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10:50

Announcer 00:00:01 This is Blue Money, a finance podcast made for cops by cops with us. You know, your money safe. Retired Lieutenant Jim Donnelly of the Bensalem Police Department and co-host Kevin McGarry of Valley Financial Group come together to help protect and serve your financial needs. This is Blue Money.

Jim Donnelly 00:00:20 I want to welcome everyone back to the Blue Money podcast. This is your host, Jim Donnelly. I’m here with my co-host, Kevin McGarry. What’s up Jimmy? Nothing much. Kev, I thought for this episode, we’re going to dive in. You know, Trump came out on August 7th. He signed the executive order about opening 401 K’s, 403 B’s, 457 B’s that, you know, they gave him 180 days to the Department of Labor to come back with their findings about opening up their retirement plans to, you know, digital assets, real estate, basically alternative investments. So what do you got on that, Kev?

Kevin McGarry 00:00:54 No, I mean, you take a step back. I think it’s more private equity REITs and digital assets.

Kevin McGarry 00:01:02 you know, right now, the the formal case space, the defined contribution space is over $12 trillion. So for a lot of these investments, alternatives, there’s a lot of opportunity in a formal case space that most you know, retail investors really haven’t participated. Right. Right. I think the most important thing is like educate the listeners on, hey, what is private equity? What are rights? And most people out there have heard of digital assets and bitcoin investing.

Jim Donnelly 00:01:31 Yeah. So why it’s so important to because obviously there’s 900 million Americans participate in the employer sponsored defined contribution plan. So like you said there’s $12 trillion 90 million Americans are going to have this option. And it’s going to be a big part. I mean, the first thing that makes people millionaires usually is the four. In one case, that’s usually the biggest saving investment over 30, 40 years of work. And so it’s going to be important in how it plays out. So what do you want to start off if you want to break down kind of what they’re going to be opening up to.

Kevin McGarry 00:01:58 Yeah I think. I mean, think about private equity, Jim. Like most people don’t get to participate in private equity. Think about Tesla or Nvidia or Apple. Like you had the ability to invest in that company before it came public. So you put your money in as an investor. You’re not touching that money. It’s a liquid until, you know, the companies grow and it’s gaining market share. And then all of a sudden, you know, there’s a liquidity event, there’s an IPO, and that’s where you traditionally make your money, right. And historically, you know, versus public equity, we can trade and buy it every single day. We can go to an exchange and buy stocks. We can buy ETFs. We can do whatever. You know it’s public. It’s it’s daily. It’s liquid versus private equity. Not. But if you look at the returns of it right. You say well, you know public equity. You know, the index over the last ten years has been between 12 and 13% a year.

Kevin McGarry 00:02:54 Pretty strong returns. Private equity. If you look at the Chi Institute, right, has done over 4 to 5% higher returns than public equities a year. Right. So historically there’s been better returns. And there’s a lot more private equity deals out there in public equities just the way the industry’s worked. But a lot of retail investors haven’t been able to participate in private equity until potentially now. The problem is will retirees right. Same with REITs. You know how they feel about illiquidity in their form K. And how does that impact retirement.

Jim Donnelly 00:03:34 Yeah, I mean I think that’s a big problem with the private equity is also going to be like you said, you’re you’re tied up for years as some of these private equity deals, it could be 510 years. You can’t touch your money. That’s going to be a huge problem. That’s that’s you know who’s going to want that. Especially if you’re close to the retirement. You’re going to be tight with that. And fees are higher and private equity is going to be another downfall of it.

Jim Donnelly 00:03:53 But at least they’re going to have the option to, like you said, be an early investor. Cedar growth in there could be there. So what else you got?

Kevin McGarry 00:04:00 Kevin I think the same thing with REITs like understand what a read is. You know, it’s like instead of buying a rental house, you know, what you’re doing in the read is you’re going to slice of office buildings, warehouse apartments, hotels, cell towers. It’s a bunch of investors come together. Right. And the rents are paid back as income to you. You know, REITs have done pretty well over time and 8 to 10% return over the last decade. But again there’s liquidity. The investors are, you know, not really familiar with this type of investment. So it’s going to be a challenge just educating the people who are contributing, the employees contributing to these plans. And same with digital assets, digital assets that have outperformed the index Bitcoin over the last decade. But it’s been extremely volatile. So, you know, understanding that they’re going to have opportunity to invest in these investments potentially in their 41K or their defined contribution plans.

Kevin McGarry 00:04:57 But understanding the downside risk is going to be very, very important to companies and people sponsoring the plans.

Jim Donnelly 00:05:05 Yeah. So a lot of the experts say the first one you’re going to see these alternative investments is the crypto. And the crypto space is the one that’s really pushing this. Obviously, Trump made a lot of promises with the crypto community for their backing. And that’s really what’s driving this right now. And that’s the first thing that you’re probably going to be able to see. And there is a crypto now. Well how do I see this playing out? I don’t think it’s just going to be as easy as a police officer could be sitting at their laptop and just put all their money into cryptocurrency or into private equity. What I think is going to play out, because there’s a lot of fiduciary responsibilities with Mission Square, Blackrock, all the big ones that are pushing for it. They might not even do some of it. So you might be at a you might have a retirement plan that don’t even partake in it.

Jim Donnelly 00:05:47 So you might not even have the option. It’s not going to be guaranteed if they do go with it. So I think if they do go with it, you’re going to see more of the ETFs. You’re going to see some of the target funds that you’re invested in right now. They might have a little bit of these alternative investments in it. I don’t think that you’re going to really see a huge swing of police officers diving into this and make their whole portfolio looking like digital assets or rates and everything else. So I really think you’re just going to see a tip of it on the target funds and ETF. So how do you see it playing out Kev.

Kevin McGarry 00:06:15 I mean listen I think you know for investors it could potentially help with diversification. Alternatives don’t always work. Like just go in the same direction as the stock market. You have potential higher returns. Right. With private equity and crypto and REITs you know historically have beaten, you know, the indexes over the last ten years. You have more income potentially with REITs.

Kevin McGarry 00:06:39 You have access. It gives everyday investors access to what was just usually what institutions invest in there. The pros. But the cons are, you know, being educated on it. Higher fees illiquidity a lot more volatility complexity. And then, as you said for the sponsors, fiduciary risk. But the way I look at this is like when you go out to dinner, right? This is the dessert, you know, a small sliver, two 5% of the overall portfolio. The entree is your traditional index ETFs international domestic, your fixed income. I do think this is opportunity for everyday investors to invest like institutional investors. But I think it’s just a piece of the of the portfolio.

Jim Donnelly 00:07:27 And I think.

Kevin McGarry 00:07:28 The first.

Jim Donnelly 00:07:28 We put that yeah. You know if someone’s looking at portfolio and they decide to do this and it does get passed, you know when we look at cryptocurrencies and private equity, what part of a portfolio if they were going to manage it themselves do you think is ideal?

Kevin McGarry 00:07:41 What we recommend here historically is depending on the alternative, you know, you could have 2 to 10% depending on what we’re using, right.

Kevin McGarry 00:07:50 So at the end of the day when you’re talking about volatile illiquid assets, but with strong returns over the past history, 2 to 10% depending on your risk tolerances, I think is suitable.

Jim Donnelly 00:08:05 Yeah. No, I think you perfectly summed it up. The pros and cons cap. So I don’t really have nothing to add on that. how do you think it’s going to play? I think it’s going to get passed, or you don’t think it’s going to get passed in 180 days?

Kevin McGarry 00:08:14 I think, you know, I don’t know if it’s going to get passed or not, but what I do know is most likely these institutions have a lot of power. And essentially you could see it one day, you know, as part of a selection in the suite of investments in formal case and defined contribution plans.

Jim Donnelly 00:08:35 Yeah, I do think it’s going to get passed, but I do think it’s going to be a slow roll with some of these big firms like Vanguard, Mission Square, Blackrock. But you know, they’re probably working on stuff already with it in case it does get passed.

Jim Donnelly 00:08:45 But it’s going to be a slow roll just because it’s new. So what do you want the listeners to take from this episode before we roll it out.

Kevin McGarry 00:08:53 You know, be smart. You know, research it. Educate yourself on it. Understand it. And hey, it’s okay to own it, but. Well, this isn’t a horse race, right? This is long term planning. You know, long term investment horizon. And remember that.

Jim Donnelly 00:09:11 That’s right. And my my final thought is just don’t be chasing the the new headline hop thing. Everyone’s going to want the crypto. Everyone’s going with private equity. But don’t forget what got people millionaires in their account year in, year out. And then what Kev said was the core ETFs and the the bonds, the stocks. And like this is just going to be a little add on at the end. So don’t get too carried away with it. And obviously I would talk to a professional. We’re always here at Valley Financial Group to answer your phone calls, emails, text messages or if not, there’s plenty of other out there that’s going to wrap up the Blue Money podcast, Kev.

Jim Donnelly 00:09:42 So that’s it. Got anything Bud?

Kevin McGarry 00:09:44 Just be safe out there.

Jim Donnelly 00:09:46 Take it easy, guys. Be safe.

Announcer 00:09:48 Thanks for listening to Blue Money To learn more about Jim and Kevyn Orr for a free financial assessment, visit Valley Financial AL.com or click on the link in the podcast description or shownotes. Until next time safe investing. This material is intended to be educational in nature and not as a recommendation for any particular strategy, approach, product, or concept for any particular advisor or client. These materials are not intended for any form of substitute or individualized investment advice. This discussion is general in nature and therefore not intended to recommend or endorse any asset, class, security or technical aspect of any security for the purpose of allowing a reader to use the approach on their own before participating in any investment program or making any investment. Clients, as well as all other readers, are encouraged to consult with their own professional advisors, including investment advisors and tax advisors. Valley financial can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.