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Welcome to Pension Attention, the best show for first responders who want to take control of their finances.

After advising Los Angeles city firefighters for over 12 years, financial advisor, Brad Barrett now shares how you can grow your wealth, build your legacy and enjoy a life of freedom. And now here's your host, Brad Barrett. [00:19.9]

Brad: Welcome to Pension Attention, the show for you, first responders who want more out of their deferred compensation and pension plan. My goal with this podcast is to reach you where you are at whatever stage in your career you are in, in order to provide my nearly 15 years of experience working with both active and retired service members on their investment and retirement planning. Today's episode is a special episode. I wanted to add this episode in, as I was thinking about something last week, as I was having multiple conversations with clients, with colleagues, with people in the investment industry, so to speak about cryptocurrency. And in fact, we actually wrote a folio here at ONE Capital Management, as we do every quarter for our clients. And if you're a client right now, and you're listening to this, you may have read some of this story. And I want to give you a little bit of background as to how we're thinking about alternative investments, SPACs, NFTs. And if you don't know what those are, I'm going to cover that today and how that plays into the cryptocurrency space. And this conversation has been coming around, around, is it a viable investment? Should we have it in the portfolio? Is it something we should be looking at? [01:25.9]

And in thinking about this, I wanted to start on something I spoke about a couple months ago on, one of the episodes here at Pension Attention around the story of Charles Blondin, he was the guy who was the tight rope walker over Niagara Falls in 1859. He was as this daredevil, this Daredevil on a tight rope and he would do it in front of a large crowds and he would do crazy things, right. And if you heard the podcast, you know my story, but I do like thinking about this because it has a lot to do with how we're thinking about investing sometimes. And a lot of times with newer investing ideas. So real quickly, Blondin going all across Niagara Falls, hundreds of feet in the air on a tight rope. And he would do crazy things. He would make waffles as he was going across the tight rope, he would do juggling acts. He would do a wheelbarrow, which was his final one in the most famous one. And everyone is, in the crowd, hooting and hollering and thinking, this guy's the coolest thing. And they're all who's going to be there. You got to see this guy, that kind of thing, right? And then he brings a wheelbarrow over and says, you've seen me do all of these tricks on this tight rope now. And even with a wheel barrel, do you think I could do it with a person? And everyone goes, yeah, of course you can't. You've done all this stuff. And he goes great, jumping in the wheelbarrow, as you can probably imagine. No one did. So why am I bringing this up again? [02:41.4]

The story relates a lot to how we think about investing in large part, how we think about our social settings when we are hearing of something new. Sounds great, and has to work. It's got to be this way, it's such a great idea, so on and so forth. It sounds a lot like the cryptocurrency, right? Decentralization, no big brother overlooking it. You know, you can't hack it. There's only so many out there, so supply and demand is in a vacuum that makes some sense that you can't be in the environment of printing money. Like all of these things that are being talked about when it comes to cryptocurrency, but then it comes down to okay, jumping the wheelbarrow. Well, how, why would I do that? Wait a minute, I'm better on the sidelines watching it happen. But I know everyone around me is thinking about doing it and some that are actually doing it. How do I jump in that wheelbarrow? So, I want to talk about that today. And again, it had a lot to do with the writeup that we wrote. And we actually called it dough for dough, a little bit of a pun and a play on the Simpsons, and I'll tell you why. [03:41.5]

So, in January of 2018, a guy named Peter Kell found himself in a bidding war at an auction that would alter the landscape of what we know now is, or we've always known as alternative investing. And he said, and I quote, after we get past the $10,000 range, Kell told this program, know your meme, the crowd just freaks out every time somebody says something. So, after Kells $39,000 bid, the auctioneer counted down and declared the item sold, but here's the problem. When Kell reached the stage and found the other bidder standing there, believing he'd won just the same as Kell did. The crowd knows was so deafening, neither could hear the others bid. A coin flip, believe it or not would decide the winner, and Peter Kell one. So, what did he earn? What did he win? A non-fungible token, otherwise known as an NFT of Homer Pepe. Okay. So, this is where it gets funny. Homer Pepe, and you can Google this right now, if you look it up is he morphed between the Simpson's character and Pepe, the frog, a cartoon character that inspired this myriad of internet memes. It's a digital token, so nothing's tangible. It's like a painting or baseball cards. Although those are tangible, the value of them is somewhat intangible, but NFTs are entered into a blockchain such as Bitcoin or Ethereum, those of you out there have been studying cryptocurrency, those are two of the main ones. [05:05.9]

Their decentralize and unchangeable registries of digital transactions. So, when the coin flip went his way, Kell became the owner of the Homer Pepe. And the image you may have copied and pasted is the same as every Mona Lisa outside the loop. It's a replica. Now, if you're familiar with NFTs, you might be scoffing because after all the value of this investment, unlike stocks, isn't based on any real-world events and you wouldn't be alone. And I quote, I got laughed at for a long time after this purchase said quell, but in my head, I was like, I can't be the only one in the world to want this. Now, by the way, he was proven, right last month when his Homer Pepe was sold for $312,000. Now for a service charge or a let's call it a gas fee, fuel used to the process, you too can create an NFT. By the way, Jack Dorsey, the founder of Twitter famously sold his first tweet easily found on the internet as an NFT for close to now, brace yourself $3 million, and an NFT doesn't have to be a visual. A Brooklyn filmmaker sold a 52-minute audio recording of farts. Yeah, farts! A mask during the COVID lockdown for 85 bucks, he sold a 52-minute audio recording of him, farting for $85. I'll give you a minute to collect yourself on that. Now like many investments, NFT are purchased because buyers believe someone will eventually pay more for them than they did. Unlike most investments, it relies heavily on sentiment. And it takes speculation really to new heights, which breeds, excitement, and fear. Largely why I'm talking about this topic today, from my conversations with clients and with a lot of friends and colleagues last week around cryptocurrency, and maybe there's a reason we're getting so many questions about NFTs as an example, as well as I mentioned before, other alternative assets like cryptos and SPACs. [06:59.5]

Now you've likely heard of the former, as I mentioned, crypto, it's a unique digital algorithm and logged and verified on blockchain that that can be bought and sold or traded quickly and safely. But you might not know, however, there's an emerging belief that it could become the new gold. Crazy, right, but it's out there. Cryptos are untethered from government actions and policies, which to some minds make them an ideal hedge against uncertainty, which by the way, has been gold, long time and current role. Now, given the scads of money, governments have spent on pandemic relief, running massive deficit spending. There's certainly an appeal to a currency that can't be printed with reckless abandon. But the world of crypto was mostly unregulated, which by the way, I know is one of the highly or positive aspects of it, the whole decentralization for all you libertarians out there and anonymous. And that's a key point, it's also anonymous, which makes it an ideal way to fund nefarious activities. [08:03.1]
Do you know how much you should be contributing to your deferred compensation plan? Are you getting the most out of your current investment options? Looking at entering or about to exit the drop program? Go to www.pensionattention.com to find out how we can help. [08:18.7]

Now SPAC’s, which stands for special purpose acquisition companies are companies with no existing business operations. They are generally formed essentially by investors with an expertise, if you will, in a specific industry to raise money, either through an IPO to buy an existing company. What makes investing in the IPO risky is the company doesn't identify the targeted acquisition. It's a leap of faith, essentially, which is why SPACs are often referred to as blink check companies. Now, most individual investors aren't equipped to identify and choose the crackerjack management team behind the SPACs, which you add that to the risk, liability insurance rates for SPACs are skyrocketing. Coverage, by the way, to indemnify a SPACs director's and officers has grown to more than $1 million, which is up from about a quarter of that over the last few years. [09:16.9]

Now, under various names, SPACs have been around a long time, but have come back in vogue, if you will, about 300 have launched this last quarter alone, raising almost a hundred billion dollars more than all of last year. Now there are many reasons alternative asset classes have taken off. One of those to our mind is the hit bond markets are taking and for clients listening right now, we've talked a lot about that when it comes to interest rates and the effects of the bond markets right now, and how fixed income plays into your portfolio because central bank, the stimuli that's coming from central bank have pushed interest rates again to extreme lows and bond prices up. It's an inverse relationship. Now, consequently cash yields aren't close to what they were just a few short years ago. So, in response, many investors have looked to other sources of return by adding more equity, lengthening maturities, they're willing to hold unwise in our estimation or adding to slightly more risky, high yield, lower quality bonds. And of course, SPACs cryptocurrencies and NFTs. Okay. I want to be very open about this as an advisor, into many of my clients listening, we here at the firm are well aware that these alternative investment classes are here to stay. Their popularity is likely to wane. However, as the attractiveness of traditional assets, in this case, bonds returned to normal. [10:41.6]

Now with vaccine steadily rolling out much of the world's populace easing back into everyday life and huge government spending growth in the near future could be the best in post-war history. Now, while these high-risk alternatives, aren't a focus of our investment strategies, we are always, and I mentioned to all my clients last week, we're always and consistently keeping a close eye on them and their evolutions. Meanwhile, we'll keep employing the same time-tested methods we've always used for you and your investments. And if you're not working with an advisor right now, and you'd like to build that trust with someone, you can give us a call (805) 409-8150. You can also go to our website at PensionAttention.com and you can set some time with myself, one of my team members to go through your portfolio, your deferred comp plan, take a look at where you're at right now, making sure it's in line with where you want to go with your time on, on the job, understanding drop entrance and all those factors that play into living a happy and healthy retirement, and also discussing in an open format, ideas and suggestions and strategies likely what you've been hearing in the firehouses right now, or through friends and colleagues, or really just any news outlet you read right now with regards to some of the items mentioned today around cryptocurrencies SPACs and NFTs. [12:02.9]

These are the hot ticket items right now. These are the most fun to talk about as the, what if strategies. And again, I want to reiterate this while these alternative asset classes are here to stay. We do feel their popularity will wane a little bit as we see some recovery happening. And again, these are higher risk opportunities. They may not be our direct focus on our investment strategies. We are always again, keeping our eye on these evolutions to make sure that they fit into the portfolio with sound management and a diversified approach to different asset classes, different types of environments and economies with having multi-asset class investments globally. So, it has to fit into the entirety of a good well-run portfolio that's actively managed rebalanced and making sure that your contributions coming in are going to the right places. And so, all of those conversations have to come in and have a holistic environment so the left hand is talking to the right hand and that's where good management comes in to have these open dialogue conversations, assess them and their risk assessing them and their risk for your portfolio, not your buddy's portfolio, not your family's portfolio, yours, maybe you and your wife. And so, understanding how that fits in is paramount to the success and is vital really to the success of your overall retirement plan, because the deferred comp plan is your engine that drives this ship. So, finding good investment management is paramount to again, living a happy and healthy retirement. [13:27.2]

So, in the tenure of Pension Attention podcast, this is our first special alert podcast I want to put out there because I just felt there was an important topic. I think it's been discussed heavily in the past few weeks and we've been hearing it. And I thought it'd be really good to hear where we are coming from for it. We know it's out there; we know it's here to stay. The popularity and understanding the buy points, if you will, the value, what you're getting into it, cause there's a good old saying, my grandfather used to tell me all the time, “you make your money on the buy.” So, understanding where your buy point is, making sure that you're not getting into something because of herd mentality, right? And you're paying over what you should pay for that same value. Those are all important when it comes to looking at an investment. Yes, it might be cool. Yes, it might be the new hot thing being talked about, but making sure it fits into everything else and understanding your risks is really important to how you want to adjust for your retirement. So that's why I want to bring it up today and I hope you enjoyed it today. I'm looking forward to next week's episode and until then stay safe. [14:24.9]

The information in this podcast is educational and general in nature and does not take into consideration the listeners personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice.

To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a final decision. [14:47.8]