Investing in Stablecoins & More: Cut Through the Noise

January 27, 2022

Should I be investing in Stablecoins? We are certainly no experts, but today we hash (no pun intended) out things we are thinking about in this space, and the impact it may have on the future of money and generating a yield.

But crypto isn’t the only area investors should be careful of. One of the worst mistakes an investor can make is buying high and selling low. Well, it’s easier said than done, and millions of dollars do exactly this every day.

In our newest segment of Cut Through the Noise, we discuss this and much more, such as new retirement account limits for 2022 (plus a bonus strategy to sneakily increase your savings rate without your wallet noticing!)

Should I be investing in Stablecoins?

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Show Notes:

Full transcript:

SPEAKERS

Anthony Saffer & Alex Okugawa

Alex Okugawa 0:00
Hi there, and welcome to our segment Cut Through the Noise where today we answer your questions that we’ve been hearing throughout the month. Today we’re talking about Stablecoins, big investor mistakes, financial education in schools, and 2022 retirement contribution limits. Stay tuned.

All right, Anthony, so let’s get on into it. You know, are stable coin yields the answer to low bank rates.

Anthony Saffer 0:28
So we’re talking about crypto assets, cryptocurrencies, and people are looking at their savings at banks and going I’m getting pennies on my dollar. And yet these crypto financial institutions are offering, you know, 6%, 8%,12% on their money, right? And it’s enticing.

Alex Okugawa 0:45
Now, again, to generate this yield, right? It isn’t this magical box where all of a sudden just yield generated out of thin air. I mean, like, let’s think about a traditional bank. I mean, your bank takes your dollars in the bank, and then they lend it out, right, your cash isn’t just sitting in the vault in the bank, but they’re using it and lending it out. That’s part of how they can generate some yield for you. The same thing works for cryptocurrency and stable coins. You’re putting your stable coins, you’re staking them or whatever and that company is lending out your stable coins, which in turn generates a yield in the crypto space a much higher yield.

Anthony Saffer 1:17
Yeah. So here’s the thing that people need to pay attention to. It’s like, okay if you’re going to look, at these types of yields, understand that there are some risks involved. No FDIC insurance, at least as it stands right now. There are other risks. And so you need to understand your objective. Recognize that there is risk there. And don’t just look at the final yield.

Alex Okugawa 1:37
Yeah, absolutely. So again, we’re curious like, Do you own cryptocurrency? Do you own stable coins? If so, how have you been using your yield? I’ve heard a lot of people using this as an emergency replacement, which I don’t know if that’s necessarily the best idea, but I’d love to know how you’re using stable coins, or in any other type of cryptocurrency.

Anthony Saffer 1:57
All right, so next question for you, Alex. What are the biggest investment mistakes that you’re seeing out there? And what are your feelings on $ARKK?

Alex Okugawa 2:05
Okay, so the $ARKK symbol “A.R.K.K, is an actively managed ETF. Now, some of the biggest names in this ETF will be companies like Tesla, Roku, zoom, Coinbase, and Peloton. Now the fund did fantastic in 2020, during COVID, and basically like investment news everywhere was talking about $ARKK if you paid attention to investment news, there are interviews with Cathie Wood, who’s their CIO, it was plastered everywhere. So if you’re watching investment news, you’re hearing about $ARKK and Cathie wood.

Anthony Saffer 2:42
There are a lot of things to pay attention to here. It had the performance and it hasn’t done well. People need to understand, okay, if I’m going to invest in a fund like that, then it’s going to diverge from the market.

Alex Okugawa 2:51
Yeah, absolutely. Well, let’s take a look at an example here. Let’s put a graph on the screen here. So based on what we’re looking at here is the purple line is the performance, the total return performance of $ARKK since January of 2020. What we notice here is that the performance peaked around the beginning of January 2021. What we’ll see here on the lower side is flows right? So flows into or out of the $ARKK ETF this is three months. Okay, so what we’re seeing here is flows, inflows peaked around the same time that performance peaked. So I know a lot of people will be like, Well, let’s look at an ETF that’s done fantastically. Just exponential growth like $ARKK, look how well it’s done. Right? See, it’s still positive. The problem is that most people didn’t know about $ARKK, before 2020. Chasing performance. Most people knew about $ARKK and piled money into it around the beginning of 2021. Look at this flowchart. Right, that’s when most people piled in, since then, since its peak $ARKK down over 50%. So most people have lost money in this investment. It’s exactly what you said earlier, if you’re going to invest in something, that’s going to perform differently from the market.t If you want it to perform differently on the market, on the upside, be prepared for it to perform differently on the downside as well

Anthony Saffer 4:16
Yeah, unfortunately, the outflows have caused that further decline, at least a lot of people would argue them.

Alex Okugawa 4:21
Absolutely. All right. Next question. Is financial education in schools starting to catch on, you read a pretty interesting article recently.

Anthony Saffer 4:29
Yeah, I mean, so the problem and, you know, you go back to like, when I was in school, you know, decades ago, and it’s like, people are always talking about you know, financial education needs to be taught in schools. Kids need to know this. Before they get into college, you run off to college, they’re bombarded by credit card offers, of course, you have student loans, which is just massive at this point and I think about my kids, and it’s like, you know, as, as my oldest gets into school, the number of decisions that they have to make if they don’t have that, that guidance and that education, then it can be tough.

Alex Okugawa 4:59
Yeah, there They’re going to college and they’re going through like their orientation and oh, hey, look at this bank has a booth out there and they’re, you know, given me their 0% interest rate, credit card. Why wouldn’t I do that? Right? I’m a college kid with no money.

Anthony Saffer 5:13
Career Builder put something out. They say 78% of US workers live paycheck to paycheck just to make ends meet it. Yeah, it’s tough. And so, right now, there are about six states that require a semester-long financial curriculum. That’s great. 21 states require something so not necessarily semester long. They may attach it to another school in California. There’s nothing required. That’s where we’re that we’re based. And I’d love to know, people comment and see what they’re seeing, you know, in their schools, in their districts in their states to know what’s out there, because it is so spotty. Yeah, absolutely. All right. So last question for you, Alex. retirement contributions have seemingly increased. How should I plan for that?

Alex Okugawa 5:58
Yes, so the IRS has announced 2022 retirement account limits. And so there haven’t been limited increases across the board, right. So for people that have maybe like a 401k, or a 403b, we did see these limits increase from 19,500 to 20,500. It’s important to note that the catch-up contribution for those aged 50, and up did not increase. The same thing with an IRA or a Roth, those limits did not increase, either. Now, there are some action steps folks should take in this regard. So for example, if you’ve been maxing out your retirement plan contributions, your employer is not going to automatically make sure that you’re maxing out for the current year, you need to take action and make sure you increase your contributions to hit the max if that’s what you want it. Yeah, you

Anthony Saffer 6:49
have to be proactive. Now, a lot of people aren’t maxing out their contribution is great if you can get there. But for the masses, what should they be thinking about? Well,

Alex Okugawa 6:56
Let’s think about an example. Right? So, Joe, he’s working, he’s not contributing to the maximum. But let’s say he’s putting in 3% of his salary, which is a great start. But he wants to save more. Going from like 3% to the industry, a standard rule of thumb, like 10% of your pay is should be saved. That’s going to be hard, right? So what we might want to do instead is go from 3% and increase it maybe 1% a year. So maybe next year, it’s 4%. Or do 1% Every other year. The way by doing this has has a small impact on your wallet and you don’t notice the savings as much. But over time you’re ramping up.

Anthony Saffer 7:35
Yeah, the good thing is a lot of these 401k plans are offering that as an automated feature. Right? So these escalation features where every year is going to go up 1% You choose the option, it resets on its own, you don’t have to take action, if you’ve already done so. Combine that with automatic rebalancing to keep your plan in place. It’s a good way to start.

Alex Okugawa 7:53
Absolutely. All right, this was our segment Cut Through the Noise if you found this video helpful, drop a like or share this video so others can see it. If you want to learn more about One Degree in how we can help families visit our website or give us a call. We’d love to talk with you.

This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. See our website at onedegreeadvisors.com for full disclosures.