Ric Edelman is the Executive Chairman of Edelman Financial Services. Previously ranked the nation’s #1 Independent Financial Advisor three times by Barron’s, Ric is regarded as one of the nation’s top financial advisors We recently spoke with Ric, who will be speaking at our Digital Asset Strategies Summit (DASS) Oct. 16 – 17 in Dallas, TX, as he explained why firms pledging to stay away from cryptos “will be eating their words”.
DASS: You recently stated that Vanguard and wirehouse firms that have pledged to stay away from cryptocurrencies “will be eating those words.” Why do you think there is such a backlash from conventional Wall Street players?
Ric Edelman: Two reasons: most Wall Street executives are older. They went to college in the 1970s, 1980s and 1990s. Many are simply not keeping up with technology, and they are unaware of the speed of innovation brought about by exponential technologies. They believe the old rules apply, and many of them point to absurd comparisons, like tulip bulbs and Beanie Babies. They simply don’t understand blockchain technology.
Second, many are simply scared. Cryptoassets and blockchain represent existential threats to their business models – just as buggy manufacturers once derided horseless carriages as nothing but a fad. Many of these companies have infrastructures and costs that render them obsolete when compared to these new platforms, and they don’t know what to do about – so they pooh-pooh the newcomer in desperate hopes it’ll go away. It won’t.
DASS: How much of one’s portfolio, if any, should be allocated to crypto?
Ric Edelman: No more than five percent of your portfolio. For many investors, that figure should be much less – even zero. There is little regulation at present in the cryptoasset world, and lots of bad players. It’s really the Wild West for now, with massive price volatility. So buy a variety of cryptos because diversification can help reduce your risks somewhat (nothing can truly protect you from losses, of course), invest only what you’re willing to lose, and be prepared to hold your investment for years – especially through periods of volatility.
DASS: Will bitcoin remain the bellwether digital coin, or will it be replaced by some other cryptocurrency – much like Facebook replaced MySpace or how the cassette player replaced the eight-track? Is bitcoin a Google or a Webvan?
Ric Edelman: No one knows. Bitcoin has a huge head start. But so did Lotus 1-2-3, until Microsoft Excel came along. Bitcoin has some technological limitations, which is what prompted the creation of other coins. And let’s see what happens when governments stop their foolish game of denial and finally embrace cryptoassets. Will they adopt Bitcoin? Or will they issue their own like they’ve done with currencies? No one knows. Run away from anyone who claims to have the answer.
DASS: You have stated that advisors can use blockchain to improve how they collect and store client data as well as make financial plans more accurate, easier to maintain and update, and more secure. Do you think that if more advisors are actually incorporating blockchain technology into their business, they would have a better understanding of digital assets as an investment opportunity?
Ric Edelman: Perhaps, but not necessarily. You don’t need to understand the principles of internal combustion in order to drive a car. It’s likely that advisors will use the blockchain because it’s provided for them by vendors – Vanguard has already shifted its S&P 500 stock fund to the blockchain, for example, so anyone buying that fund is using the technology whether they know it or not. In the not-too-distant future, advisors will be buying blockchain services just like they currently buy photocopiers.
DASS: You’ve recommended that investors treat crypto like a lottery ticket. As the industry matures, are you seeing new or innovative ways for investors to hedge their crypto holdings?
Ric Edeleman: Of course. Innovation is constantly occurring, and new tech is being developed at a faster pace than ever before. Just as the Model T inspired the need for roads, traffic signs, line painting, toll booths and parking garages, blockchain and cryptoassets are creating the need for exchanges, trading platforms, reporting programs and more. I’ve personally invested in several start-ups and I continue looking for what’s next, because what didn’t exist yesterday is state-of-the-art today and will be obsolete tomorrow.
DASS: Thanks Ric. We look forward to hearing more of your thoughts at the DASS October 16 – 17 in Dallas.