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Ric Edelman, Founder of Edelman Financial Engines, joins the Yahoo Finance Live panel to discuss the latest developments in the crypto market.
Video transcript
– Happy to see you again. In today’s Crypto Corner, a legendary registered investment advisor, a top RIA by “Barron’s” over the past three years, in fact, makes a big shift to crypto as another sign of the cycle. adoption that continues this time. Ric Edelman founded Edelman Financial Engines in 1986 with his wife, grew the business to reach $ 270 billion in assets under management. He’s joining us now. And Ric, it’s good to see you on the show again, man. Tell me about this crypto push. I mean, we were just talking during the commercial break. You’ve been in this space for a while, but now why is it so important to kind of be the voice that brings people together now?
RIC EDELMAN: Nice to be with you, Zack. Well, my goal as a financial advisor has always been to look to the future. Where is the economy headed? Where is the investment world headed? What are the opportunities and risks our clients face? And I’ve been engaged in the digital asset community since 2012, and I’ve really learned two fundamental things during that time.
First, blockchain technology and its derivatives of digital assets, NFTs, CBDCs, and tokens and all that kind of good stuff, it’s the most impactful business innovation since the development of the internet itself. It’s enormous. This is going to have a huge impact on world trade. And second, most financial advisers don’t realize it.
Most finance professionals have been in business for a long time, are very successful, are very talented and experienced, but the more experience you have, the more talented you have, the more professional titles you have, the more degrees you have academics in this area, the more difficult it is. to get an idea of Bitcoin. And I use Bitcoin as a proxy for all digital assets. There are thousands of them. And it’s important to recognize that this is a completely new and different asset class that has nothing in common with anything we know. Stocks, bonds, real estate, oil, gold, commodities. It’s totally new and different.
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And it’s the first truly new asset class for about 150 years. Gold was the latest and most recent innovative asset class. And oil has been around for a long time now, 150 years. And so it’s new and different. And he has huge investment opportunities. It doesn’t take much to have a significant impact on your wallet. So my job at the digital asset board of RIA, the company I invented three years ago, Zack, is designed to teach this space to financial advisors and to help them learn how to help their clients as well.
– Ric, how do you think investors should view this? I mean, on the one hand, you are trying to educate. Obviously, you see a risk in not really increasing the exposure to space. We heard Paul Tudor Jones today in an interview this morning say that he sees it more as a defensive position. It’s not necessarily that he’s bullish on the crypto per se, but you can’t just go without being exposed. How do you see the investment base?
RIC EDELMAN: Yeah, it’s time to start over. We must recognize that Bitcoin and digital assets are generally not correlated with stocks, bonds, real estate and other asset classes, making them an ideal addition to a diversified portfolio. You reduce risk while giving yourself the opportunity to improve returns. And I’m a big fan – I’m the guy who invented the 1% asset allocation strategy for Bitcoin. Only 1%. How would you normally say, why bother investing something with such a small portion of your portfolio?
But due to the incredible price volatility we have all experienced with Bitcoin, a 1% allocation can dramatically improve returns, but if something goes wrong, it’s only 1%. It won’t hurt you. So adding a small token portion, 1%, 2% of your portfolio, which was confirmed by a study done by Stanford in 2018, can be a materially beneficial way to improve your overall returns over the long term.
– Yes. When it comes to maybe why the financial advisers resisted it, I wonder to what extent this is just some sort of risk compared to other assets that might be included in this portfolio. And the way investors really need to understand that things can go up drastically, but they can go down drastically as well. You have to be prepared for it. And especially once you move further and further into this area, beyond Bitcoin, it only gets more volatile. So I mean, tell me about how maybe this is a piece of it. Or if there’s something else you might have seen that makes them hesitate to really step off the sideline.
RIC EDELMAN: Well if you really believe in diversification and portfolio rebalancing which are two fundamental approaches most advisers use Zack you should love Bitcoin because if you believe in diversification it means you own assets even if you might not like them. . If you have a really diverse portfolio of 16 or 18 asset classes and market sectors, you probably have assets in your portfolio that you don’t like. But you still own them because that’s what you do.
And second, if you rebalance this portfolio over time, you like volatile investments because the volatility creates a rebalancing opportunity. You can sell high and buy low, and it’s a wonderful combination for building long-term wealth. Counselors must therefore get rid of their prejudices. They must be prepared to look at this with open eyes and genuine curiosity. And the more you learn about the technology, the more you understand the business use cases, you start to realize that there is one out there. We’re not talking about Tulip Bulbs and Beanie Babies in this conversation.
– Absolutely not. And I mean, I’m going to stress you a little bit more here too because when we talk about diversification on some of these things Dogecoin is the one I always like to chat with because it’s frowned upon, he is all the time. slammed by people who are very serious investors, who wear ties and suits. But if you’re talking about diversification, it’s not necessarily correlated.
The last time I checked, the slightest correlation with Bitcoin among some of these bigger assets here. So, I mean, is this something people should remember here, that diversification and uncorrelated assets are important. If you take it a step further, this something like a Dogecoin should be taken, perhaps, seriously.
RIC EDELMAN: You know, I don’t wear a suit or tie today. I invented the no-tie zone in my business decades ago, but I will say that Doggy-coin, which is the other pronunciation for this, a misspelling of the word doggy, DOGE, is the bad boy of crypto. I am strongly opposed to Dogecoin, Doggy-coin because it was invented as a joke. It was not a big deal. It has no legitimate use case. I think this is not something that does any good for the crypto community in their efforts to generate credibility and legitimacy in the financial market, or the approval of the SEC.
So it’s … I think it falls into the fashion category. And you could even argue the fraud, because it’s engaging – it’s a victim of a pump-and-dump scheme by some very famous wealthy individuals who won’t be named here in the program. Elon Musk. And so what I think we need to focus on here is that there is still a Wild West environment, largely because in the absence of a Bitcoin ETF – which means the SEC doesn’t do its job of providing the oversight that it does for ETFs because there is no ETF.
And that creates an environment for people to do crazy things in crazy chat rooms, creating an environment of bumps and dumps of people trying to get rich quick, which is not my goal and what I am doing. try to help people understand. So there is a big difference between Ethereum and Bitcoin and jokes like Doggy-coin.
– So let’s talk more about strategy, Ric. If we’re talking about 1% exposure, those investors who are just trying to dip their toes, what other assets beyond Bitcoin do you think they should invest in?
RIC EDELMAN: I’m actually more excited about Ethereum than Bitcoin, although I’m bullish on both. And there are a whole variety of others. But I would say if you’re just getting started, Bitcoin and Ethereum are around 80% of the market. It’s a lot. So go ahead and do them. You can buy them directly in outfits like Coinbase or Kraken, or a number of others – Gemini – a number of other exchanges. You can even buy on PayPal to buy Bitcoin.
Or better yet, my preference is a fund. Using grayscale, Osprey, Bitwise. These funds are readily available if you are an accredited investor, investments like SkyBridge, which allow you to invest in them the same way you invest in any type of mutual fund or ETF. OTC trust are diversified portfolios. Bitwise offers the top 10 crypto index funds. I am an investor in Bitwise, the disclosure there. So there are a lot of ways now. We don’t have to sit back and wait for the SEC to come up with a Bitcoin ETF.
In fact, there is an ETF on the Simplify market which is an S&P 500 index fund that has a 10% allocation to Grayscale’s Bitcoin Trust. So if you put 10% of your money in this S&P 500 fund, you will end up with 1% of your money in Bitcoin. Simple, easy. No fuss, no fuss. There are several ways to do this. Investors don’t have to sit on the sidelines anymore, they don’t have to take big risks, and they don’t have to pay high fees. They can integrate it simply and easily into their portfolio, and their advisors should show them how to do it.
– Yeah, and the time between, you know, how long it took for Bitcoin to hit that level and Ethereum to use it, I mean, much shorter expectations for investors to get involved there- low. So you are right. No excuses. But Ric Edelman, I still love having you. Congratulations again on the new switch to crypto. We will continue this conversation soon. Thanks again for the time.
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