facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
Thoughts on the Future of Finance Thumbnail

Thoughts on the Future of Finance

Investment Retirement Funding

I believe that the next 20 years are going to change everything we've ever known with regards to Risk, Time Horizons, and many other topics because of the introduction of Digital Assets.

Here's why & some of this might sound crazy:

1). Portfolio Construction:

Portfolios will look different in the future. When ownership of all assets move to chain, everything can be fractionalized. A Portfolio might look like this:

  1. Security Tokens (Stocks on chain) - 20%
  2. Cryptocurrency - 20%
  3. Stablecoins (Cash equivalent) - 5%
  4. Music Albums - 10%
  5. Real Estate (Fractions of Physical Buildings) - 20%
  6. Collectibles (Artwork, Watches, Digital Art) - 10%
  7. Community Based NFTs (This NFT acts as your Membership to communities such as your favorite artist, etc) - 5%
  8. Business Ownership - 10%

2). Returns:

Stock & Bond averages? Those have been the advisor golden standard of comparison.

When that fraction of a building in Manhattan appreciates 35%, your Bitcoin is up 100%, and that deal you snagged to buy a fractional ownership in Michael Jackson's Thriller is up 75%, these numbers look a little different.

What used to be returns from VC, will now sit in your client's portfolios and I have a feeling a 5-10% return won't cut it.

3). Time Horizons:

Time Horizons might change. What Joe used to be able to accomplish in 40 years saving through his 401k, might now be able to be accomplished in 20 or maybe even 10?

If the investment options/returns are able to accomplish this, what does that do to a client's quality of life? Does retiring at say 50 or even 40 now become standard? Can they accomplish more in their lives because each goal requires a smaller window to accomplish?

4). Risk

Technology may flip risk on it's head.

If portfolios look this way, what does that do to the clients who call themselves "conservative". Who's really at risk, when a client is sitting in the equivalent of a cash, CD, & a basic 60/40 portfolio earning 5-10%, or even your DYI Indexer. While everyone else is earning between 25-35% (equal to the average VC Fund)

Remember time horizons have changed because returns/expectations have changed. You're not just "earning less". You're retiring at 65, when others are retiring at 40. Your quality of life is also at risk.

5). Investment Valuations:

The way we value things also will change.

Even today, you see advisors still trying to explain cryptocurrency in the same form of valuation as a stock. It doesn't work that way.

Blockchain operates a network effect. Netflix cares about its revenue, sure but the only thing that really matters is how many subscribers they have. That really determines how valuable they are. Without that, nothing else matters.

Crypto networks operate this way. Yes, they have revenue models, but how many users are on the network, building, playing, paying is all the really matters and eventually, these networks will be interconnected, just like the internet. We use to have to type in a website directly and ping that specific server, now you don't know that you're bouncing off 50 different servers when you browse because they are now interconnected. This will happen with Blockchain.

We also now have the introduction of community. Assets will now have a community value that will have to be accounted for and advisors aren't used to dealing with that.

Imagine if you owned a piece of a Taylor Swift's album because she sold off some fractions of it. You'd collect revenue as an owner and sure, there is revenue value there but there is also a community value. There are a lot of people in this world who would pay handsomely to own that, revenue aside. We're not even counting the ability for these artists to drop perks to current owners, concert goers for owning that fraction or holding that specific NFT.

6). Trading

Right now (Central Time) I can place a trade between the hours of 8:30am and 3pm (M-F) and it takes 3-4 business days to settle.

Digital Assets are instantaneous settlement and 24/7 trading. Massive positive for clients. No more waiting.

Advisors however, may find this difficult to adjust to. When a client's wire from a TradiFi bank drops at midnight, you'd better be ready to build that portfolio.

Remember, when all assets are on chain, they trade 24/7. Assets that trade in perpetuity move a lot more than markets that close. ALOT.

So it won't be just Crypto. Real Estate, Collectibles, everything will have to be watched closely. Anyone who has a crypto portfolio, knows what it's like to wake up on a Sunday and realize that while they were asleep something appreciated (or depreciated) by 75%.

7.) Planning

Planning is a time intensive process currently. Often with back and forth many times to get to a final decision. Quite a lot of data entry.

Not in the future. Blockchain will eventually hold all current assets ownership, all transactions, all tax information (W2s, SSI statements, etc).

Now bring in Artificial Intelligence. What happens when you can sit at the table with a brand new client and in 90 seconds you've pulled all their data from the chain and you have a rough plan or a balance sheet without having to ask the client to bring anything to the meeting?

Makes me a little worried for the folks who put their entire value in putting together these plans.

8). Knowledge.

Outside of trading, advisors are going to have to be very knowledgeable about many assets they don't typically advise on.

Most advisors wouldn't know how to analyze a building, a rare watch, or Nirvana's "Nevermind" to determine if they should buy it for their client. They wouldn't have a clue what an NFT that Post Malone dropped to be a part of his community is worth or what it even is for that matter.

Luckily artificial intelligence will bring technology to a place to make all these things easier to manage for an advisor, but our jobs will not look the same. We'll have more capabilities, more responsibility, and frankly a lot won't be able to adapt.

Prepare yourself. It's coming.