Edition #21: You’re one of the richest humans alive. Here’s why.

Plus: Alternative Investments, Accredited Investors, Volatility and Inflation

written by oz chen

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Today’s compliment: you’re among the richest who have ever walked this earth.

This week, I’ll share how comparing ourselves to dead people from history can make us feel good. Then a money medley on Alternative Investments, Accredited Investors, Volatility, and Inflation.

Feeling truly rich

🤔 Who’s the richest person you can think of? An image of a billionaire might come to mind. Whoever you thought of is definitely rich by modern standards. But it’s also true that average human alive today is wildly richer than our ancestors, in terms of lifespan, technology, and freedom.

If you ever find yourself in the black hole of self comparison, then you should find a better comparison: people who used to live in much shittier times than we do.

🚽 The White House didn’t get indoor plumbing until the 1820s and people used to use wood shavings to wipe their butts. I don’t even want to think about a time before surgery without anesthesia. I’d rather be a commoner today than a regal king from history’s past. Personal hygiene alone is worth giving up royalty status.

🌎 This doesn’t come naturally because we tend to compare ourselves at the local level; our friends, coworkers, fellow Kpop stans. It’s less natural – but no less valid – to compare ourselves at the global level across time.

✊🏾 We get to decide who we compare ourselves to. Why not compare down for gratitude? Using living standard across time as a metric, we can ask this question: “who represents some of the richest humans who’ve ever lived?”

You can find the answer by looking in the mirror.

Money medley: markets and musings

🌪 Forecast: Volatility Ahead

Opening up my Robinhood app is like Christmas lights—a constant change between green and red. The crypto market was a bloodbath this week, with Bitcoin, Ethereum and most cryptos taking a 30%+ dip. The stock market wasn’t spared.

Here’s one point of view on why we’re seeing so much volatility: government spending.

If you know the government will send out checks and increase unemployment insurance, won’t investors buy much sooner during a market sell-off?

If we get too much spending and higher inflation is on the table, won’t investors be quicker to sell during a bull market?

Ben Carlson, A Wealth of Common Sense

Government spending could cause 2nd order affects leading to more frequent and shorter corrections, i,e volatility.

What many investors do to manage volatility is to diversify. One way to diversify is through alternative investments that are less correlated to the stock market. Good news is, the alternative assets industry is quickly expanding.

🎉 The boom in alternative investments

Have you noticed the investable world is getting bigger with each passing day? Beyond stocks and bonds, new platforms enable investors to easily invest in startups, sneakers, art, farmland…the list goes on and on.

I wondered what was driving al these new tools—and the new ads targeting me on Facebook. It has everything to do with regulations. A quick timeline:

  • 2012: Obama signed the JOBS Act, making it easier for small businesses to crowdfund from the public. The story about the bill’s name is pretty hilarious. “What congressperson can vote against something called the JOBS Act?”
  • 2015: Regulation A+ let businesses crowdfund up to $75 million and use any media channel to promote their offer.
  • 2016: Regulation CF allowed private companies raise up to $5 million faster (less approvals & costs) than Reg A, but with more restrictions on advertisements.

Companies have followed suit. I discovered Worthy Bonds in 2018, which depends on Regulation A to offer their 5% interest bonds. So does Masterworks, an art investing platform. StartEngine offers investments in startups through Regulation CF.

If you’re interested in more writing on alternative investments, reply with the word “alternative.”

🥸 Accredited investors

Beyond the JOBS Act, there are still some Regulation D offerings only available to accredited investors. What classifies accredited investor:

  1. $1,000,000 in net worth, excluding value of one’s primary residence, or
  2. One household member earning $200,000+ in the last two consecutive years and expect it to continue in the current year. or
  3. With a spouse, earning $300,000 the last two straight years and expecting it to continue in the current year.

Only 1 out of 10 Americans qualify as accredited investors. That number is about to go up.

As of December 9, 2020, eligibility expanded for becoming accredited investors. You’re in luck if you recently got a credential like the Series 7. The new criteria includes “people who can demonstrate financial literacy, know-how, and history in the world of finance.” I imagine if this criteria continues expanding to people who hold certifications like the CPA, CFA, and CFP, we’ll see a lot more investor money flow into alternative investments.

This feels like the right move towards democratizing finance, but the whole accredited investor thing feels paternalistic. It’s like the gov saying “It’s OK for you to lose money in the stock market…but you’re not cool enough to do these other fancy deals.”

What if you’re offered an investment but you don’t meet its accredited investor criteria? The government doesn’t really know. If you do invest, it’s the offering company that’s on the hook if something goes awry.

🔺 Who does inflation help?

Inflation is one of those financial forces that feel ever-present and mysterious to me, like gravity. Because I often associate inflation as “bad,” Lyn Alden’s huge post on inflation surprised me. Here are some tidbits:

Inflation is good for debtors and bad for creditors in aggregate, since many types of debt get partially inflated away when inflation runs hot. The very lower classes tend to have more liabilities than assets. The working and middle classes tend to have only moderately more assets than liabilities, and with most of their equity tied up in a house, offset by a mortgage.”

One of the biggest debtors is the U.S. government. Apparently, inflation is a tool for the government to “inflate away” its debt in a more palatable way than raising taxes or declaring bankruptcy.

While hyperinflation hurts almost everybody, Alden claims that “moderate-to-high inflation…tends to reduce wealth concentration.”

Hmm…interesting to think of inflation as an indirect wealth distribution tool.

💸 Money moves: taking a crypto Voyage

To counter the drop in BlockFi’s rates, I’ve continued to explore other crypto savings options. Voyager finally let me off their waitlist and I’m pleasantly surprised with the buying experience. Their spread is lower than BlockFi’s.

If I buy BTC on BlockFi, the price is often higher than what I’ll find on Coinbase and other places, despite BlockFi not charging transaction fees for the trading itself. Voyager’s prices have been much more in line with the market. Plus, it’s the only BlockFi alternative I’ve seen that enables recurring buys with a bank account (ACH) without fees. I’m putting some money here and experimenting.

While this looks promising, Voyager’s UX could use a lot of work. Crypto apps should invest way more into their experience if the goal is to increase adoption. Also, the crypto markets move really fast. Voyager’s fees might be better than BlockFi today and it’s some other platform tomorrow. I use CoinTracker – kind of like a Mint.com for crypto – to keep abreast of all these crypto accounts. The friction of moving money also incentivizes me to look more into DeFi, as I noted in a previous issue.

Just for fun: Don’t let your kids fuck up your couch.

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