155: Ask An Advisor: What You’ve Been Thinking But Haven’t Asked (Ft. Shaun Meloy) Pt. 3

Welcome to The Invested Dads Podcast. Simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey, hey, hey, welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. I am Austin Wilson, Research analyst at Hixon Zuercher Capital Management.

Josh Robb:

And I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management.

Austin Wilson:

Today, we are back with part three of our episode where we have a conversation with Shaun Meloy about questions that people have just about the world of finance. As we said last week, if you have not listened to part two, go listen to-

Josh Robb:

Or one.

Austin Wilson:

Part two. If you have not listened to part one, go listen to part one.

Josh Robb:

That’s right.

Austin Wilson:

But we’re going to take you right now to part three.

 

[0:54] – Is Cryptocurrency a Legit Investment?

 Shaun Meloy:

Crypto.

Josh Robb:

Yeah, Crypto.

Shaun Meloy:

Is it a viable, legit investment or is it just a scam?

Austin Wilson:

Okay. Josh, I’m going to start.

Josh Robb:

You start Austin.

Austin Wilson:

Crypto-

Josh Robb:

Do we have a difference of opinion here?

Austin Wilson:

I think we’re pretty aligned on this.

Josh Robb:

Are you a little more bullish on it, or?

Austin Wilson:

It depends on the day of the week, really. Cryptocurrency is based on a fantastic technology. And the fantastic technology that underlies it is the blockchain. The blockchain is essentially very public, very visible, very transparent data transfers. That’s essentially what the blockchain is.

Shaun Meloy:

I hate it that I know more about this part of the blockchain than I do about 401ks.

Josh Robb:

Right. Cause it’s exciting, right? Oh, I know how the blockchain works, but a simple 401k.

Austin Wilson:

I don’t know.

Shaun Meloy:

Hey. That’s great.

Josh Robb:

Whatever, man. Just put it in there.

Austin Wilson:

Put it in there.

Josh Robb:

But go on, please.

Austin Wilson:

Yep. Yep. So essentially, it’s extremely transparent and fast and efficient way to transfer data on the internet. So specifically, cryptocurrency, there are other things that use blockchains, but specifically cryptocurrency harnesses that technology in order to have really transparent and fast and quick and easy and affordable ways to transfer money is, really the way that that’s done.

Now, that’s the technology component, which is fantastic.

Shaun Meloy:

But there’s also the philosophy behind it, right?

Austin Wilson:

The philos… well, and there’s multiple philosophies behind it because there’s multiple cryptocurrencies, right?

Shaun Meloy:

Like a bajillion of them.

Josh Robb:

There’s a bajillion of the. But generally speaking, you could make your own coin if you wanted.

Austin Wilson:

Yeah. We’re working in the world of what’s called decentralized finance. Decentralized finance, DeFi is something that people who are really bullish in the space love, and people who are not really hate because there is no oversight, there’s no regulation and really no protection for, I’m going to use air quotes.

Shaun Meloy:

It’s the wild west of finance.

Austin Wilson:

For “investors”, quote unquote, I would call cryptocurrency at this point, fantastic technology but if you’re using it as an investment, pure speculation, because we have no guarantee. We just saw cryptocurrency fall from $60,000 a Bitcoin to 20, to 12, to 20, to who knows where it’s going to end up, but right now it’s $18,000 a Bitcoin. So, if you were all excited at $60,000 because you love the technology and think it’s the best thing for the world, well, the technology hasn’t changed, but the price has, and you have no protection that ever protected you for any losses. This has never had any oversight regulation.

Shaun Meloy:

There’s no insurance on it. Right now, if you took a thousand dollars and dropped it in the bank and the bank folded-

Austin Wilson:

FDCI insured.

Shaun Meloy:

Your money’s insured.

Austin Wilson:

Yep.

Josh Robb:

Do you get all of that back or do you get a percentage of that?

Austin Wilson:

To a certain…

Shaun Meloy:

Up to 250.

Josh Robb:

So, you have anything less than 250, you’re going to be made whole.

Austin Wilson:

Exactly.

Shaun Meloy:

As where with crypto…

Austin Wilson:

You could lose it all.

Shaun Meloy:

You’re like, what?

Austin Wilson:

So if you have bid on, or bet, or put all your money in a really speculative coin, Dogecoin for example comes to mind a year ago or whatever, and it went to zero.

Shaun Meloy:

To the moon.

Austin Wilson:

Then you are essentially screwed. You have no money and no way to get it back. Now, I think there are some cool things that, specifically looking at the two largest cryptocurrencies in the world, Bitcoin being one, it’s the most well-known, it’s the largest in terms of market cap.

Shaun Meloy:

It’s the granddaddy.

Austin Wilson:

It’s the granddaddy.

Shaun Meloy:

It’s like the originator for the most part.

Austin Wilson:

The way the technology works in terms of having the ability to create more that gets harder and harder, the having process if you’re familiar with that, as you mine it is fantastic math. It’s really, really cool to nerd out on. And the fact that you’ll essentially never get all of them out in the world means there’s always a finite resource. Right? 21 million Bitcoins.

Shaun Meloy:

They said they’re going to stop mining; they’re not going to continue to mint coins. They’re going to stop at a certain point.

Austin Wilson:

There will only ever be, I think 21 million bitcoins. However, the mining gets harder and harder the closer you get to that point. So, the computer work that goes into mining the Bitcoin gets harder and harder.

Shaun Meloy:

Which means the mining farms get bigger, and bigger, and bigger to harness more power.

Austin Wilson:

And use more energy and resources, which is what everyone hates it for. So that’s Bitcoin. But Bitcoin is based on the fact of being digital gold. It’s a finite resource. It’s all about supply and demand. Now Ethereum, on the other hand, it can be used to buy NFTs. It is now transferred to what’s called a proof of stakes, where you’re not mining Ethereum anymore like you do Bitcoin.

Shaun Meloy:

Yes. Cause they transitioned it right?

Austin Wilson:

They just did.

Shaun Meloy:

And that addresses a lot of the energy needed.

Austin Wilson:

It does.

Shaun Meloy:

Or a lot of the energy concerns.

Austin Wilson:

So now essentially you as a user of Ethereum, you can put your Ethereum up for stake is what you call it, and essentially your Ethereum is helping to ensure the stability of the blockchain and in exchange, to get new Ethereum in the world, you are compensated with new Ethereum for what’s called a staking reward. So that is the change there. But that technology is very different than Bitcoin. But those are the two most popular ones. I would say both speculative, really cool, not really should be counted on for any sort of investment return even though theoretically it could have periods of fantastic performance, it also can have periods where it falls out. And full disclosure, I own both. Don’t recommend either one of them.

Shaun Meloy:

Yeah. So let me get to this. Last year the New York Times had a fantastic podcast on Dogecoin. And I constantly think about all those people that were like, no man, I’m holding. I’m holding. And I’m like, where can we do a follow up on this?

Austin Wilson:

In a couple year or two?

Shaun Meloy:

Because I remember thinking, man, these people are real. They are disciples right now. And so I hold in my hand my current Coinbase account. Which Coinbase is a marketplace to where you can buy-

Austin Wilson:

It’s the wallet. Yep.

Josh Robb:

The wallet. That’s actually another app.

Austin Wilson:

It is.

Josh Robb:

Yes. They’ve got Coinbase.

Austin Wilson:

They got another app.

Josh Robb:

Then you’ve got your wallet.

Austin Wilson:

Coinbase wallet.

Shaun Meloy:

That you use to transfer money or purchase or whatever. So last year, just as the Dogecoin thing was really, and Bitcoin is really becoming, now it’s a pop culture reference because I’ve known about it for a long time. It always seems so unstable to me. But I was like, okay, apparently crypto’s here to stay in some form or another. It’s not going away. It’s just going to continue to be something. I was like, I’m going to get in just to have an understanding of it. So that way if it really does finally find a foothold where it’s stable and it’s not so speculative, maybe it’s tied to something that… Because they’ve tried to have safe coins, stuff like that, that undergird the value of another coin or whatever. And those things have even then have bottomed out.

Austin Wilson:

Oh yeah.

Josh Robb:

Stable coin was bad.

Austin Wilson:

Stable coins weren’t so stable.

Shaun Meloy:

So I bought $10 of Bitcoin and $10 of Ethereum.

Josh Robb:

All in.

Shaun Meloy:

That’s a pretty low stakes investment just to play around. And then they gave me, well since, because I just sat on that $20 and didn’t do anything. And so, then Coinbase is like, well we’ll give you another $10. Probably trying to goose me a little bit. Oh yeah. So, I’ve got $30 in on crypto since last year. The value of my Coinbase-

Josh Robb:

How are you doing?

Shaun Meloy:

Is currently sitting at $13.33.

Josh Robb:

There you go.

Austin Wilson:

I believe it. Yeah.

Shaun Meloy:

13… And I look at the little graph that it gives you in there.

Austin Wilson:

It’s like this.

Shaun Meloy:

Just nose dives.

Josh Robb:

Yep.

Austin Wilson:

There is some interesting reasoning behind this. So, cryptocurrency did exceptionally well coming out of Covid. First of all, people had more money than they knew what to do with and more time on their hands than they know what to do with.

Shaun Meloy:

They’re like me.

Austin Wilson:

But what also happened is at this correlate, at the same time, the Fed lowered interest rates to zero, which made what’s called discounting for things like stocks, meaning future earnings and future growth becomes very much more valuable. So, growth stocks, NASDAQ, tech stocks did fantastic during the same period. So, you had this big rally in tech stocks and growth stocks, cryptocurrencies, all at the same time because money’s free, money’s easy. It’s just whatever you want, whenever you want it, right?

So, then what’s happened this year is that money has become very expensive very quickly. Interest rates have gone up, which has made people take a lot less risk. So, tech stocks have fallen because valuations are under pressure because of higher rates, and with that, the whole risk on play that has been happening since 2020 fell apart. The floor fell out in the early part of the year, so that’s why cryptocurrencies have been so tightly correlated with tech stocks is it’s the ultimate risk on play. Because there’s no more risky “investment” then cryptocurrency. So, you just extrapolate the amount of risk that you would have with nor normal tech stock or whatever, and that’s what crypto has done this last year.

Josh Robb:

That’s crazy. And from my standpoint, the SCC, which is who regulates us, has yet to define it as an investment asset. It’s still not classified by the SCC property. Its property is how they look at it.

Shaun Meloy:

But yet more investment funds like Goldman Sachs, whatever have decided we’re going to dabble in it.

Austin Wilson:

Well, they do that through the use of ETFs, based on futures contracts is usually how all of these different companies are getting around futures contracts.

Shaun Meloy:

What’s an ETF?

Austin Wilson:

So, an ETF-

Shaun Meloy:

Because I don’t know anything.

Austin Wilson:

Yes, exchange traded funds. Similar to a mutual fund, but in a wrapper that is traded in real time, day to day, on the stock exchanges and ultra-visible, and ultra-easy to-

Josh Robb:

It’s built the same as a mutual fund where it’s a basket of something.

Austin Wilson:

It’s a pool investment vehicle.

Josh Robb:

Yeah. But mutual funds only trade at the end of each day. So if you said I want to buy a mutual fund, you would submit your order and technically you would not get that until the end of the day because then they take all the orders for buys and all the order sell and send it to the mutual fund and say here’s all your transactions for the day. And the mutual fund then says, okay, here’s all the new money we got and here’s anybody wanting money, and they trade those out and then say anything left over, we’re increasing our investments in. Or if there’s more sales that buys, they sell a little bit of their stuff to cover the cost. But mutual funds do that at the end of each day. And ETF says same thing, is we have a basket of goods, but they’re traded during the stock market time while the market is open. You can make that transaction at any point in the day and they take care of it.

Shaun Meloy:

So, you could buy and sell

Josh Robb:

In one day.

Shaun Meloy:

An ETF in the same day. I bought it and then 10 minutes later…

Josh Robb:

I’m happy with it and I’m done or sell it or whatever.

Shaun Meloy:

Conditions are great.

Josh Robb:

Just like a stock.

Shaun Meloy:

Yeah. Okay.

Josh Robb:

Yeah.

Austin Wilson:

Yeah.

Josh Robb:

There’s similar structure. There’s some little nuances to them, but they’re still, they’re both a basket of something. So, an ETF or a mutual fund. These ETFs then use future contracts to-

Austin Wilson:

Which are regulated by the SCC.

Josh Robb:

Yep.

Austin Wilson:

Which is how they have oversight.

Josh Robb:

And the future contract then is based off of a cryptocurrency. So, it’s their way of investing in crypto before the SCC says it’s a security you can invest in.

Shaun Meloy:

I’m going to be very honest. This all seems very shady.

Austin Wilson:

Well, it kind of is.

Josh Robb:

It’s not shady, but it is very, very-

Austin Wilson:

It’s inconsistent is what it is.

Josh Robb:

Well, it’s very risky in that if someone sees this ETF, they’re just looking it up and see it.

Austin Wilson:

I’m buying Bitcoin.

Josh Robb:

The way it’s worded, they’re like, oh, I’m holding crypto currency. But you’re not. And depending on how future contracts move, you may see a different return than the actual coin it’s trying to invest off of. Because the future contracts you’re holding on what they think the price will be in the future. But if that doesn’t follow suit, then they may have to sell those contracts for a loss more so than what the price moves. So, it’s just a very risky way of getting exposure to something that you may not fully understand how they’re getting there.

Austin Wilson:

Well, and you don’t actually get the benefits of having the cryptocurrency, of being decentralized, and the ability to transact the actual currency itself, because you don’t hold the actual currency yourself. With a Coinbase wallet app, I go into my Coinbase wallet, I have my Bitcoin, I can send Shaun $5 of Bitcoin. That’s my Bitcoin going to his Bitcoin account. Like our wallets linked. When you’re doing this through a futures-based ETF, you’re going to the exchange to sell a share of the ETF, but you never actually touched the underlying at all. Now there is another option to confuse you further, Shaun, that’s called a trust. So Gray Scale you may have heard of. It’s a large manager of crypto trusts, they call them. They’re not even ETFs, but they’re traded like a stock. And essentially the Gray Scale Bitcoin trust and Ethereum trust, they hold the assets. So, they hold Bitcoin and Ethereum and then you buy a share of their chunk of that. So, you get a very similar, not the same, but very similar priced movement to that as well. But it’s not even necessarily an ETF, it’s a trust. So, it’s very noisy.

Josh Robb:

Long story short, it’s a new thing to invest in potentially. But until there’s more regulations, you’re going to see the volatility you’ve seen-

Shaun Meloy:

So not exactly a scam, but risky.

Austin Wilson:

Yeah.

Josh Robb:

I mean there’s-

Shaun Meloy:

It’s an emerging financial tool.

Josh Robb:

Yeah.

Shaun Meloy:

It’s emerging tech, for the most part. I mean the blockchain’s been around for a while.

Austin Wilson:

Some coins are scams. I would say that.

Shaun Meloy:

Yeah.

Josh Robb:

The underlying technology-

Shaun Meloy:

But some funds are scams too. Yes, you can make that argument,

Josh Robb:

But until there’s regulation and more oversight, the average investor it’s kind of a play at your own risk type of idea. And that’s why we’re very hesitant ever to say anything, especially as an advisor. The SCC regulates me and they’re saying this is not investment, so I really cannot recommend it to anybody. Now if clients are asking me… The conversation is just that. Understand what you’re getting into before you do and don’t risk more than you’re willing to lose. Because at this point there is no underlying safeguard. If a bank goes bad, there’s a safeguard there. When you’re investing in the stock market, there’s no safeguard, but there’s a historical underlying of how this works. You understand what’s going to happen and where you’re investing and how that goes. And so, there are… And really if someone does something illegal, there are safeguards there. There are lawsuits that you can recoup your money from.

Austin Wilson:

Cryptocurrencies just a free for all right now. Right. And you’re seeing some issues there because once that money moves, it’s hard to get it back.

Shaun Meloy:

Well, and when we’re talking about the whole crypto world, there’s so many ways for people to hide behind things. We talk about NFTs. Yeah. And you talk about the Board Apes Yacht club.

Josh Robb:

Yes. Oh yeah.

Shaun Meloy:

The whole thing and how when they-

Josh Robb:

It’s weird.

Shaun Meloy:

They “doxed” the owners of it, how that was a big thing. But then there was a bunch of people on the other side of the fence saying, no, no, no, no, no. This is why we make people register, why we make people put their names on the line so that way we know who we’re dealing with because we don’t want to deal with a bunch of hucksters that are going to take us as where with the crypto scene, the NFT scene, there’s so much more anonymity there, that to me is that’s the terrifying thing.

Austin Wilson:

Yeah.

Shaun Meloy:

…with it.

Austin Wilson:

I would say there is a flip side to that coin where you could say, okay, this area is not regulated and it’s because it’s not regulated that it has the potential for truly ridiculous returns over since it’s came about. Right. So, if you look at least until recently, Bitcoin since inception, trailing returns have beaten all other asset classes because it’s starting from a small base for one, getting a lot of adoption for two, but also because it’s been unregulated and people have been interested in that. When we do, because I believe we will, get to the point of some level of regulation in the space you do cap upside. You cap downside, but you cap upside in the space because people will feel a lot more safe in it when it’s regulated. So, it’s just going to be a lot more organized. It’s going to be less of the wild, wild west like you said, and more of the 1920s or whatever. Slightly more modern but still not quite safe.

Shaun Meloy:

And I think people see, people hear that word regulation, and it always has a fairly negative connotation to it, right? But I feel like even in a regulated market, when you see something that’s drastically increasing in value and people are going, oh wow, that’s hot, let’s get in on it, there’s also a mechanism in place on the regulatory side that says, okay, so why is it? And then it triggers that safeguard to investigate, is this legitimate or is there something that’s-

Josh Robb:

We saw that the other day.

Austin Wilson:

That’s why the stock market-

Josh Robb:

Twitter, which is a publicly traded company and Elon Musk is in the process of potentially buying it out, all this fun stuff. Well, there’s been a back and forth and just, what was that, a week or so ago?

Austin Wilson:

News pending.

Josh Robb:

News pending that they were going to complete this deal. Twitter jumped during the trading day. They actually-

Shaun Meloy:

5420.

Austin Wilson:

Right up to boom.

Josh Robb:

They paused trading on Twitter. That’s that regulation you’re talking about to say whoa, whoa, whoa, this is out of the norm. Let’s make sure everything’s right.

Shaun Meloy:

Because it was like what, 30 some or something like that?

Austin Wilson:

It was unlikely. That’s the market baking in the fact that it’s unlikely that the deal would go through. Well then all of a sudden news comes out, it is likely the deals going to go through.

Josh Robb:

So, they paused trading temporarily to make sure that again, the average investor wasn’t getting screwed on this whole movement. That everybody was understanding the same thing. And so that’s the regulation that’s missing in Bitcoin is you could see a move up down, different directions and there’s no stopping.

Austin Wilson:

It could go to a dollar in a minute.

Josh Robb:

Yeah. There’s no stopping it. Whereas the stock market has safety guards put in place. Triggers.

Shaun Meloy:

Well and going back to the pandemic, we’re texting back and forth, and the stock market is just tanking.

Josh Robb:

All over.

Austin Wilson:

Oh yeah.

Shaun Meloy:

They had to pause trading. What’s that mechanism called? I can’t even remember now.

Austin Wilson:

Well, there’s different trigger points where-

Shaun Meloy:

Yeah, yeah, yeah, yeah. That’s what it was.

Austin Wilson:

Where the market will close at a certain dropdown percentage, and we hit it multiple times a day in both directions.

Shaun Meloy:

And they pause trading for what, 15 minutes just for everybody to take breath.

Josh Robb:

And part of it too is the automations. Some of that trading they’re realizing is triggered by automation. So, if they pause it gives people time to adjust that. Because if they say you’re a trader and you put in these orders where you’re saying, okay, if it moves down by X percent, start selling. And that triggers, and then that triggers the next person’s and there’s this compounding thing. They pause it all, just say, “Hey, let’s stop this. Make sure everybody’s ready.”

Austin Wilson:

Everybody just chill out.

Josh Robb:

Actually, understands the orders that are going on.

Austin Wilson:

Go grab a cup of coffee and see where you.

Josh Robb:

And then if it happens again, it goes from 15 minutes and then they extend it and then it can actually increase the pause time.

Austin Wilson:

They can close it for the day after a certain point.

Josh Robb:

If they need to, yep.

Austin Wilson:

But with crypto-

Josh Robb:

Oh no, it’s just-

Austin Wilson:

None of that.

Shaun Meloy:

If it starts to tank it’s in free fall.

Josh Robb:

And not only that, there’s no close to the market.

Austin Wilson:

Well, that’s just like earlier this year. I remember a day the crypto world fell apart. Bitcoin was down like 18, 20% in a day. That wouldn’t be able to happen that way, that quickly in the stock market.

Shaun Meloy:

So probably one of the values then of having a market that closes is because you close for the day, you process all your orders, finalize all your paperwork, and you go home, and you go to bed.

Josh Robb:

Think about it.

Shaun Meloy:

Now while it’s three o’clock and you’re sawing logs, the market’s closed, the knee K’s open or whatever, these other foreign markets are open and they’re doing business which is ultimately going to impact us, right? Because we’re in a global economy, what they do is going to impact us. But when you wake up, at least-

Josh Robb:

It’s close to or similar to what you went to bed with.

Shaun Meloy:

And even then, if something drastic happens somewhere in the world overnight while you were sleeping, that could negatively impact our markets right, they’re regulated to the extent that they can sort of blunt some of those impacts as where in the crypto market it’s like-

Austin Wilson:

It’s a free for all.

Shaun Meloy:

It doesn’t close-

Austin Wilson:

You already missed it.

Shaun Meloy:

So, if it’s three a.m. –

Austin Wilson:

Holidays, everything.

Shaun Meloy:

…And it all tanks out, you wake up and all of your coins are wiped out. Oh no my apess.

Austin Wilson:

Yeah. Yep. Now one thing that people do like about cryptocurrency is the idea that in theory it hasn’t worked out this way because of what I talked about with the risk trade, but in theory you should be able to have an asset that delivers uncorrelated returns from your other assets.

Shaun Meloy:

What? No, no, no, no, no.

Austin Wilson:

That’s a lot of words.

Shaun Meloy:

Back up, back up. Explain those to me.

Austin Wilson:

Yeah, yeah. Okay. So, in theory it doesn’t always work out this way as we found out, the crypto and the stock market has fallen apart equal-

Josh Robb:

I feel like you’re using in theory with increasing frequency with this crypto discussion.

Austin Wilson:

That’s because it’s very theoretical at this point. So, on paper that’s say that that’s a little bit different.

Shaun Meloy:

It’s the same.

Austin Wilson:

In a perfect market environment over the long run, stocks go up, bonds go up, but at a different pace and inverse sometimes. So, there’s stocks and a lot of times understand that relationship, this year has been different, and a lot of times you understand that relationship with one of the thesis of holding crypto is that the supply and the demand story behind cryptocurrency should not be tied to the fundamental movement of the stock or bond market. That’s another way that people are interested in it for. And that has completely fallen apart this year as both are down very sharply. But as it becomes more widely adopted, I think that that is part of the plan. Think of things like gold, should be an uncorrelated return to the stock and bond market, but it’s not perfect.

Josh Robb:

At this point is a very risky asset. And so risky assets all tend to move the same direction in a down market is, if I’m scared of this, I’m going to be scared of the other things that are potentially going to move at the same volatility or speed. And so, I think at this point at least, yeah, you’re going to see them all similar. But the goal in general is gold is a precious metal and it reacts to supply demand on, if somebody wants to buy more gold then the price goes up. And in theory coins that even if they’re digital would work similar to that in that demand is going to… supply demand is going to drive the price more than any other underlying fund metals.

Austin Wilson:

Yeah.

Josh Robb:

Cause there is no underlying fundamentals.

Austin Wilson:

There are underlying fundamentals between stocks and bonds.

Josh Robb:

But not digital… There’s nothing underneath digital currency. It’s just the supply demand. So that should drive price movement, but it doesn’t right now. It’s also driven by risk, tolerance, your ability to say I’m comfortable at this price based on what historically has happened. All those things. So, there’s just no correlation right now for anything. Which is why again we are hesitant to tell anybody to put anymore-

Austin Wilson:

Oh, of course.

Josh Robb:

Then they’re willing to risk losing altogether.

Austin Wilson:

Because Shaun, I’m with you. I have a Coinbase account I’ve lost –

Shaun Meloy:

And you know what really stinks? If I forget my login for my account, the world that you guys operate in, like say my bank account. I forget the login for that, I call the bank and they verify my identity.

Austin Wilson:

Yeah. You can get in.

Shaun Meloy:

Here you go. We’ll reset your password. If you lose your login for your wallet or whatever you’re using to manage your Bitcoin, you are hosed. There is no way-

Austin Wilson:

No one to bail you out.

Shaun Meloy:

There is no way to recover that other than some code that they gave you. That’s a randomized generation of words or something like that. You have to make sure that you save it.

Austin Wilson:

Yeah.

Shaun Meloy:

If you didn’t save it-

Austin Wilson:

You’re in trouble.

Shaun Meloy:

You’re done.

Josh Robb:

Yeah. You want to be depressed. Google some of those stories of people who have lost their login.

Austin Wilson:

Oh, the guy who lost his hard drive in the landfill or whatever.

Josh Robb:

And he’d been petitioning for years to try to get it back.

Austin Wilson:

Millions of dollars and maybe billions of dollars of Bitcoin.

Shaun Meloy:

There used to be a podcast from Gimlet Media called Reply All. And they did one episode, they had these different themed episodes. One was tech support where they’re trying to help somebody with some technical problem that they had. Bitcoin was really entering the public space now, a lot of discussion around it. And this girl had emailed one of the hosts and said, “Hey, I used to have a wallet. I bought some Bitcoin because I did a European trip. I knew that there was some interchange there and I used some of it, and then when I got back, I just forgot about it, and I know that there’s a balance on there. I don’t know how much is in there or I don’t even know how much it’s worth now because this was a couple years ago and in that span of time, Bitcoin had gone up…”

Austin Wilson:

Shot up.

Josh Robb:

To the moon.

Shaun Meloy:

But she was like, I don’t remember my login. Is there any way to recover it? And so, these guys are really good. It’s a show about the internet essentially, but they went through all the paces and they’re like, there’s no way to recover your wallet. You’re done. It’s just there.

Josh Robb:

It exists forever.

Shaun Meloy:

It exists somewhere-

Josh Robb:

It’s on the blockchain.

Shaun Meloy:

It exists somewhere on the blockchain, but we cannot access it. And she was like, “Darn.”

Austin Wilson:

Well. And that’s another aspect of the finite amount of supply, specifically at Bitcoin, is that there’s a lot of the Bitcoin blockchain that is, there’s lost coin, like lost tokens, loss access codes. So that piece of the blockchain will never be fully utilized for what it should be. It will also never be traded. So, the supply is essentially less than it actually is.

Josh Robb:

Yeah. And I mean that’s not like gift cards that you get to a business where the balance that goes unused is just free money for the business. But they’re going to reinvest that in their employees.

Austin Wilson:

No, this is just gone.

Shaun Meloy:

It’s just gone. Nobody benefits from that.

Josh Robb:

Exactly. And you hear people actually intentionally burning some of that too. When there’s a lot of coins out there and they want to increase the price, they’ll intentionally burn. So they’ll move coins to a debt account to intentionally get rid of them. Just a crazy concept.

Austin Wilson:

Some other things you couldn’t do if it was regulated. That’s price manipulation.

Shaun Meloy:

I was going to say that to me as somebody who’s not in the finance game, seems like market manipulation.

Austin Wilson:

It is.

Josh Robb:

Oh it is.

Austin Wilson:

Absolutely.

Josh Robb:

I mean it’s designed to move your price up is by limiting supply.

Shaun Meloy:

See I told you this was shady.

Josh Robb:

It is.

Austin Wilson:

Some aspects of it for sure shady.

 

[26:11] – Don’t Risk More Than You’re Willing to Lose

 Josh Robb:

So long story short, don’t risk any more money than you’re willing to see. Go to zero.

Shaun Meloy:

I feel like I’ve heard that bit of wisdom from other people as well when it comes to Bitcoin. Don’t invest any more than you’re willing to lose.

Austin Wilson:

That’s probably where Josh got it.

Josh Robb:

And even when you’re starting in the stock market, I don’t expect the US stock market to go to zero because it’s comprised of businesses.

Shaun Meloy:

It’s highly diversified.

Josh Robb:

It is. And of the businesses to go to zero, that means every business is bankrupt. And so I don’t think of that.

Shaun Meloy:

We’re probably in a nuclear war at that point.

Austin Wilson:

And we got bigger problems than your 401k balance.

Josh Robb:

But that same concept is true for new people, is don’t put too much in that the volatility is going to cause you to panic. Because you’re not going to learn those habits you need to be a long-term investor if you put too much in to begin with. Because if you started let’s say at the beginning of this year and you put in everything you had saved up and worked hard for and then all of a sudden, you’re down 25%, if you weren’t aware already going in that that would be a possibility, you’re panicking right now and you’re probably never going to trust or invest again. So, starting out early on, don’t invest more than you’re willing to tolerate that up and down risk until you get comfortable with it.

And again, it’s not an age thing, it’s an experience thing. Because we have people who are in their eighties that are invested heavier than people that are in their twenties because experience is greater than your age. Because some people say, “well the older I get the less aggressive I should be.” And there’s some truth to pieces of that. But just because I’m older doesn’t mean I need to be less aggressive. It’s, what is my tolerance at this stage in my life for the up and down in the stock market? Because there’s one thing that’s guaranteed is the stock market is volatile. Volatility’s not bad, because volatility includes the up and down movement of a stock market. You just got to be comfortable.

Shaun Meloy:

That volatility is priced into things, right?

Josh Robb:

Yeah. The volatility is part of what you’re paying for. So, you get the premium, meaning I get the return or the reward for sitting through or adapting to that up and down movement.

Austin Wilson:

Something with no risk, will get no return.

Josh Robb:

Yeah. So, the savings account at your bank gives you very little return because you’re not taking any risk.

Shaun Meloy:

What return.

Josh Robb:

Yeah.

Austin Wilson:

Exactly.

Josh Robb:

And then as you step up, so if you leave the savings account and you move to a bond, the bond’s going to pay you a little more because you’re taking on a little bit more risk. Then if you move from there to the next step and you keep going, then you go to large US companies, there’s risk there, but they’re not as risky as a small startup company. And so, your risk return, you get paid more and like Austin said, it’s a premium. A risk premium is what they call it. But the idea is if I’m taking more risk, I want something for that. And that’s where you step up. But you don’t want to go beyond where you can tolerate otherwise, you’re going to make investment decisions off of emotion instead of your goals and your needs at that point. With anything don’t put more in than you’re willing to risk and understand what that risk is that you’re taking.

 

[28:46] – Why You Need a Financial Advisor

 Shaun Meloy:

So, is this the wisdom of having a financial advisor? This is my pitch for why you need my services because I’m going to sit with you when things are losing value. I’m going to sit with you and hold your hand and say, “no, no, no, no, don’t panic”. Yeah, I have seen this before. Yes, I’ve seen it multiple times now. Let’s just wait it out. Trust me. That’s what you’re paying me for.

Josh Robb:

That’s right. I’m less connected to your money than you are, right? I’m not the one that worked really hard for it. So, my emotional attachment to your money is a little bit less. And so, I can hopefully make that rational decision when the emotions are all high to say, “Well I know from experience these are the things that we need to do to move forward.”

Shaun Meloy:

But even when it’s on the upside-

Josh Robb:

On the upside-

Shaun Meloy:

…Things are going-

Josh Robb:

That’s the greed piece that you got to be really careful with too.

Shaun Meloy:

Things are going great, you can also be like, “Hey man, things have been swinging up a little too long now-“

Josh Robb:

Let’s make an adjustment.

Shaun Meloy:

“We need to make a few pivots here and there just to make sure that when it starts to swing back the other way-“

Josh Robb:

Your position-

Shaun Meloy:

We’re in good hands.

 

[32:57] – Managing Your Own Money as a Learning Tool

 Josh Robb:

I always say, and this one of the things our firm says, is just advisors in general for people who don’t have the time, the desire, the expertise. Because those are the pieces that somebody, if they have the time, they have the desire to learn and they have the expertise to know what they’re doing, you can manage the money on your own. And I have no problem… And I’ve met quite a few people who are successful at doing that and they don’t need an advisor. But if you’re lacking one or two or three of those things, an advisor may be helpful.

Shaun Meloy:

I feel like those individuals, those top tier individuals, are probably few and far between.

Josh Robb:

There is. But there are some. And again, the expertise maybe is to understand I don’t have to be complex. And so, their expertise allows them to make the decisions to say, “I only need to own this and this and I’m diversified and it’s less work for me.” It’s not, I’m day trading in and out. You don’t have to be a day trader to be a good investor. If you just understand what my goals are, and you do the expertise and research to figure out what gives me the best chance to get there, you may own one, two things that cover you for that and you’re good to go. And that means I’m not watching it daily. I don’t have to spend that time. But in general, most of the people who do a good job with it are those that are able to look at it rationally and not make those snap decisions based on emotions.

Shaun Meloy:

There’s a certain amount of discipline that goes-

Josh Robb:

It is. It’s discipline, training, education. Yep.

Shaun Meloy:

I’ve known people that, you kind of touched on them a little bit, had that curiosity to understand it and to pay attention to it and have that discipline to say, I’m going to give myself a thousand dollars and I’m going to manage that. I’m going to buy some stocks, sell some stocks, maybe invest in a fund here at something, whatever. But I’m not going to go beyond that and whatever I make off of it, I’m going to reinvest, but I’m stuck on that and I’m not going to be risky about it. If I start to lose money, pull back a little bit, regroup and then…

Josh Robb:

Or we even have some that say, let’s go back to your 401k. Right? That’s my primary source of retirement, my 401k. For most people, that’s what it is. They’ll say, you know what, I’m not going to take the risk there. I’m going to choose a pretty stable, something that’s long term and not mess with it. And then maybe on this side I’m going to have a thousand dollars or something. I’ll let it play with that. We call it a play account. But the concept is that gives me the freedom that if I go to zero on my thousand dollars account, if I’m saving my 401k, it’s not ruining my life. I’m going to be sad I lost a thousand, but my retirement plan is not destroyed because of that. That gives them the time and place to learn, to try things out without having a detrimental impact. And what we see a lot of times is they’ll just choose from their menu and choose some pretty good investments and say, my 401k is good. That’s my stable.

That’s going to consistently grow over time. It’ll have ups and downs, but I know what I’m getting there. And over here I’m going to buy a little bit of that more speculative thing. I’m going to say, oh, here’s a startup company I just heard about, or here’s a new technology I can invest in. I’m going to put a little here and there and I may get really good. There’s be years where I totally outperform my 401k and I’m going to be like, “Man, I wish I would’ve invested some of this”, and there’s going to be other years where that’s just getting destroyed. I’m like, “Boy, I’m glad my 401k is not doing that.” But that’s your education piece. And I find that people who do that in the good markets, they’re always bragging and like, oh man, you know how far-

Shaun Meloy:

I am absolutely slaying right now.

Josh Robb:

And then in a year like this where it gets kind of crazy, they’re really glad that that other piece is there doing the long term more slow, steady turtle approach to investing, which is historically the best way to do it. But that other one taught them, right? I’d rather learn the hard lesson on a thousand dollars than I would on my 401k. And so that’s really where I would strongly encourage somebody who’s just interested in learning, take just a little bit of money that you can afford to lose completely and use that as your learning tool. Maybe it’s a hundred dollars. ‘Cause right now where with technology, again, you can open up an account at E-Trade, Scott Trade, Fidelity, Schwab, whoever, and you don’t need a lot of… You can put a hundred dollars in to get started. You don’t need-

Austin Wilson:

And you don’t need to buy a whole share anymore. You can buy fractional shares of whatever you want.

Josh Robb:

So I could get started with a hundred dollars just to see and learn on my own, how does this work? And when I own a stock, what does that mean? And you could try that. Okay, now that I own the stock, oh it just went down. Why is that? And if the education, oh, I can just kind of look and usually those places, Fidel or whatever, you can click on and see what news just happened? And then you see, oh look, the stock that I own, they just did an earnings report. What is that? Oh, they said they didn’t earn as much as they thought they were going to. Oh that’s why they’re stock… The education comes and the fact that my hundred dollars is now 80, I lost 20, I’m not happy, but that’s better than my a hundred thousand dollars 401k losing $20,000. I’m really upset about that.

Shaun Meloy:

Yeah. And I think what you’re saying right now is set a small amount of money that you’re going to “play with”, but you’re doing that research. So, if you don’t know anything about your 401k, but you’ve got this a hundred, $200 that you’re just goofing around with trying to figure it out, how much knowledge do you gain about your 401k and what it’s doing just by osmosis? You’re just picking it up.

Austin Wilson:

A lot. Yeah, for sure.

Josh Robb:

You’re slowly getting there. And the nice thing about 401ks is a lot of times companies will help you with that. The 401k they’re using, there will be somebody you can call. A lot of times they won’t give you actual investment advice, but they can help you along to describe… You say, right, here’s what I’m looking for. And they’ll say, okay, this grouping is what you’re trying to find. You pick out here. And a lot of 401ks now are adopting what Austin mention was a target date fund. And I’m actually a big fan of those in 401ks. For people who don’t have the time to look at all the investment choices, is what you’re choosing is you are picking a date in the future when you think you may be transitioning out of this job or out of work in general. So like 20 40 or whatever.

And the concept of these funds is to say, okay, the closer you get to a transition period, the less volatile you’re going to want to experience. Cause if you’re going to retire in January of this year, the last thing you want is to see your 401k take a 20% haircut. So, you need less exposure at that point in the stock market just for that transition period. So, what this does is this fund will just start aggressive when you’re young and then slowly get less aggressive the closer you get to whatever that arbitrary data is. And that concept then allows you to own one thing that’s going to be adjusted over time that you don’t have to spend too much time thinking about. Somebody else is going to do that for you. And then it allows you to then educate and learn somewhere else. But then you could apply that over time. The more comfortable you get, you could come back to that target day and say, you know what? Now that I understand, maybe I’m going to add little layers onto that. I’m going to own a couple more funds in that menu that give me that exposure to the things I’ve learned and understand that I want to have in there.

Shaun Meloy:

I’m going to adjust the dial a little bit.

Josh Robb:

Or maybe I’m just going to take my target date and move the date because I know what I’m going to get out of that. I may move it later. So, I go from 2040 to 2050. I just got more aggressive because I understand the farther out the number, the more aggressive. And you can make those adjustments because now you’ve learned what you’re doing. But I’m a fan in 401ks, of getting advice, asking around. Like who can I talk to with this? Do you have somebody? Talk to your HR person. Is there someone that’s a part of this plan that I’m allowed to talk to? Sometimes they have an advisor that’s attached that you can call and talk to and they can help you. If not, if you have your own advisor outside, most advisors will help advise you on your 401K anyways. But if not, those target date funds are usually a pretty good starting point because there’s going to be adjustments made. Somebody is helping move that along the way for you.

Shaun Meloy:

Gotcha.

 

[37:26] – Shaun’s Thoughts on Dad Jokes

 Austin Wilson:

Shaun, wrap us up with your thoughts on dad jokes.

Shaun Meloy:

I’m not for them. I told you I have a very aggressive brick wall limiter on my dad jokes.

Austin Wilson:

Anti-pun?

Josh Robb:

You don’t like humor?

Shaun Meloy:

No, I enjoy humor quite a bit. It’s just that I feel like, especially in the context of a podcast, because you’re essentially making a historical record that one day your children, your offspring-

Josh Robb:

Are going to look back and say, he was hilarious.

Shaun Meloy:

No, they’re going to look back at this and go, this is really not what I wanted him to leave me with.

Josh Robb:

Oh, you have no idea what my legacy is for my kids.

Austin Wilson:

It’s mostly dad jokes.

Josh Robb:

Oh, 80-90% is dad jokes.

Shaun Meloy:

Yeah, yeah.

Austin Wilson:

Here’s a couple dollars, but a lot of dad jokes.

Shaun Meloy:

I have pushed all in on the dad jokes. Like all of my stock is in the dad jokes.

Austin Wilson:

Crocks and dad jokes.

Josh Robb:

And glasses because all the eye rolls have to be hurting their eyes. I’m guessing that, but…

Shaun Meloy:

We got a good vision plan.

Josh Robb:

Yes. That’s right. That’s where it’s at. Well, this has been fun. I’ve really enjoyed it.

Austin Wilson:

I have too, Shaun, thanks for being here and hopefully we can do it again real soon. And thank you for listening this Thursday. Please remember, you can always share this episode with anyone that you find that might have been asking about the smorgasbord of things that we covered today. So send that to them and always feel free to email us any ideas you have to hello@theinvesteddads.com. Once again, thanks Shaun for being here and talk to you next Thursday.

Josh Robb:

Talk to you later.

Shaun Meloy:

Thanks. Bye.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe and don’t miss the next episode.

Josh Robb and Austin Wilson Work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.