The Savings Game: Investing in digital assets

The Savings Game: Investing in digital assets

I have received a great deal of mail from readers asking about investing in digital assets. I recently spoke with Ric Edelman, who has recently stepped down from management of Edelman Financial Engines to focus on his new company, the Digital Assets Council of Financial Professionals (DACFP).

Edelman was one of the first advocates of investing in this area, and he wrote about it in his excellent book, “The Truth about Your Future” a few years ago. The DACFP educates financial planners so they have the expertise to service clients regarding investments in digital assets consistent with their financial situation and investment objectives.

Edelman was kind enough to discuss the pros and cons of investing in digital assets during our discussion. I indicated to him that many of my readers are well into retirement, have significant levels of assets, are financially conservative, want to make sure that their investments are sound, and will not pose a significant risk to their financial security. I also pointed out that some readers are many years away from retirement, and are willing to take more risks with their portfolio in order to grow their capital base. I asked Edelman to discuss the investment advice he would offer to both of these types of investors, who have different time horizons.

He indicated that, for an individual well into retirement with an investment portfolio of approximately $1 million, he would not encourage a large investment in digital assets, if any. He indicated that price movement of 20-30% in a few days is not unusual. Therefore, he suggested that no more than a 1% allocation of a portfolio would be prudent.

He went on to say that rather than buying individual coins, a retiree in this position should consider using a fund such as the Bitwise 10 Crypto Index Fund. (OTCQX:BITW). The minimum is $25,000 if purchased directly from Bitwise, but an investor who wanted to make a smaller investment could buy shares that trade over-the counter (OTC) via a brokerage account. Buying OTC requires no minimum investment. Edelman disclosed that he owns this investment and has an equity position in Bitwise as well.

We then discussed options for investors several years away from retirement, who could tolerate more risk. I asked whether dollar-cost-averaging would make sense for this type of investor, as opposed to an immediate larger investment. He recommended this approach because of the volatility in this asset class. He also recommended a “picks and shovels” approach for this type of investor.

This approach involves investing in companies that build a “platform” for the digital asset ecosystem rather than investing in the digital assets themselves. One example of this, he said, was the Bitwise DeFi Crypto Index Fund. This investment has a $25,000 minimum investment and is available only to Accredited Investors, meaning you must have $200,000 or more in investable assets ($300,000 if married), or a net worth of more than $1 million. He indicated that he would recommend this type of option only to investors with a long-term outlook.

He also recommended that long-term investors explore funds managed by Greyscale, Bitwise and Osprey. Many of these funds are available in the OTC market, and thus avoid minimum investment amounts.

For those choosing to invest via their IRA accounts, Edelman recommended that investors only use Qualified Custodians that are regulated by federal or state authorities.