that's true.
Speaker 2So here's here's kind of my take. So, crypto, uh, instantly priced commodities, instantly priced. We know what those prices are. They move 24, 7, pretty much right. Uh, private equity, hedge funds, especially hedge funds, um, structured products, uh, real estate for the, but not held individually, like held in a fund of some sort, right, you don't know what the price is. They value their assets typically once a year sometimes quarterly but yeah.
Speaker 2But so I feel like it's somewhat sense of uh, it's a false sense of security at times, because if you have years like 2022, the market's down and they go, but this private equity fund it held on, it didn't go down the whole time.
Speaker 1Well, because they delayed their valuations, because they didn't want to have any markdowns.
Speaker 2Correct. So there were markdowns, the price did come down and maybe the price went back up, but your statement says $1. You put in a dollar, you still have a dollar, but that's not true. So I feel like the compelling reason to add this to client portfolios is and we can do anything we have access to Goldman Sachs private bank. Here we can do more than what the Goldman guy can do. At Weiser Wealth Management. We have the full assets, the full basket. But why don't we use more of those products? You know high fees, yeah, and I think it's a bit of smoke and mirrors.
Speaker 2Now, this is not just I'm not saying this is goldman, it's just the nature of the product period is it can bring a sense of security. Now, it does bring diversification, because maybe this one fund manager is really good at picking out these private companies and growing these companies. But there's also different phases of that. You can get a company that's just beginning. Nobody really wants to invest in that. Those are called angel investor, right? So typically you're picking up these private equity funds or picking up companies that are well past the first, second, third, fourth, fifth round. They're maturing as companies, maybe even buying out the founders at this point? Yeah, absolutely so. To me it's all right. Look, if you're sitting on $10 million, you want to take $500,000 of that and invest in individual companies hoping to hit it big with another company. To me that makes sense, but it doesn't make sense to be having 30 of your money, your net worth, into such strategies that's like a down answer.
Speaker 4As you said earlier, ultra high net worth investors that have all this cash flow coming in.
Speaker 1They need to put something to work right and they have like a and a longer horizon too yeah, like you're not putting something in a product like a lot of vc funds are, you know your money's locked for five or seven years, like you're in it, yeah, yeah, so our longer yeah Right, 20 years. Yes, so it can be challenging.
Speaker 2Robert, you, you and I both have created companies. You're a couple of steps ahead of me. You've already liquidated, you sold the private equity, sure, and now you're? You're moving on. You're running another, another startup, yep, but the point is is that you put all your eggs in one basket at one point?
Speaker 2right you get, and so, as business owners, we understand that yes, we understand that, but when you, when you're managing other people's money, who worked the nine to five had a great corporate career. Maybe they held company stock and maybe their future was based on their participation in that one company. I just have a hard time believing that we would take 30 of their net worth yeah, I mean and lock it away.
Speaker 1There's nothing wrong with the strategy that they employed their whole career absolutely, it's purely like it's normal.
Speaker 2The risk tolerance is going to be very different, right?
Speaker 1yes, um, not to say one is better than the other, but it's just a different path and you have to understand who you're talking to.
Speaker 4Yeah, absolutely Well. And also, I would say you know, to say, a client that has 500,000 in assets, 30% of that, what 150? Yeah, I mean it's. What are you gonna do with? That yeah, and most private alternative investments. It's usually a $250,000 minimum. So I mean that would be at least half of their investable assets.
Speaker 2Yeah, I'd say, if your net worth is under $5 million, that you probably shouldn't be messing with the private equity hedge fund stuff.
Speaker 1And I'll do my obligatory crypto plug here. I think over the next, say, five years, you start to be able to fractionalize or tokenize a lot of these funds to make it operationally efficient. The sec's got to get around to making the accredited investor rule a little bit different to allow more people access to this, yeah, but would allow more people into this kind of asset class where a lot of times they're you know, if they're not accredited, they're not allowed in.
Speaker 2So now there there are etfs out there that replicate all of this Absolutely. So anybody can buy an ETF and put 1%, 2%, 5% of their money in there and that's something that we've looked at in the years past and it it just didn't have the rate of return Like nothing beats the S and P 500.
Speaker 4And that's because the market drawdown, everything goes correlations go to one, basically Um so that you know these managers are selling assets and um again.
Speaker 2So that's where that illiquidity premium comes into play now I feel like that we're talking about private equity in this case. Um, now I feel like with bitcoin, that's scalable for almost anybody. You could put one percent, two percent, three percent in anybody's portfolio.
Speaker 1Now, with the bitcoin, etf, and you now have access to that type of possibly outsized return, right right coin for the people yeah, you know it's uh, it'll be fascinating to kind of see that part evolve because, like, as other etfs or crypto come on, like how that shifts the market, do you see, yeah, a drawdown in bitcoin because you want to go to the eth or XYZ one that comes?
Speaker 2along. I totally see in the future there's going to be ETF that has, like market cap, weighted coins.
Speaker 1As there should be.
Speaker 2WisdomTree. I don't know if they have a trademark on it, but they already have an index that does that there should be an SPY of crypto.
Speaker 1Yes, but we're so far away from that right now, correct, it might be fun to think about.
Speaker 2Well, correct it might be fun to think about. Well, we need the sec to finish their version of cleaning house and once they're done doing that right. It'll be safe to do that. But but who? Who asked for the ethereum uh etf? Already someone asked for an ethereum etf.
Speaker 1Blackrock has filed one and already got it denied once. Okay, um, I believe bitwise has got one floating around out there. There's, I think, three or four of them um they're not.
Speaker 2That would be your next etf. That's 70 bitcoin, 30 ethereum or something like that, right you?
Speaker 1know and if you um kind of follow along the same process. Um, you hear, you heard a lot of chatter um around the bitcoin one with, like, certain dates upcoming. Um, the next big date for the ethereum one is sometime in may, and I forget who's. I think there's a couple of applications on the same date. Well, they can't do that and sue them at the same time, right? You know, the SEC does a lot of weird things, so never say never.
Speaker 2They're going to approve an ETF and also sue them.
Speaker 1I mean the court's effectively told the SEC to approve the Bitcoin one. That's how that went down. That's true, there's no court case right now. That would do that. Well, you have to apply enough, evidently and catch him on a good day, I guess.
Speaker 4Can we track the digital asset flows of the Congress members? Is there a way we can? They have to report above a certain level or something.
Speaker 1Yeah, so maybe I don't know of many Congress people that have much crypto holdings. I think Senator Loomis from Wyoming has certainly got some Bitcoin.
Speaker 2We're going to do a podcast pretty soon on invest Stock tracker Invest. Do a podcast pretty soon on invest Stock tracker Invest like a congressperson.
Speaker 1Congressperson Nancy Pelosi.
Speaker 2Again, we're going to say the Pelosi tracker yeah, and go through all the holdings and back test it, but supposedly Nancy Pelosi has the future.
Speaker 1She has an amazing return.
Speaker 2So, anyway, you could also do this with commodities. You can do this with gold, you can do this with gold. You can do these all these things inside a portfolio, but they should never be just a crazy percentage like like 30 percent. Right, it goes back to, I think people think that there's a secret sauce to investing, that wealthy people make more money because they understand it. But yeah, and and and. Reality is I don't think that's the case at all. Wealthy people do make more dollars because if you have a million, a hundred million dollars and you make 10, you're gonna pay more than most people most people have in their portfolios. Right, but but honestly, the the the secret to success, I think, is keeping a simple allocation but then, at the same time, understanding volatility and not doing this market timing. Wealthy people don't market time. They don't.
Speaker 1They have enough cash that they can get through periods of time in the market, cash, and you know opportunistic cash, right? They see along. Okay, there's a dislocation here, like I'm going to take advantage of that, um, but they're not trying to trade their portfolio all the time, for sure, right?
Speaker 2so I I just don't know that I I think there's a room, there's room for alternatives in a portfolio that makes sense to me, but I don't know that it's a 30, even 15 allocation yeah, and you disagree with that?
Speaker 4I don't disagree. I mean, I think the case could be made from for 10 to 15. Uh, again, it depends on, and what, though, of all the things that we talked about? Well, I mean, I think the case could be made from for 10 to 15. Uh, again, it depends on, and what, though, of all the things that we talked about? Well, I mean, you could, you could bucket it.
Speaker 4I mean, if you, if you have access to like three percent each well, you're not gonna buy a hedge fund, or probably three percent, but you know I I would say from my experience, you know, and again this comes down to the due diligence and you have to have a good team in place that can source these high quality managers and the best investments. And even within private equity there's various sub-asset classes that are difficult to pinpoint and I think overall, private equity has done the best. It's garnered a 3% to 4% return premium over the sp500 over the long term, but again, it's it's finding those managers and being able to yes, that's the hard part yeah deal flow.
Speaker 2Just because it says private equity doesn't mean you're going to beat the sp500 by three or four percent.
Speaker 4You have to find the person right who beats the sp500 by three or four. It takes a lot of resources to to do that I don't know.
Speaker 2I mean, I know that's per year, but at the same time I'm like oh, is that? Is that my risk premium, like is, is only three to four percent?
Speaker 4I mean, if that's if you have hundreds uh returning 26 percent like last year, then maybe, but um, yeah, well, yeah well, I don't know.
Speaker 2If I got 26 percent return to it, am I really going after a 30 percent rate? The risk is certainly higher. The risk is higher on private equity.
Speaker 1You can lose everything you know and, admittedly, private equity has gotten a good rap the last 10 years five to 10 years because they've been largely keeping companies private longer. They're not going to the public markets where you'd have had IPO exposure and had the big pops, Cause you're not seeing that much anymore.
Speaker 1Or the opposite, right, I mean they're seeing a lot of contraction Absolutely, I mean outside of the Reddit. One last week that did well because they kind of did a different path. Yeah, You're seeing, you know a lot of that value accretion be within private markets still.
Speaker 2Well, that's all we have. Andrew, yeah, we always look and are, you know, know, looking for the next, the next nut that looks a little better than the last nut and and and the reality is is that you know, our portfolios, for the most part, are are pretty straightforward. I mean, we we do carry vgt, which we're fortunate is, uh, has such a large nvidia holding. That's it's really um, had an outsized return, the last right last year or so, um, and to me that's. I bet on technology any day. You know, maybe there's a private equity fund that only buys in the tech space.
Speaker 2Oh right, yeah, there's private credit funds that focus and I think a lot of them are skewed more to that, that sector which which currently solving problems and software things of that nature, yeah, um, but I I don't think that the future is going to be 40, 30, 30, I don't know that. I mean you do talk to younger people that have everything in in crypto or they're trying to do these these, buy these paintings online through a facebook ad. I mean you do see those yeah it's more of get rich overnight kind of thing right, I don't feel like it's uh.
Speaker 2I don't feel like they think the s&p 500 is dead or anything like that yeah, you know, andrew and I were talking about this briefly beforehand.
Speaker 1Like I've got this theory that, like the younger crowds of the millennials are, are they want to buy real estate. They probably, in some cases, can't afford it, so they may be seeking ways to try to quote, unquote, catch up. So they're in riskier things like a crypto. They may hit it right and maybe they get lucky in that sense, but they you know, they may not trust other parts of the other alternatives.
Speaker 1So it's a interesting mix and as that plays out, as the wealth transfer happens, like it could be exasperated there and like maybe they can afford real estate but maybe they continue their gambling habits.
Speaker 2So the next 10 years could be pretty interesting yeah, yeah, well for that younger generation, I think, for established wealthy families. Um, yeah, I love seeing about outside their home about 30 percent, 33 percent of their assets inside real estate that they use or they could have in a rental program for experiences with family.
Speaker 2yes, so you're building legacy and wealth at the same time. So I'm talking about the beach house, lake house, mountain place, place out west, whatever it is that you want to do, you're building your legacy with your family there, and then, in addition to that, you should have good price appreciation or you can rent it out for twelve thousand dollars a a week, right, that? That's. That's the caliber of property that that I like to see inside people's portfolios, which you know plug for wiser, which is why, for those families that are doing this, we we charge a flat fee, not a assets under management fee. So when you charge a flat retainer, um for handling those assets plus assets plus investments in planning, overall that's a much better deal because you can make those recommendations without a conflict of interest. Most advisors are losing Anytime you do a draw, they're losing revenue, right? Therefore?
Speaker 5they're not going to encourage people to make these decisions.
Speaker 2Anyway, we've got a couple of other episodes you might want to see. Episode or listen to. 206, the our last podcast a Bitcoin ETF launch update. Episode two a direct indexing benefits and how it benefits high net worth individuals. Episode one 95 is a 64, 60, 40 portfolio. Really dead answers. No, he'll never die. That's the best portfolio. Spoiler spoiler. Episode 195, is this 60-40 portfolio really?
Speaker 4dead? The answer is no, it will never die. That's the best portfolio.
Speaker 2Spoiler alert Spoiler alert. Anyway, thanks for listening to today's episode. If you're interested in learning more about why is there wealth management, you can schedule a consultation to meet with one of our fiduciary financial advisors online. You can also click on the episode notes. You'll also find a link to Teton Crypto Capital if you'd like to get in touch with Robert about investing in his fund. Thanks, guys, enjoyed it.
Speaker 1Thanks, casey, take care.
Speaker 5Thanks for listening to a Wiser Retirement Podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review. If you have any questions about anything that was discussed today, head to wiserinvestorcom and reach out.
Speaker 4This episode was produced by Edward Mercedes.
Speaker 5This podcast is strictly for informational purposes only and is not to be considered as investment advice or solicitation to buy or sell any financial products. Securities, digital assets Thank you show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients, listeners or similar interests. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax, professional, insurance professional and or legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
.jpg)