Behavioral Finance

The Risks of Cryptocurrency & Bitcoin

February 10, 2021 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on the risks of cryptocurrency and bitcoin. From bitcoin to dogecoin to chainlink, cryptocurrency is a reigning hot topic in the financial realm. That being said, there’s an influx of information and “success” stories making it hard to learn the benefits and or risks of this new age of finance. Matt Hougan is optimistic about the potential future of cryptocurrency, but there are significant risks as well. First, there’s massive behavioral risk in cryptocurrency. For example, Bitcoin has been highly volatile despite its high returns causing people to chase returns or to panic at the bottom. Second, there are potential future legislation concerns or a lack of proper controls on cryptocurrency.

As Matt mentioned, there are a number of risks out there, and always be something to fear. At Intelligent Investing, one of our wealth management principles is Faith in the future.
We want to maintain a positive outlook on life, even when things appear dark or grim. We also believe in Diversification– the spreading of risk and reward across various factors and asset classes. If you never own enough of any one thing to make a killing in it, then you shouldn’t have to worry about owning so much of that thing, that you get killed by it.

Matt Hougan Bio

Matt Hougan is one of the world’s leading experts on crypto, ETFs, and financial technology. He is Global Head of Research for Bitwise Asset Management, creator of the world’s first cryptocurrency index fund. Hougan is also Chairman of Inside ETFs, the world’s largest ETF conference. He was previously CEO of ETF.com, where he helped build the world’s first ETF data and analytics system. Hougan is co-author of the CFA Institute’s Monograph on ETFs. He’s also a crypto columnist for Forbes, and a three-time member of the Barron’s ETF Roundtable. For more resources from Matt Hougan click here.

Cryptocurrency & How It Works

January 27, 2021 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on cryptocurrency and how it works. During this episode, Matt pulls back the curtain and sheds light on the nuances of cryptocurrency. According to Matt, cryptocurrency is the first native way that money can move over the internet. For example, if you go online today and pay your internet bill, it could take multiple days for that money to transfer. Contrast that with a Bitcoin transaction. Matt gives an example of a billion-dollar transaction that settled in less than 10 minutes with a fee of .0007%. There are many misconceptions regarding cryptocurrency. Simply put, it’s a new rail for the modern transfer of money.

I recently read a quote, “Knowledge acquired by reason will dispel ignorance and thus destroy the greatest evil—fear.” As Matt points out, when you hear of something new, it is best to do some research in order to gain knowledge and a better understanding. We think the same holds true of cryptocurrency, blockchain, and alternative asset classes. Just because something is new, doesn’t make it wrong. At the same time, just because it is new, doesn’t mean it’s better. To learn more about our philosophies, go to our philosophy page.

Matt Hougan Bio

The Dimensions Of Active Management

January 20, 2021 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Larry Siegel, the director of the CFA Institute Research foundation on the dimensions of active management. In this episode, Larry breaks down the various elements of active management. Active management adds three variables: alpha risk, active return, and the cost of active management. It’s not possible for active management as a class to outperform index funds. This is due to active managers betting against each other, which results in lost money relative to index funds over time. Not every active manager is going to lose. Some active managers will win and some will lose, but how long will those losers stay in the active management game? Probably not very long.

We’ll be interviewing Larry on upcoming Intelligent Money Minute podcast episodes, so be sure to subscribe if you haven’t already. Larry mentioned that the world’s population growth explosion looks to taper off this century, leading to more prosperous countries and individuals, which should allow us to solve some of the environmental enigmas that we currently face.

We agree with Larry that there are sometimes active managers that can outperform, but it is very difficult to find another active manager to take the “losing side” and be willing and able to stay in the game. At Intelligent Investing, we use both passive and active management, and focus on keeping our portfolio costs low. Because we are independent, we don’t need to pay any wallstreet middlemen or pay additional fees in order to keep our “big named-financial firm’s headquarters happy” which helps us remove fees and unneeded costs from our portfolios. If you are interested in becoming the next intelligent investor, please visit investedwithyou.com. We’d be honored to serve you and your family.

Larry Siegel Bio

Laurence B. Siegel is the Gary P. Brinson director of research at the CFA Institute Research Foundation and an author, consultant, and speaker on investment management and economics. Before retiring from full-time work in 2009 he was director of research at the Ford Foundation and, before that, head of research at Ibbotson Associates (since acquired by Morningstar). He attended the University of Chicago (BA 1975, MBA 1977). His book, Fewer, Richer, Greener, has been published by Wiley and is available, along with his other work, at http://www.larrysiegel.org.

The Dangers of Commission-Free ETF Trading

January 14, 2021 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on the dangers of commission-free ETF trading. Recently, custodians have been offering commission-free trading on ETFs, but many believe this can encourage misbehaving. Matt lays out the big picture in regards to the market and the opportunity. During this episode, he highlights the benefit and the behavioral risk of commission-free trading. The benefit is that those paying commissions will experience a leveling of the playing field. On the flip side, the behavioral risk is resisting the temptation to trade more frequently. Just because you can trade something doesn’t mean you should.

The adage, “There’s no free lunch” continues to ring true today. Custodians will make money somehow, and it is important for you to understand that. Investors should be grateful for the recent drop in commissions, but there is a behavioral risk that is attached to commission-free trading. You can learn more about these dangers and the need for having an investor behavioral coach by visiting our philosophy page.

Matt Hougan Bio

How To Invest In A World Of Negative Interest Rates

January 6, 2021 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Larry Siegal, the director of the CFA Institute Research foundation on how to invest in a world of negative interest rates. Most environments feel unprecedented, but until 2019 there have never been negative interest rates. What does this mean? Essentially, it means locking in a guaranteed loss over long periods. How does one invest when the riskless rate is negative? Larry suggests that investors could either take more risk or budget for lower returns. According to Jack Bogle, the better of those options is to budget for lower returns. This requires one to save more and spend less.

History doesn’t repeat, but it often rhymes. You can either take more risk and hope equities goes up, or you can budget for lower returns. The prudent investors will save more and spend less, and these are the principles we teach our clients. We’d be honored to have you consider becoming a client. To learn more, please visit Get Started.

Larry Siegel Bio

The Secret of Endowment Success

December 16, 2020 by Hans Blake, CFA, CPA

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Larry sheds light on the secrets of endowment success. First, he encourages investors to be long-term investors in behavior rather than claiming to be one. Another endowment principle to consider is avoiding performance chasing. Third, keep your investment costs low. Fourth, don’t do what everyone else is doing. Fifth, don’t fear boards and committees. Finally, liquidity is something to consider for your long-term investment strategy. Larry encapsulates his thoughts with a witty quote, “You are not so smart, and other people are not so stupid.”

We agree with Larry’s advice on Investment success. Two of our wealth management principles are patience and discipline. Patience is the decision not to do something wrong. The more often you change your portfolio–actually, there’s evidence that the more often you even look at your portfolio–the lower the return will be. We want to be patient and let investment themes and strategies play out. The second principle is Discipline. Discipline is the decision to keep doing the right things. Discipline says, “I don’t care what’s working now; I care about what’s always worked, and I’m going to persist in doing the things that have, most reliably, always worked.” To learn more about our wealth management principles, please visit our website.

Larry Siegel Bio

Lessons Learned From The ETF Flash Crash

December 2, 2020 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on lessons learned from the ETF flash crash. You’re right to realize that ETFs have different risks than mutual funds. Unlike mutual funds, ETFs trade like stocks so like all equities that day, ETFs traded down during the Flash Crash. There are ways to protect against those sharp downturns by avoiding sleeping limit orders which is true for stocks at ETFs. Once again, Matt Hougan reiterates that ETFs can have a lot of unique advantages compared to mutual funds, but it still requires sensible practices.

There will always be trade-offs in life, and the same thing is true when it comes to trading, risk, and your financial plans. At Intelligent Investing, we have the ability to show you your financial plan and let you choose some of the trade-offs to see how it impacts your plan. For example, what if you were to retire a few years early, what if you wanted to increase your spending in retirement, or perhaps you want to leave a larger bequest as a lasting legacy. We have the ability to show you how changing each of these factors will impact your financial plan’s success rate, and we’d be happy to have a coffee or call to discuss this in detail.

Matt Hougan Bio

Fewer, Richer, Greener with Larry Siegel

November 18, 2020 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

Larry credits the inception of his new work to a book written in 2004 by Ben Wattenberg called “Fewer” detailing the end of the population explosion. As a result of Wattenberg’s book, Larry put together a more extensive thought on what will occur when this massive population does indeed decrease. This concept inspired the theme of his new book: Fewer, Richer, Greener. During this episode, Larry explains that population reduction isn’t necessarily a negative thing when coupled with increased wealth. He states that as areas become wealthier they will invest further in their current children rather than adding.

Larry’s book, “Fewer, Richer, Greener” reminds me of one of our wealth management principles, which is to have faith in our future. We regard optimism as the only realism. There will always be something to fear, but we think that progress continues to increase. We want to maintain a positive outlook on life, even when things appear dark or grim. When you are fearful or panicking, please don’t make a foolish mistake you will regret in the future. Let us be your financial accountability partner and emotional ballast through the storms. We are here to serve you.