2021 Hot Topics: Inflation, Crypto, and Market Highs

Well, good morning, everybody and happy Friday. And what better way to round out the weekend then talking about investments. And all the hot topics that we hear about going on so much right now, I'm Mark Gochnour Head of Global Client Services, and I'll be joined today by Jake Dekinder, head of Client Communications. Now, Jake and I are gonna talk about three things today. We're gonna talk about the market being at record highs. We're gonna talk about inflation, and we're gonna talk about cryptocurrency and put it in the context of how do we think about those things, the impact on our investment portfolio, particularly as we think about going into the future. So I anticipate each one of those modules, if you will, are gonna be about 15 minutes and we're gonna throw quite a bit at you here today. So we will be recording this. We'll be making it available next week. And that way you can go back and kind of review anything we talked about and certainly forward it on to any of your friends that you think would be interested in this. So we will be using some slides today. If you scroll down a little bit on your page there, you're gonna see a link there that says event resources. You can click on that. You'll be able to get the slides, and there's also gonna be a couple of links to some papers and some videos that'll support some of the things that we'll get into here today. So a lot of good stuff to get into here today, Jake, lot of meaty. Thanks to get in here today as well. Yeah, for sure. They are meaty topics. We wanna make sure we do them justice and, you know, look, if you've been paying attention to the financial press for the last week or the last month, last six months, a year, whatever it is, these three really keep popping up. So I'm excited to dive right in. Well, a good comment there about financial press, some of these headlines there weren't reading. So let's just start with that as we get into market highs. And some of the things you were reading about that, and really not just recently, I'm not gonna show a couple from the last, the end of August or so, but even going back to last year, so pretty consistent themes around this idea of market highs and you can kind of see them here. I've just pulled a couple of headlines out here from kind of a daily newsfeed I get called the Morning Brew, got one from the wall street journal, but it's kind of interesting to see these things three days in a row and you look at the first one there, it just talks about the S$P 500 getting 12 record highs throughout the month of August. The next one talks about the months, seven months in a row of good performance from the S$P. We haven't seen that in about four years. And then the wall street talking about this idea of a never-ending record. And Jake, you think about these headlines and what's the point of a headline? Well, the point is to get a reader, ultimately click on it or read it, right. And so how do you get the attention around that? Well, you've got emotionalize the headline a little bit, and what's a good way to do that when we think about our investments. Probably through fear, or perhaps greed some combination thereof at times. And so you kinda got to get them a little hot topics there to come in and read those particular pieces. But when it comes to record highs, I'll tell you one of the frustrations I have about a lot of the articles that are written about record highs is there's a tone in there that somehow you've got this barrier and whenever your investments kind of get up to a record high, it's like, there's this gravitational force, just pulling you down to where there's gotta be some sort of a market decline or market correction, anytime you bump up there. And it's frustrating because I think it can cause a lot of anxiety for the readers reading these articles. Yeah, I think you're right. I think that investors do get a little bit cautious, a little bit fearful when they read the articles that, like you said, somehow there's this invisible ceiling, and once I bump up against it, it's really hard to go beyond that. And I think a good place to start is to say, okay, listen, when we hit those record highs, what have we seen going forward? And you mentioned that earlier, and by the way, we've hit thousands of record highs over the last 30, 40, 50 years and going forward, we're hopefully gonna hit a lot more. It's actually what we want as investors. But again, a good place to start is to say, all right, when I hit a high, what does it look like going forward? And here's one way we can look at that market. We're looking at the S$P 500, and we're gonna look at, the percent cases when the index is higher after a high. And we're gonna look out one, three and five years. And what do you see here? What you see about 80% of the time looking at these numbers here, that looking forward one, three and five years out, it's higher after the high. So even though we've hit a high, it doesn't mean that we can't break through that ceiling. We see about 80% of the time, but there's a follow on question there, which is not just, is it higher, but on average, how much higher is it? And I think here's a good way to think about that. And we'll go back to, you know, Mark, when you've got a situation where the market's going up and we hit that record high, as we've been reading about quite a bit. Recently, investors asked that question of is now a good time to invest? And mark, when you asked that question, when an investor asks that question at the high, what are they implying with that question? What are they thinking is going to happen? There's a natural tendency. I don't wanna invest and then see it go down, right? The idea of a crash, sorry to speak. Yeah. And I think that's what they're concerned about is that it's gonna go down by some amount. And then the question is, at what point do I get a signal to invest? Is it down 5%, down 10%, whatever it may be. And the sad part is that your investors many times are looking for the signal of when can I be in the market so that I can get the good and that I can avoid the bad? And maybe they're concern is gonna go down a little bit more and is here the signal where, I want to say, yep, now's the time when I wanna put money to work. But earlier we said, you know, look about 80% of the time. The market's higher one, three and five years after hitting a high, but let's answer that question how much higher. So let's look at all those periods where we hit a record high. And again, we're going to look at S$P 500, and this is gonna be from 1926 through 2020. And I wanna look at those record highs, and I wanna look out one year, three years and five years and say on average, how much higher is it? Mark, You've got some numbers that we can put to this. Yep. I sure do here. So let me read these to you. We got the one, three, five there at the top there on a one-year number. It's 13.9%. Okay. Three-year 10.5. 10.5. Five-year 9.9% 9.9%. So, you know, you look out there and we already said about 80% of the time after hitting a high it's higher. Now we've got some magnitude here and look at that five-year number. And you think about the S$P 500, what's roughly the long-term average for the S$P 500? You know,I always default to the long run average 10%, because I think about future returns. Well, not only future returns, but if you look historically that's about what the S$P 500 is on about 10%. So I'm looking out there at five years and saying, look, even at a record high, on average, we're getting about 10%. And by the way, those three and those five years, those are annualized returns over those time periods. I find it interesting just as another data point to take that and contrast it with not just when you're at a record high, but let's go to the bottom of this chart when maybe we're down 20% or more. And even down there, when people are asking the question, oh, Hey, should I put money to work? or should I keep money in the market? What they're concerned about is is that, ah, it might go down it's down 20%. Maybe it's gonna be down 25, 30%, who knows? So let's look at the numbers when it's down 20% out, one year, three years and five years. And Mark, you've got some numbers there for me. What do we see? Yeah. Okay. So the, for the one year 11.6. 11.6. 9.9 And then 9.6 for the five-year number. And 9.6 of that five-year number. So, you know, look, you look at the record high, you look down 20%. You look out at five years, it's roughly in line with the long-term return of the market, right around that 10%. So there's nothing when you're at a record high or you're down 10, or you're down 20% or at any other level that gives you some additional information that really should change your expectation for what you're gonna earn on your stock portfolio. Now that doesn't mean every single time, one, three, and five years out. After record high, you're going to be up. That's not what we mean by that. There's uncertainty with investing in stocks. They go up and down over time. Anything could happen. But again, I look at these numbers and say, okay, I can either stay invested in the market, or I can go to the other alternative, which is cash. And what's the expected return on cash? right around zero It's right around zero. So, you know, you sort of say, what are my alternatives there? And again, I don't know what's gonna happen, but looking at what I see historically for stocks, what I know about cash, I'm probably gonna lean towards the stock market. If I think I should be invested in stocks. Well, looking at these numbers, and what's interesting to me is how similar they are, whether you're at the record or down 20% as you highlighted. And I want to bring your question in, and this is that we received from the audience in advance of the webcast. In fact, I just want to mention here too. We've already had some questions coming in, which is fantastic. So thank you to all of you to send questions in advance. We are gonna be pulling those out here. I did go to question here. I just wanna mention this in case folks came on a little bit after the intro about the slides we're gonna be using, they are available. Just go to that event, resources tab there. If you scroll down a little bit, the slides and a couple other resources are available there for the audience to hear. So let me go back here. Let's go back to this now. And a question that again, that came in, in advance of the webcast, and I think it is incredibly applicable to some of these numbers that you just showed there, Jake. So the question goes like this, it said, are all asset classes overvalued, when is the crash? Right? So that's the concern right there. That's a concern. You highlighted that very nicely. That's what I'm concerned about. This record high there. I think there's two elements for that question. That's worth bringing up here. One is you showed some of these numbers historically, and that's important because do we learn anything from the past that tells us something about the future? And in this case, there's nothing that we've seen there that says, Hey, we need you to record high that somehow there's gonna be this big drop. Okay. So we don't see that in the data. But the other thing that highlights is why these numbers actually make sense, right? 'cause there has to be an intuitive story, a logical story in terms of, we look at these numbers on a go-forward basis and go, well, you know, that would make sense to me to see these, whether it's a record high or down 20%. Yeah. I think that, you know, with that, look, I'm gonna make a statement and then we'll unpack that statement. At all points in time, stocks have a positive expected return. And what do we mean by that? You know, I find it hard to believe that investors freely commit money to the market, invest in the stock market, or keep money in the stock market with the expectation that they're gonna lose money. I mean, I don't hear a lot of people say, yeah, I'm invested in the stock market. I'm pretty sure a year from now, it's gonna be down 10%. You wouldn't be invested in the stock market. I mean that, that's why we do that because we expect to make money. We should expect to make money at record highs. We should expect to make money when we're down 20%, we should expect to make money at all those points in between. And, you know, look, you have to sort of think about why you're invested in stocks. And, yes Mark as I like to say, if we go back to sort of a simple chart here, I like to say stocks kind of go up into the right. They go up and down over time. But over the intermediate to long-term, what we've seen historically is they tend to go up and to the right. And we like to use the analogy. It's sort of like going up a staircase with a yoyo, you know, if you focus on the yoyo, you think it's just going up and down constantly. If you focus on the staircase, the intermediate to long-term, you tend to go up into the right. So you wanna get really clear on what your goals are and for stocks you're invested for longer term growth. So what that means is, the short term fluctuations, you probably don't wanna pay as much attention to them. When you're a record high. Could you go down a little bit? Sure. You could go down. When you're down 20, could you go down a little bit more? sure you could, but you're in it for the long-term. You want to try to have that perspective. Well I liked what you said a little bit ago about, we've probably seen hundreds, if not, thousands of record highs over time, and we're gonna continue to see that in the future. You know, we're talking about the S$P here, the S$P I think somewhere around 4,500 or so in value, it's gonna go to 50,000 someday, but I don't know when, there's gonna be some bumps along the way, but it's gonna go there. So then what's the mindset on that journey as we get more record highs? Well, it's gonna be, okay. Another record high. When I see that headline, it's like, yeah, I would expect that, all that tells me is I'm getting a return on my capital. Otherwise you would never invest. So things are just working on as you intended. That's right. I mean, I think on expectation, we think it's gonna move to, and by the way, if it does move towards that, I hope I'm here with you. When it hits that 50,000. We gotta eat our vegetables, We gotta stay healthy, but I hope I'm here. We'll have a champagne party. I like it. Hey, I wanna highlight another question here that came in. It's kind of an interesting positioning. So we've talked about the question that was submitted about, you know, is a crash coming. Another question came in that said, I'm 72 years old. Should I be increasing the risk in my investment strategy? So kind of an interesting position, worried about a crash, the other person saying, Hey, maybe I should get more aggressive and be taking on more risk with where the market is. And I think that's a good way to position it. We don't know how to answer that question because you know, that question is very unique for each individual. And it really brings in the role of the advisor in terms of what's appropriate for the investor. Well, you're right about that, valued role of the financial professional. Also those two quotes are interesting to me because that's what makes the market right? You got buyers, you've got sellers, you've got people with opinions. Where do they come together in the market? They transacted a price where they both think it's fair. Yeah. So any questions out there of what's applicable for me individually, get with your advisor and they absolutely that's what they work through in terms of what you're trying to accomplish with that goal. Okay. Market highs. Let's talk a little bit about some inflation here. And, you know, we opened up a comment there on the market highs with headlines and boy, you see a lot of headlines and a lot of press out there around inflation. And then you go back in time, you think about inflation. it's been about 2.9% going back to probably a hundred years or so. Today is somewhere around 5.4 now 5.5% Year over year, year over year. Yep, yep. Thank you for that. And so there's a lot of articles, you know, some concerned about that being written up, Hey, if inflation is going up, like, what does that mean in terms of, is that gonna mean bad things in my investment and to my wealth? Am I gonna take a hit just because you're seeing a little pop in inflation. And again, I go back to this idea of anxiety. I think people tend to read that stuff and get a little nervous from those articles. Yeah, I think you're right about that. I think in general investors, when they hear the word inflation may pull back a little bit, they may have a little bit of that fear. What's that gonna mean? And I think it's helpful to set the stage that we actually want some inflation at a moderate low, we set a positive inflation target. In fact, I lifted this quote here or this information from the federal reserve board of governors website. And I think it's interesting just to read through the FOMC judges that inflation of 2% over the longer run as measured by the annual change in price index for personal consumption expenditures, is most consistent with the Federal Reserve's mandate for maximum employment and price stability. When households and businesses can reasonably expect inflation to remain low and stable, they're able to make sound decisions regarding saving, borrowing, investment, which contributes to a well functioning economy. So when we read inflation, we shouldn't immediately say, oh, it's a bad thing because we want positive inflation, relatively low stable inflation. It's good for the economy for all of the reasons that are outlined in that quote. And as we just talked about, it's been around for a hundred years, but I want to go back circle that part low and stable because what we're reading about right now is, well, it's been increasing, right? We talked about that instead brings in this idea of stability, what's it gonna mean going forward? So the question we read about so much now is okay, but this idea of going forward is inflation just sort of this temporary dip, if you will, as we kind of come out of the pandemic or perhaps is there a longer term impact of, is it gonna be there longer term in higher inflation going forward? Well, and that's important to separate, I'll say a little bit of the hype or at least the headlines from what the market is telling us. What's the data telling us. And a good way to look at that is we can look at the break even rate between nominal bonds and TIPS. And so what we're looking at here, this is a five-year break even rate, between nominal US treasuries and five-year US TIPS, Treasury Inflation Protected Securities. So really looking at the nominal rate versus a real rate, it gives you a good approximation for the market's expectation for inflation, again, not perfect, but decent way to look at it. And you kind of look at where we're at right now, and I'll just kind of draw a line here right around two or 3%. And so, you look at what we're reading about at least in the short term and what the headlines are, and then what the market's telling me over expectations for the next five years. And it's kind of right in that two to 3% range, you go back to that, '08, '09 time period. Again, another period we went through where you had pretty major stimulus, it was going into the market. Lot of articles that were being written about inflation is gonna be off the charts. This is what's going to happen. And what do you see back then? Well, you know, it's right around two, 3% back then relatively similar to where we're at. And by the way, what did we get over the next decade or so? You know, relatively stable inflation over that period. So again, I don't know what inflation is gonna be over the next year, three, five years, nobody knows, but a good place to start is millions of investors coming together in the market, very sophisticated investors in saying, here are our expectations or rough expectations for inflation over the next five years. So. You hear a lot of numbers. The market's summarizing it by saying, man, somewhere around two and a half percent over the next five years, but let's bring it up a little bit level here. So we wanted to address that. You're hearing a lot of different things, two and half percent expectation over five years, let's start at the top in terms of inflation while, you know, maybe there is a role for it to be there and you want stable stability with it. There is a challenge with inflation as well. In overall, you know, it does impact our purchasing power in some cases in significant way. So let's talk about that, the impact it has, and let's talk about some solutions is we think about ways to protect against inflation. Yeah. I mean, look, you got to account for it as an investor and here I think it's a simple way to think about it. So let's just think about the value of $1. And what I wanna look at, is I want to look at 1991 through 2020, about 30-year period here. And over that time period, what we've seen is that inflation as measured by CPI has been about 2.3% on average. So again, right in that two to 3% range, roughly around what we said for a positive inflation target, but what does that meant for the value of my dollar over that time period? So let's imagine I had a dollar that was not invested that was under the proverbial mattress, as we would say, I didn't do anything with that. What would have happened to it? Well, you would have actually lost about 50% purchasing power loss over that time period right here. So again, even with relatively low, relatively stable inflation, you have to take it into account, or you would have lost over a 30 year period, half of your purchasing power. Anyway, talking about that is we're going through something. I said, man, that's a big, like you just, it's surprising when you actually see the number 50% declining purchasing power and I pulled some numbers up here just to kind of give a context and make it tangible. So if you go back to that 1991 time period, now it doesn't age. For example, we're a buck eight nowadays around two bucks. Milk was somewhere around a dollar 40 in 1991, little over $3 probably today and I'll say most importantly, the big Mac, Who's the big Mac? it was $3 and became about six where we are today. So it sort of highlights that idea of you lose 50% of purchasing power. Things are doubling in price. And that's what we've seen over the last 30 years or so as we've gone through that. Yeah, that's right now, what have we said here? You know, I showed you a chart earlier and said it was talking about inflation expectations. There's another component to that, which is that unexpected inflation. Like I said, we don't have a clue what inflation is going to be. You form the best expectations you can, market participants for in the best expectations they can. And by the way, those expectations are really built into the price of everything, right? There's built into the price of stocks, that are built into the price of real estate, commodities, whatever it may be, but it's that unexpected component that we also have to account for. And I think about it in terms of two buckets and let's go back to our goals. So let's think about an investor that has intermediate to long-term goals. In relation to inflation, that's gonna be someone who says, Hey, over time, I need to outpace inflation, whatever inflation is, I need to make sure I count for that, and I need to do a little bit better. So let's take a look at some asset classes and how they've helped accomplish that goal over time. So what are we looking at right here? I'm gonna look at periods of high inflation. You can see right here above median, US inflation from '27 to 2020 here. And so again, this is looking at how did these asset classes do above and beyond inflation. And the first one I'm gonna show you here is gonna be for T-Bills. Now you see that negative return right here for T-bills that negative return means it didn't keep up over that time period. You would have actually lost your purchasing power as we showed you on the previous drawing there. And we're talking about T-bills again, short-term loans to the government, relatively similar return to maybe what cash or something like that might be. But again, didn't keep up with inflation, would have lost purchasing power over that time. Let's go to a couple other asset classes. Let's talk some bonds here, government bonds, corporate bonds, you see a positive return, and so what that means, again, in periods or years of high inflation, those actually kept up with inflation and outpaced a little bit. Now let's talk about stocks, go to the broad equity market and you see about a 4.9, 5% return, again, above and beyond inflation. Then you can look at some sub categories within stocks, large growth, small value, and you can see that those outpaced as well. So again, for those investors that say, I've got that intermediate to long-term, I wanna make sure I not only maintain purchasing power, but I wanna see are there things that go above and beyond and they outpace, and this is what we've seen historically with some of these asset classes in those above average inflation years. Yeah, and I think that's a nice way to show visually there's a long-term solution for outperforming inflation over time in stocks are very effective at doing that outpacing inflation. But we talked about the long-term time period with that. And here we're looking at a very long time period from 1927, but it raises the question of, you don't get it every year, right? That's long periods, Yep but every year you're not sure what that might be. So let's take a look at that. It kind of break that down a little bit into shorter time periods and how to think about that, this relationship of inflation to more individual, your stock returns. So what we're looking at here, and again, we're gonna be consistent with this date just the last 30 years or so. That kind of covers for a lot of the audience out there, sort of their investment experience for many of them. And so you start there in 1991, where we're looking at in that bar. So that is the return of the S$P 500 after inflation, the real return of the S$P. And you can kind of just scan there. You have some great years great returns there with the S$P 500. You have a few down years over time with the S$P 500, again, real returns after inflation. And then to compare that to the impact of inflation on that year, those are the little yellow dots. So for every year, that little dot, is what inflation was for that particular calendar year. And you can kind of see there there's time periods when inflation might've been a little bit higher and got some very good years. You have some time periods when maybe inflation was very low, like 2008, right around zero, when we had a very challenging year from the stock market return. So this idea that somehow, perhaps inflation is rising, that means something about stocks might be very negative. You just don't see that going back in time, looking at the data. And it's just a good reminder that while inflation is one measure that impacts stock returns. There's thousands of factors. That impacts stock returns, it's just one item. So just say, Hey, here's what's going on in the market, or excuse me, it's inflation desks Get a chance boned into returns of stock, right You just don't see that kind of a relationship here, but I do wanna address something here, because this was a question that came in again from somebody in advance, and we're talking about the last 30 years here. And if you kind of just scan those yellow dots there nothing popped over 10%. And that's a good question we got, because it says, well, let's go back to the seventies. And some of the audience may remember those years where you had some significant inflation. So I wanna highlight a couple of numbers for you here, Jake, write this down. Okay. I want to go back to the calendar year 1974. All right 1974. Because the question was what about if we do get to a period, you talked about this idea of unexpected inflation. The market's saying, Hey, over the next five years is around two and a half percent, but what if you get a pop like 12%. So let's address something that we've seen in the past year. Al right? 1974 inflation was 12.3% All right, let me write the inflation category here. And you said 12.3, Okay. And then the return of the S$P 500 that year, do you think it was good or bad? 1970s definitely had some tougher years for stocks, for sure. Yeah, '73, '74. We're coming out of the recession. Tough time period '74, the S$P was down 26.5%. So negative 26.5. Negative 26.5, okay So tough time there. Let's go forward a couple of years, 1980, inflation that year was 12.5%. Pretty similar. So very similar. Any guesses on the stock market return that year? I think you're leading the witness. I kind of know where you're going with this one. Absolutely, 32.4. 32.4. Okay. So, I think it's just one. Thanks for the question about, let's go back to some of the tougher time periods with inflation. It doesn't necessarily mean stocks are going to be good or bad, right? There's all kinds of factors that come into play on our individual, your stock returns, but longer term stocks are very effective outpacing inflation over time. If the relation was that clean, we probably would've figured at this point, just because inflation does this, it does not necessarily mean stocks are gonna do this. So we have to remember that. But Mark, I wanna come back to those goals that we talked about as an investor. You know, we said, look for the intermediate to longer term goal to outpace inflation. We showed some asset classes. That's not the only goal that people are gonna have inflation. Obviously you can have shorter term goals. You can have more immediate spending needs that may be sensitive to inflation. I mean, a lot of stuff sensitive to inflation. We just showed that on a chart ago. So when we get into that category, when it's shorter term and you say, I have more immediate needs, and those are sensitive inflation, that's when we want to start having the conversation around hedging inflation and hedging, unexpected inflation. And there are some great vehicles that can do that, that you say, Hey, I gotta make sure that regardless of what inflation is the expected and the unexpected component, I'm covered for that. And you start thinking about something like TIPS, Treasury Inflation, Protected Securities, and they're gonna make sure to say, Hey, if inflation is a little bit higher than what we expect, I'm gonna make sure I'm covered on that. If it's a little bit lower than what we expect, I might not get quite as much, but you know what, I hedged inflation, and that was my goal. Then even beyond that, there's some good solutions where you say, Hey, listen, I wanna make sure I hedge inflation, but maybe I'm okay investing in some corporate bonds taking on a little bit of credit exposure. Maybe I'm okay having a little bit of global exposure as well, and there are solutions for that. And again, look, that's where the role of the financial professional comes in to say, I hear what we're trying to do, and I've got the solution so that we can move towards what you're trying to accomplish. I think that's an incredibly important point there. Just about, again, the role of the advisor you're working through the needs of the individual, this idea of what's a goal, what's a solution to meet that goal? And it goes to a question here that came in about, okay, hedging against inflation. You hear a lot about gold perhaps in commodities. How do we think about something like that in terms of hedging inflation? Yeah, that's a good question. I mean, you hear about gold and energy and commodities and all of these, you know, options that are out there. High level I think here's what you want to think about is that, if inflation is roughly this and I mean, you may get some little pops, but if this is what you're trying to hedge, it's very challenging to do it with something that moves like this in price, when you hedge something, you want it to move in sort of the same pattern, right? So again, if this is what I'm trying to hedge, something that moves like that, and historically, we've seen that with the price of gold and commodities and energy, it's maybe not the best way to accomplish your objective. Yeah. In fact, if we can almost look at this chart here, this visual is sort of pointing that out. Here's the S$P, but you kind of see similar price swings, whether it's gold or commodity. So it's not really that reliable it hedging inflation. I go back to, let's go to 2021. You know, that little dot there again, we're around five and a half percent or so inflation year over year. If you look at the returns of gold the last year, So it's been, I think, around -78% or so you look at the return of commodities. It is a basket the last year it's been like plus 30 plus percent. So it goes back to how effective is it at hedging inflation? Because to your point, if you're trying hedge inflation, inflation is up 5%. You probably want your investment up about 5%. Those things should move in lockstep. If that's the true edge. You know, I think it's very liberating when you get clear as an investor to say, here is what I'm trying to do, and then here's the solutions, the tools that can help me do this. I mean, as you know, Mark, I love to work around the house, I love to work on home projects, I love it when I've got a project and I can walk out to my tool bench and say, I know the exact tool that is gonna help me accomplish that object... I mean, literally it puts a smile on my face. It's a very comforting feeling. That's a great example of the idea of the effective tool and come to my house and do those projects because I don't have a smiley face by that. I got one house to take care of, I'm not looking to take care of two right now. Okay. So let's keep going here. We talked a little bit about inflation on that one. Let's talk about something we talked about our headlines, something that probably the hottest topic out there right now, this idea of cryptocurrency. Then, you know, it's kind of interesting. If you go out there and you can do, you can go to Google and do a search on like Google trends. What are people searching? And cryptocurrency is one of the things it's just consistently been up there and it was kind of funny. I think it was yesterday. I saw on this daily feed again, that I think it was Steph Curry. You know, he's a NBA basketball star. He threw a tweet out there yesterday saying, Hey, anybody can help me think through, I wanna investment in some cryptocurrency. So it was just out there. It's out there everywhere. Well, funny enough. I mean, we were in your office this Wednesday and we had a senior member of the HR group come down and say, Hey Mike, I heard you guys are doing this webcast. My neighbor wants me to invest in this cryptocurrency. We said, oh, which one is it? And she said, I don't know. And we sort of laughed about it. And he said, oh, I bet that's going to be, you know, cheap to get in and out of. And she said, oh no, that's the best part you can't get out of it. Which you're like, I don't know what that is. I don't know what that means. And the "cheap to get in and out of," that was sarcasm Just so everyone's aware of that one, but that stuff's kind of funny, but it's all out there and let's just get one more quote here. That's kind of fun to highlight this one. I think it was John Oliver who, you know, was at HBO and he had this quote here a couple of years ago when he was talking about a cryptocurrency that, you know, everything you don't understand about money combined with everything you don't understand about computers. That's sort of sums up and we kind of could just end it right there. Absolutely, So it's kind of a fun one there, but again, we are getting so many questions coming around crypto and very serious questions. And you know, we're having a little fun here, but it is a very serious topic because where does it fit in my portfolio? And there were so many good questions that came in that we're gonna do a couple things here. We're gonna break those conversations up. So for us right now, in the next few minutes, what we're going to address is, is I think about SEDI of crypto. Does it have a role as an investment solution in my portfolio? That's what you and I are gonna talk about here in a minute. But a whole bunch of questions came in, like, what is crypto? What is this blockchain technology that's out there is crypto or a valid currency? Is dimensional law launching a crypto fund. So whole bunch of questions came in. We wanna give those proper due. So here's what we're gonna do. We're gonna do a webcast in a month from now, and we're going to have Marco Di Maggio come in and lead the conversation around this idea of cryptocurrency. Marco is an expert in this space. He's a professor at Harvard university, but he's also the director of research at a cryptocurrency. It's stable coin, a currency. So tremendous expertise in this Marco's coming in on October 12th, and we'll have a conversation with him, bucketed it around those questions that we received. So we'll spend a little time on this idea of blockchain. That's really the technology behind crypto. It's used in a variety of different industries, huge value in application from it. We'll give some context to what blockchain is. We'll talk about cryptocurrencies. You know, what are they, how do I think about one versus another, this idea of stable coin crypto, how's that different than other cryptos? We'll talk about the benefits. You know, there can be ways that reduces a lot of costs out there, moving some intermediaries. There's some challenges with crypto. And then we'll dive into where we're hearing a lot about now is the role of the central bank. Like where's the government coming in on some of this stuff, whether it's regulations or they launching governments launching their own crypto. So it'll be a fantastic conversation. October 12. Marco is an absolute expert. He explains the concept or an in all of the information around it so clearly. And like you said, there's a lot of different facets to this, the underlying technology, what it's gonna mean as a currency? what are central banks going to do there? So if you have the chance, I would highly recommend tuning into that webcast with Marco. It's gonna be fabulous. Yep, so October 12th, we will, as a follow up, we'll be sending a link out to all the audience today with a link that they can just click on register for the webcast you'll be done. Okay. So hopefully we see everybody October 12th. As well. All right. So let's bring it back though. Conversation we'll have in the next few minutes is going to be, again, this idea of the cryptocurrency. There's so much conversation noise out there. How do I think about it as an investor? Does it have a place in my investment portfolio? Yeah. Well, I mean, let's go to why we're getting so many questions about it. So what we've actually got here is we've got the price for Bitcoin and that's obviously a very well-known cryptocurrency and this chart really shouldn't come as a surprise to anybody. I mean, if you're staying up on the news, you know that, there's a lot of price movements with this. In a month, a week, a day. I mean, major movements here and you see really high volatility. I think this chart is interesting because we sorta know what's happened recently and not surprising. I mean, we get a lot of questions when you get to buy. We got a lot of questions back at this little peak in 2017, back here, we started to get more right here. And then more recently we get questions around this time period, and we get it when it's up a lot, and we get it when it's down a lot. So no surprising it's on the mind of investors, but I find it interesting. I was curious, I went back and kind of looked at this time period right here, that '11 to '13 period 'Cause it looks really flat. But if you actually zoom in on that, this is what it looks like back then and I'm not showing you the same chart, I'm showing you different charts here. Again, we're looking 11 to 13. So on this, oops!, on this bigger chart here, this is what we're looking at, what looks like a flat period, which actually doesn't turn out to be that flat of a period here. So, the bottom line is that, we know that this thing has been volatile recently, it's been volatile in the past, it seems to be a trademark of that as an investment. So this is, it looks like the same chart, but I just wanna reiterate, it's not. This is just the three years here. If you go back to the prior slide. Like that spike, we just saw up. That's that little nub. That's right There right, in 2013. So you got to right off the, but, no it's gonna be volatile, at least from what we've seen historically, it's got high volatility as an investor. The price has been incredibly volatile, different price levels, but over its history and clearly volatile, lot of price swings. Yep. Yes, into the questions then, how do I think about it with my investments? It's volatile. Is it a currency? Is it an investment? What do we do here? Well let's actually broaden that out, and think about, I'll say any investment that we may wanna put inside of our portfolio and some basic questions that we kind of wanna ask. And I think the first thing you wanna think about is, what's the role that it's gonna play in my allocation, in my investment portfolio? The second thing you want to think about around any investment is, what's the expected return? Because again, if we're gonna put together plans, we're gonna have forward-looking expectations. That's what we care about as an investor, you have to ask yourself, okay, do I understand what that expected return should be? That's gonna help me put together that plan. And third, I think you really have to ask yourself, what's the cost to transact? You know, can I buy and can I sell it in a relatively short amount of time with not that much costs that's associated with it. If I have to do some buying and selling and look that one's important, you know, we joke all the time around here, we said, your money is a little bit like a bar of soap. The more you handle it, the less of it you have. So you wanna make sure that you're accounting for any transaction costs, when you think about an investment. Now go back to that first question there that I put up there, Mark, what's the role? Let's talk about the role or different objectives that some things play in a portfolio or different objectives we may have. What's one of them. To grow the portfolio, To grow the portfolio. That's good. And we talked a lot, a little bit about that with stocks. What's another objective. We might have. Stability, safety. Stability, safety, keep going. Well, we spent a lot of time on inflation. Talked about inflation, yeah. And I guess the last one we talked a little bit about I'll connect you to inflation is the idea of spending. I need some cash. I gotta go buy stuff. If like my folks are in their eighties, they're obviously retired. They're buying stuff everyday. Not earning anything, but they are spending money. That's right. So let's go to a couple of those objectives. And then let's think about it in the connection to the expected return. You know, we talked a little bit about stocks. We talked a little bit about bonds here, and we submit this comment about they have a positive expected return. And why would they have a positive expected return? Well, let's think about this. I'm giving money to a company in the form of the stock or the bond, and I'm freely giving up my capital. I'm forgoing consumption today with the expectation that I'm gonna make some money, I'm gonna get something greater back in the future for greater future for consumption. So we know that they have a positive expected return. And you told me earlier, what'd you say for the expected return for stocks? I mean, roughly what it's been, I default a long run. It's about 10%, Not 10%. Again, you know, look, eight, nine, 10, 11 whatever it may be. We know that it's a positive expect returns, but They may be a little bit more associated with stability, but again, we know that there's a positive, expected return associated with it. So whether you want to tell me it's 3%, 4%, 5% in the current environment, I know that it's a positive, expected return. Now let's go on something like currency or cash. What's the expected return of cash in a market. If I had a dollar, a dollar bill, what does that dollar bill gonna be worth one year from now? Okay. I'm staring at you because I think you're chopping me. A dollar will be worth a dollar, but are you gonna go inflation on me? Actually not. I'm not trying to trick you, now. We do have to say that, I mean, yes, what your dollar can buy a year from now, that's a little bit different conversation, but a dollar today will be worth a dollar a year from now, two years. Now that dollar bill is worth a dollar bill, right? So the expected return of cash or a currency, any Fiat currency, you know, you'd have to say it's probably close to zero, right? So we're starting to understand what's our goal. What's the expected return. Now let's go to something like Bitcoin or a cryptocurrency there. You know, mark, how do we think about the expected return of a cryptocurrency? Well, is a Bitcoin today gonna be worth more than a Bitcoin in the future? No, it's gonna be worth a Bitcoin. I mean, think about it in relation to stocks, it's not like a Bitcoin produces anything, right? I mean, companies, they go out there, they take some money, they turn it into goods and services. They sell it with the expectation of the profit. That's why you as an investor should expect a positive return. With a Bitcoin, if I own it, I shouldn't expect more Bitcoins in the future. So it's really the expected return of a Bitcoin is a Bitcoin. Now what it's going to be worth.? I don't know. That's just what someone's willing to pay for it in the future. So, you know, you're starting to go down this path of all right, let me understand the role that it's gonna play in my portfolio. Let me understand the expected return. And it's challenging to see what that expected return of Bitcoin might be. Now, some of the other questions that we get around it, let's go to your comment about the role of an inflation hedge. And we hear that sometimes of, oh, it's a hedge for inflation. All right. Well, let's take a look at this chart right here. And this, I think sums up exactly what you asked about gold and commodities and other. Here we're looking at US consumer price index, so good proxy for inflation there. And you're looking at the price of Bitcoin over that time period. Again, it's very challenging to say I'm gonna hedge inflation with something that's moving that much. Yeah. Well, and that does a nice job. I think of showing that those price swings. So I'm gonna go back to your comment there about kind of walking through the thought process. So what's the expected return of a cryptocurrency probably somewhere around zero, I would think. Because again, it's not creating earnings, it's not profits. It's just a Bitcoin. So expect returns probably close to around zero. So then you think about it. Well, is it a currency where I can go buy things with it? And you look here, the price swing is so massive that there's no reliability around that, and then it's too volatile to be an inflation hedge. So what role does it play in a portfolio? And I'll just go back an example, I think is some of the challenges you think through Bitcoin here, like just go back to, kinda that January 2019, you see that bottom part? Let's just say you bought it in. I mean, that was at a low point there let's just say it was like 40 grand where we're at. And then you say, whoa, I just bought Bitcoin honk. Now it's at the peak here, like sweet. Well, I guess in today's world would be, I'm gonna go buy me Tesla. I just made a bunch of money. My Bitcoin, Elan's taken Bitcoin for payments. So I'm gonna go get me a Tesla. You're like, well, I'm going to wait a few weeks. Okay. Now what? You just had the big price drop there. Right? So now you don't have that same value to go out there and buy your car for 80 grand. So that's one challenge of thinking about Bitcoin is a currency, and then you highlight it the cost of transaction as well. And it's not just, Hey, the cost to enter or exit an investment. There's other costs associated with an investment. You wanna consider such as taxes. So let's go back to this example. If I got a Bitcoin and let's call it a 40 grand gets a nice little pop there. I used to go buy my Tesla. I'm not just paying 80 grand for my model three. I'm paying 80 grand plus something because who always wants money? Well, I think, the government right in here, the US government, they want their fair share. I probably shouldn't say fair share. That's a separate conversation there, but no they're gonna want, they're going to want payment of tax. You haven't appreciated security. Right? You use it to go acquire a good, there's a tax on that. So when you think about the cost, it's not just, Hey, I'm gonna go buy something. It's when I use a cryptocurrency in today's environment. You've got to think about the tax side of it as well. Yeah, I know, that's good. I mean, because again, that's what a lot of people say about what Bitcoin and what it looks like in the future. You know, we don't know, again, this cryptocurrency space will evolve over time. But as an investment, it's hard to say here's the role of plays, here's the expected return. As the ability to transact there's uncertainty about how much I'm going to be able to consume in the future, because we don't know what Bitcoins are gonna be worth. There's reasonably high costs to move in and out of Bitcoins. Then you have the tax component of it. So again, it's tough to see what it does for me as an investor at the current time. Yeah, now with that said, like I think about my folks are talking about them retired. You know, my dad always liked to try some different things, have a little fun with some investing. He invested in a movie, you know, he invested in a Breath Mint startup company. They all went to zero by the way. But as long as you do some of those things, didn't have the right expectation of, you know, go try some things. He goes to zero. And I guess in my mind, that's about where we are today with some of this crypto stuff. 'Cause you can't really define an expected return from it. So maybe it's a little more today around a speculative side of things. I don't see how it quite fits in investment solution for the reasons you just outlined. So if you wanna go try some stuff, that's always fine. But again, it's an incredible technology. The blockchains and incredible technology, things are evolving very, very fast. And so we want to pay attention to it at some point in the future. Maybe we can't answer some of those questions a little bit better to see if and how it has a role in our portfolio. And again, Marco will do a nice job of kind of walking through those things. I think that's a good way to think about it. Okay. So listen, Jake, we're up on our time here. I'll give you the last word and summarize it before I wrap up with a couple of resources available. Yeah, look, I think we had a common theme that we were moving through here and we talked a lot about goals and you wanna sort of say, what is it I'm trying to accomplish with my investment portfolios? And then what are the best solutions to do that? So, you get real clear on, I define my goal. I understand the solutions. I work with a trusted financial professional, and I stick to the plan. And I know it sounds simple and we hammer that home webcast after webcast, but it just comes back to those basic things. And that's really gonna give you the best chance of investment success. So with stocks at record highs, it's, long-term that we're thinking about stocks short-term fluctuations probably don't mean quite as much to us, talked about what we want to address around inflation. Are you trying to out pace, or do you need a hedge and then with a cryptocurrency or with any investment, there's some basic questions you wanna ask before you make it part of your portfolio. And I loved the way you outlined that spot on the idea of what's the goal? what are the solutions available for that goal? and working with the advisor to fine tune all of that and stick with the plan there. So, great summary and with that folks, thank you for joining us here today. I do again wanna remind you, about Marco, skip the center. Great question here is, who's the audience designed for Marco Di Maggio in a month? It is for retail investors out there. So everybody's welcome to join in. I think there'll be a tremendous amount of knowledge information there. So that'll be October 12th. We'll be following up again with that link to register. We are also gonna follow up with some of the resources available with some of the things we've talked about here today. Some things around inflation, some things to think about with crypto, in addition to some of the stuff that we discussed here today. So be on the lookout for that. And with that everybody, thanks for your time today. Hopefully you found it valuable, and go have a fantastic weekend.