Phil Huber: Crazy Alternative Assets, Crypto for Financial Advisors & the Book Writing Process
This week’s guest is Phil Huber, Chief Investment Officer at Savant Wealth Management and author of the new book The Allocator’s Edge.
This episode *does not include financial advice.* However, it does include advice Phil gives other people about their finances... and a lot about book he wrote about financial advice. So, you'll learn something about money stuff.
I ask Phil if clients ever ask him to "just YOLO me super hard" with their portfolios, and Phil's disdain for this question is palpable. He then discusses advisors’ business of growing and preserving wealth responsibly.
Phil’s excellent book focuses on alternative investments, and we talk through examples (like catastrophe reinsurance). Any conversation involving alts with me will eventually end up with crypto. He shares how investors are trying to navigate crypto and how hard it currently is to incorporate crypto into clients’ investment portfolios due to custody issues.
We end the episode by talking about his book. Phil wrote The Allocator’s Edge for those who are where he was ten years ago beginning his career as an investor and advisor. Phil helps investors become more comfortable discussing and using alternative assets.
Links to Platforms:
Favorite Quotes:
“We're in the business of growing wealth responsibly and preserving it. But at the same time, we don't want to take any undue risk, and we are big believers in diversification.”
“People underestimate the power of how early you start, how much you save. And that has such a more of a dramatic impact on your terminal wealth than the actual rate of return itself.”
“A big part of the younger folks we work with is just encouraging them to just get in the market, get invested, stay invested, don't waste brain cells trying to figure out how to time things.”
“It's that notion of compounding that we too often take for granted that is one of those things that's not visible in the short-term, it only sort of reveals itself over a really long time for you to really appreciate its power.”
“We can't know in advance what's going to ultimately be the outcome, but we do have history as a guide.”
“As time goes on, people get smarter, technology gets better, we discover and access new asset classes and strategies. And those same asset classes and strategies get more democratized, broader access, lower cost, etc.”
“Portfolios are always evolving, or our understanding of building portfolios is evolving. And so, I think we don't want to be static with how we think about building portfolios.”
Learn more about Phil Huber:
Additional episodes if you enjoyed:
Mitchell Baldridge: Defeating Taxes, Crypto & Financial Planning
Jason Hitchcock: Your Guide to Web3 (DeFi, NFTs, and The Metaverse)
David Perell: Intellectual Openness & Mental Models for Success
Podcast Transcript:
Eric Jorgenson: Hello again, my friends, and welcome to Jorgenson Soundbox, a sandbox of sounds. I called it a sandbox so I could publish whatever I wanted, and sometimes I like to use this show to help you get rich and sometimes to help you stay rich. In previous episodes like Jason Hitchcock, Nick Huber, and Codie Sanchez, we talked in detail about their strategies for how they're building their wealth in a wide variety of ways. But today I talked to Phil Huber, the Chief Investment Officer at Savant Wealth Management and author of the new book The Allocator’s Edge which explores dozens of different alternative assets for potential investments to diversify and protect your hard-earned cash. We explore a few in detail like catastrophe reinsurance, which I'd never heard of before, talk crypto, and when the investment advising industry may come around and be able to actively participate. We talk about writing books, and we talk a little bit about when and how financial advisors should or could fit into your life. Please enjoy this conversation arriving at your ears in 3, 2, 1.
Well, Phil Huber, certified financial advisor, thank you for coming on. And certified professional accountant, is that what the CPA stands for?
Phil Huber: So, I don't have a CPA. I have a CFP, which is Certified Financial Planner, and then a CFA, Chartered Financial Analyst.
Eric Jorgenson: Okay. There's a lot of letters flying around LinkedIn. I don't even know what they all mean.
Phil Huber: You don't want me to do your accounting.
Eric Jorgenson: So, you told me very clearly that none of this show will be financial advice.
Phil Huber: Correct.
Eric Jorgenson: Though it will all be about the advice that you give other people about their finances and the book that you have written about financial advice.
Phil Huber: In an indirect way, correct.
Eric Jorgenson: Can I title this podcast a shitload of financial advice from Phil Huber?
Phil Huber: Exactly.
Eric Jorgenson: What do you learn as a CFA? I know a fair amount of people with it, but it's actually still a little unclear to me what all the different letters and certifications and series are. So, like what do you pick up going through that kind of process?
Phil Huber: I would describe it- So the order I did those in, this was well over- this was a little over a decade ago when I started. So, I started the CFA shortly after college, and that's like a multi-year, three level program to get the letters. And so, I would describe that as just being very investment focused, like kind of a mile deep, whereas the CFP is more broad; investments is like one of several modules, including like estate planning and retirement planning and tax planning. And so, there's just a lot more, like it is more of a comprehensive wealth management type designation. So, the way I would describe it, like for our company and a lot of advisors out there, most of them, the ones that are client facing tend to be, not always, but tend to be CFPs because they're doing more comprehensive planning work. Whereas in my role as CIO of Savant, even though I have both, I probably lean on the CFA more, just given my area is focused on investing. And so, it's funny, like when I think back to the curriculum, there are so many things you end up never using once, but you have to learn it to get through the program. And it's because if you get the CFA, you can take it a number of different directions. You don't have to go into wealth management, you could go into derivatives trading or bottom-up stock picking or fundamental analysis. There's a lot of different avenues you can explore within the investment industry. So, I mean, I think most people's experiences, they tend to learn everything for the time, and then as time goes on, they probably forget a decent amount of it and don't end up using a good chunk of it. But I think some of it ends up being pretty relevant. I think just the credentials themselves I think carry some weight in terms of career progression. And then, again, just through networking, being part of the local society can be helpful in your career. So, for me, it's been a worthwhile experience to do so, and I found it to be valuable, even though it was a big time commitment way back when.
Eric Jorgenson: Yeah, you kind of have to, I mean, to be like a professional in the industry. But what is the- is there value in there for like normal people to go and learn things? If you just want to have like a super, super healthy financial life, do you think you're better off like getting a CFP or a CFA, or is that mad overkill? Is it better or worse than an MBA, for example?
Phil Huber: Oh, if you weren't planning on making it your career or something in the investment industry, but just rather wanted to be like financially sound personally, you don't need those designations. There’re costs to it in terms of the registration and the exam taking and the ongoing annual kind of dues and expenses and things. And so, I think for most people, certainly, I think that's a noble thing to want to have a good financial house that's an order. But I think in terms of how you go about that, either hire someone like us to help you with that, or if you're sort of DIY inclined and want to do it yourselves, I think there's a lot of great resources out there online that people can kind of look to to just improve their financial picture.
Eric Jorgenson: At what point does having a financial planner or advisor become like you're an idiot for not doing that?
Phil Huber: The need and value tends to kind of rise exponentially with your complexity in life and how you're- But I think a lot of the major life events tend to be the trigger points for people in terms of when they seek out an advisor, whether it's getting married or having their first kid or buying their first home. I mean, for the 30 something year olds that typically have those types of things happen, they'll engage in a relationship, and then it gets more complex as your estate grows and you have a larger household balance and different- if you've switched jobs over your lifetime, you've got multiple accounts sitting in different places and you want to consolidate it and have just more of a strategy behind what you're doing, as opposed to just a bunch of different disparate accounts in different places that there's no real kind of plan behind. And so yeah, I think as your picture gets more complex and you want someone to kind of quarterback things for you. I think where most people end up falling short when they're trying to do it on their own, it's just not a priority because people are busy; you have your own job and your own career and family life and hobbies and all these other things that you want to use your limited time for, the last thing most people want to be doing, unless they really have an interest or passion for it, is sitting around managing their finances, and there's a lot of good habits and practices that you want to like lean on the advisor to kind of automate and do for you and not just put on the back burner yourself. So, I think people that are comfortable delegating and that can find somebody they trust that has the competency, that can be quite valuable to them.
Eric Jorgenson: How do you know who's like a good and trustworthy CFA or CFP, or how do you be sure that you have the right person for the job?
Phil Huber: Yeah, you've got to do your homework. The challenge with this type of profession relative to being a doctor or a lawyer is that there’s a lower hurdle to just like put your name on a shingle and say, hey, I'm a financial advisor. Almost anyone could really do that. So, I think looking to- I think it's helpful to have designations like the CFP that are sort of- it doesn't mean that anyone with a CFP is automatically someone you should hire, but I think it's a good starting point that they should have a CFA or a CFP or some other valuable credential as sort of a baseline just to measure their competency. And I think just doing, again, asking meaningful questions, interviewing multiple, don't just find one person and say, okay, like sure, you seem smart enough, I'll hire you. Like it has to feel like a good fit. You don't want to be switching advisors constantly throughout your life. So, I think you want to measure twice, cut once, interview a number of people, do your research and homework, make sure there's no red flags that you encounter, do some digging on the parent firm that they work for and what their credibility and stature is, what services do they offer, how do they get paid? Just come up with a list of good questions to ask and ask them consistently across the number of different advisors that you might be evaluating. And then again, you want to find someone you're comfortable with, someone that you feel would be your first, if not one of your first calls, when something big happens in your life that affects your finances, and someone you could actually enjoy spending time with because you're going to meet with them several times a year over hopefully many years, so you want it to be a mutually beneficial relationship in that sense. So, a lot of sort of qualitative and quantitative ways to measure and evaluate an advisor, but it's not a perfect science either.
Eric Jorgenson: Do you have clients who, I mean, there's so many best practices in this world, I think. And I know everybody has a little bit of a different situation and every question you ever get asked, the first two words out of your mouth are it depends. But how much range is there in the services and recommendations that you can provide for a client? Like do you have a client who comes in with like, I don't care, like I want to get $10 million in the bank in 10 years and I do not care how much risk there is and like YOLO me real hard? Or would you not do that because that's CFA malpractice? Like what is actually the range of outcomes related to like the possible range of outcomes?
Phil Huber: First off, I've yet to have a prospect or a client say YOLO me so hard in a meeting, but I look forward to that day.
Eric Jorgenson: People are so boring.
Phil Huber: I know, right. We have to be responsible. I mean, I think oftentimes when those types of scenarios present themselves, like we have to be realistic with what the realm of possibilities are and what the likelihood of those outcomes are of occurring. It'd be great if we could say, hey, like I want to quadruple my money in the next year, but like we can't as a fiduciary say that's something we can reliably do for people. So, I think sometimes investors who don't necessarily have great context from a kind of market history standpoint, they don't really know what's possible or what typical returns look like over a long period of time. So, they might not have the right expectations in place. And so, we don't want to necessarily just like let them dictate, hey, just like throw caution to the wind. That's not what we do. We're in the business of growing wealth responsibly and preserving it. But at the same time, we don't want to take any undue risk, and we are big believers in diversification. And so, for some people that might not be the right fit, but for us, it's very much a personalized experience. The ultimate portfolio that we implement on behalf of the client's going to be tailored to their needs and objectives. And so, that's the first part is identifying what are you trying to achieve with your money? And then kind of backing into what a portfolio might look like for them based on their risk tolerance and time horizon and all these things. And so, we have our in-house strategies that we manage and offer, and they span the risk spectrum from very conservative to the more aggressive. Now, our version of the most aggressive is probably not YOLO me so hard.
Eric Jorgenson: You're missing a market opportunity, man, I'm telling you.
Phil Huber: We’ll see; maybe we'll talk in a few months. But yeah, I think we want to be flexible. And so, we've got our in-house strategies and I think it'd be silly of us- we have an internal investment philosophy that we adhere to and we have an investment committee, so it's not like each client's portfolio is so individualized that they have different holdings then the next person. It's more about the sizing and weighting of those positions in different asset classes based on their risk capacity and tolerance. But at the end of the day, we want to make sure that we're delivering a consistent experience for clients at similar risk profiles. So, we typically do that through the use of model portfolios and model portfolios, it's not meant to say, hey, like we just operate in a vacuum, it's not really that cookie cutter as it sounds. It's more this is our starting point, and then there might be some tweaks to this model based on your existing holdings that you transfer over, the different types of accounts that you have and their tax characteristics, the amount of assets you have, other types of preferences and values. And so, those models are a little bit malleable, and we have different versions of models at different risk levels, depending on what the client's looking to do. But ultimately, it's about we want to have some guidelines and governance established at the investment committee level. So, it's not just me in my role making decisions and choosing which investments we use. We have a dedicated research team that helps support those due diligence efforts. And then the kind of governance side is a combination of members of our executive team and a handful of our senior advisors and myself and our director of research. And we meet monthly and then ultimately set investment policy across the firm. So yeah, just one more thing there. Just that's great for a firm our size, and we've got over, I think, over 70 advisors now. I like to think of- yeah, we've got 20 offices or so across like seven states. So, we're a decent sized RA, and because of that, we want to have the investment function be more of a centralized resource that all of our advisors, regardless of which office they're in, can tap into. They're busy with their day-to-day of managing relationships and doing more of the planning work, and so ultimately the portfolios exist in service to those plans, but they don't want to be the ones building those portfolios. And so, they've got our team of CFAs and some other investment people that can be the nerds in the back office doing all the fund interviews and things like that.
Eric Jorgenson: Yeah. So, it sounds like, and correct me if I'm oversimplifying this, but it sounds like basically there are some number of building blocks or tools, vehicles of investment that you guys get really familiar with and competent in, and then those become kind of what gets used for an individual client's portfolio in a different mix of things.
Phil Huber: Yeah, definitely. And then, yeah, again, we're very conscious of client's existing portfolios that they map over and wanting to be tax sensitive to how we transition that to our preferred [inaudible 15:01] as well.
Eric Jorgenson: That gives me some solace because I've been reading your book for the last week or so basically, the little pre-release copy, and it is like I was already – whatever – the financial world is big and complicated, and there's a ton of stuff that you can’t possibly fathom in there. And I thought I kind of like had an idea of how big the world was and how much I wouldn't understand. And this book showed me like how much bigger and how much less likely I am to ever understand all of it. And it's like two to ten times bigger than I thought it was. It's really, really interesting. Like this is such a good overview of all of the possible universe of investible assets that it gave me this like, holy shit, how could anybody ever actually be familiar with all of these options and like compare them relatively. So, to know that you've got 70 advisors, and even within that, you're kind of like constantly refocusing on specific assets and then using those to apply to specific client portfolios. It's not like there's somebody who actually gets all of these on a detailed level because that feels quite impossible.
Phil Huber: Yeah. I mean, I think we want to have the advisors be knowledgeable enough about these alternatives and comfortable enough to be conversant in them when they're discussing them with clients. But at the same time, we also don't expect them to go a mile deep as well. And it's probably not a good thing for the end client that they go mile deep because, again, most of our clients, they come from varying levels of financial sophistication, hence why they are hiring us. And so, for us to be just beating them over the head with like financial jargon and CFA type stuff, like we need to- to me, that was like the missing gap from an education standpoint in our industry was that there just seemed to be- there's a lot of alternative investments out there, and more so as time goes on as we continue to improve technology and get broader access to people. But at the same time, that's a bit of a risk if people aren't equipped to understand them and effectively implement them for their clients. And so, we want to make sure that they know enough to not be dangerous when they're in the field talking to clients and prospects, but if it ever gets to a situation where they really need to kind of call in the special forces, me and my team, that's a big part of my role is interfacing with clients and our advisors and just continuing to communicate and espouse our investment philosophy to them.
Eric Jorgenson: I want to talk a little bit about who a typical client is, like kind of the profile. But maybe, on the way there, we can address this kind of – it seems like a truism, I'm curious if it is from your perspective – that like diversification preserves wealth but focus creates it. Like in you sit at this kind of nexus of people who have like become wealthy and are now seeking to make it more efficient and preserve it and pass it on and make it tax efficient. Like do you see people who come in with, hey, I've spent 20 years in a very concentrated like small business position or real estate, and I need to kind of diversify, protect, and consolidate? Or do you actually see people go from zero to wealthy, diversified the whole time over the same time horizon?
Phil Huber: Yeah. I think it's probably more the former. Like families that are coming to us, they’ve spent much of their adult lives building whatever nest egg is there and that's been through responsible saving and hard work. And whether it's building a business or maybe they're a doctor or something else, but they've really spent multiple decades growing what's going to ultimately support them throughout the rest of their lives and often into their next generation and the next generation’s lives. And so again, it's that old saying, concentrate to get rich and diversify to stay rich. And so, we're less in- the true wealth building is going to come from their own individual human capital and career efforts and things like that typically. Whereas we're going to come in to more say, hey, how do we continue to grow this responsibly but mitigate the tails, maybe deconcentrate you a little bit, and make sure that you're not losing this capital to purchasing power or making any silly decisions that might put this at risk for the next 20 plus years. And so, there's largely that, but at the same time, we do work with a number of younger clients. And I think, too, it's not that we have to go like balls to the wall aggressive with them to try to really grow this wealth.
Eric Jorgenson: The preferred term is YOLO, Phil.
Phil Huber: Yes. But like you don't have to like put everything into Shiba Inu in order to try to- Just like people underestimate the power of how early you start, how much you save. And that has such a more of a dramatic impact on your terminal wealth than the actual rate of return itself. And so, I think that's a big part of the younger folks we work with, is just encouraging them to just get in the market, get invested, stay invested, don't waste brain cells trying to figure out how to time things. Like yeah, if you want to have a portion of your money that's dedicated to speculative efforts, whether that's in stocks or crypto or startups, or what have you, it's totally fine as long as it's not going to deviate you from your plan or cause any issues from an ongoing kind of cashflow perspective. But yeah, there could be that speculative portion, but you still want to have that kind of anchor core portfolio that is, again, low cost, tax efficient, still has a growth tilt to it, and focused more on equities. But like that alone, you can surprise people when you show them the math of if you start now and you save this much and you grow your savings, like this is what it could look like in 20 to 30 years. And again, it's that notion of compounding that we too often take for granted that is one of those things that's not visible in the short-term, it only sort of reveals itself over a really long time for you to really appreciate its power. But I think that's a big part of working with younger clients is just, I think, again, especially now with cash at like zero and bonds near zero, I'm probably talking about it a little bit in my book here, but like, again, like just a combination of stocks and other higher return seeking types of alternatives, like just get invested and keep saving. That's going to be the ultimate driver of your wealth.
Eric Jorgenson: How do you hammer that home? Like is it with stories? Is it with math? Is it with charts? Like when you're sitting across from a high paid, let's say, 24-year-old and trying to get them from 5% savings rate to a 25% savings rate? Like what is that story like?
Phil Huber: Yeah, I mean, you kind of have to show them the math a little bit, but you don't want to just like put a spreadsheet in front of their face. I think that's kind of the craft of what we do is trying to provide a narrative and tell stories but doing so with backing that with data and numbers. And so, I think maybe it's just a sign of the times and it's been such like a long kind of by the dip type of market, that I think we're pleasantly surprised with the calls we get or the messages we get when there's a little correction, and the client's like, hey, I'm putting money in every month, should I put a little bit more in now? I think it's good to see that. It shows that our kind of coaching efforts are helping and that we're showing them that, hey, you're never going to be the master market timer, but when the market's on sale, you want to be active if you’ve got some extra cash sitting around. So, I think it works pretty well. And I think, again, for the people that have really grown that nest egg, there's certainly a fear that can come when it's a larger dollar amount that you might not have that same fear when it's a smaller dollar amount, for the same percent decline, it is a little more painful for people when it is a larger amount. I think there's a natural fear, especially for clients that have lived through a number of really kind of deep type of market downturns, especially if they're getting close to retirement or just got into retirement, the risk of having another 2008 happen, they just don't want to do that. But at the same time, we want to make sure that we're not risking the portfolio so that if a bad scenario like that shows up, that they're going to capitulate at the worst possible moment, go to cash when they should be rebalancing. And so that's why we're here. Because I think left to their own devices, sometimes people would probably act on their own worst instincts because we're all human and that's just what we're wired to do. And so, I think we're not perfect either as advisors; everybody's human in this game. I just think this is what we do, this is why we get up in the morning. And so, I think if we can really be there in those 10 to 20% of those challenging times to give people conviction to stick with the plan, stick with the portfolio that's designed to sustain them for many, many years, that with those, sometimes those decisions are irreversible. Like the people that bowed out in early 2009, a lot of them never got back in. And when you think about just the selling at the bottom, but also the missing out in the rebound, like there's not enough time in the world to make up for that type of decision. So, I think we take a lot of pride, and you can't save everybody. Like that's what big crisis type periods do. There's just going to be some people that fold or can't take it, but we take a lot of pride in really doing our best work in those times of need. And if you look back and say, okay well, what if we would've sold at this point? And you can show– that's the nice thing – you can kind of show someone, congratulations, you stuck with it here, if you wouldn't have, here's what you would have missed out on. And so I think people appreciate that, too.
Eric Jorgenson: How do you prepare? You’re like the outsourced emotional control, right? Like you're the person who sits between like me as a client doing something really stupid. And how do you prepare to be stone faced, wall faced in that moment and to know that that's the right time to not panic and prepare not just your client, but also yourself to like hold through that time and not go back and start second guessing what you thought you knew?
Phil Huber: I think you have to humanize yourself and not talk down to people, and you have to recognize the reality of the fears that people have. Because it's tough to live through those. I mean, it's amazing to think in hindsight, when you go back to like late March of last year, literally no one in their right mind was saying, oh, a year and a half from now, we're going to be at new highs. Like if you're saying that's what you thought, you're full of shit.
Eric Jorgenson: Yeah, show me the journal entry.
Phil Huber: Yeah, exactly. But again, I think that's part of it, too, we can't know in advance what's going to ultimately be the outcome, but we do have history as a guide. It's not to say that past is prologue and that every cycle is going to repeat like the last one, but I don't know, there's been enough of these to know that, A, you can't predict them in advance when they come. Usually, the cause of it is something that's not being talked about in the news. And you can't predict the length and severity of them in advance. And so, beyond that, I think it's more like you have to be in an asset allocation construct that is if you can't live with that 20% drawdown or 30% drawdown, then you need to be in a portfolio that very much reduces the risk of that type of scenario. That's going to come at the expense of lower returns, but for some people that's probably the right move if it's going to mean they do or do not make the worst decision during a crisis period. So, I think I forgot what your original question was. But I think it's like you don't want to just like dismiss people's fears. And you want to say, hey, like I understand what you're going through and say, hey, I'm going through it too, like I'm really scared right now. This is a very uncertain time, and I don't know what the future holds. What I do know is that the market's reflecting all of our worst fears and expectations right now. That's why we just saw a 30 plus percent decline over a three-week period. Like that's extremely rare, and it's because a Black Swan event happened. They caught us all off guard and put us into a societal situation that we've never been in before and don't know what it's going to look like six months from now or twelve months from now. And so that's what the market's pricing in is that level of uncertainty. And so, I think it's kind of pointing back to that, that the market is reacting to everything that's happening. It doesn't mean the markets are perfectly efficient, but I think most people would be better off behaving as though they were, if that makes sense, in the sense that even if there are weird random things that happened that like people- I think people often point to like goofy things in the market and say, ha, like that's why efficient markets is a stupid concept because why on earth would this ever happen? There's always going to be examples like that. But like at the same time, the market knows more than you or any individual person does. And so, you want to trust that like whatever- prices are telling you information, and whatever they're telling you is generally going to be reflective of all the concern, fear, greed, whatever that is being kind of mashed together in a pot. And that's what your price is. It's a big marketplace. There's millions of people and participants every day coming in buying and selling. There’re two sides of every trade. And so, I think people lose sight of that sometimes when things get a little bit hairy.
Eric Jorgenson: Yeah. So, by way of setting up your book, I think this is really like the historical context is a good bridge for this. So, you've got like- it's portfolio construction and it's comfort level for each individual person, can you handle a 10% drawdown or a 50% drawdown, and how old you are and how close you are to retirement, and all of those things kind of go to your portfolio construction. And there's been kind of historical best practices. And I don't know if it's your contention or your observation that it's changing, kind of we're in the midst of this change. But maybe you can like help finish setting that context for me.
Phil Huber: Yeah. So, I mean, really the focus of the book, it starts with the first chapter on this notion of like the 60/40 portfolio. You talk about like best practices, like that for many, many years has been like the best practice in the industry of if you're going to build somebody a balance portfolio, someone who wants it not too hot, not too cold, just right, like what better way to create a balance portfolio with 60% of your capital in stocks for long term growth, 40% in bonds for income and stability and diversification. Like for many decades, like that did the trick.
Eric Jorgenson: The theory, those were uncorrelated. So, if stocks went down, bonds went up and vice versa.
Phil Huber: Exactly. So, you’ve got your offensive asset, your defensive asset. You've had a couple of decades of a pretty stable low to slightly negative correlation, meaning one goes up, the other goes down, vice versa. And so, they've offset each other well. And oh yeah, when the 60/40 started becoming popular, the 10-year treasury yield was in the teens and not down between one and two area.
Eric Jorgenson: Bonds that make you money and not just lay there.
Phil Huber: So, I think there's some underlying assumptions with a 60/40 type portfolio that have been there for a while but aren't necessarily set in stone. I think we tend to have a lot of recency bias and we tend to extrapolate recent returns. And so, it's not surprising that people have had a lot of comfort in the 60/40 because, A, it's served them well, particularly over the last decade, B, it's very easy to implement and low cost, like you can pick two to three funds and have a low cost 60/40 portfolio that could easily rebound. So, the implementation's easy, the underlying asset classes are very intuitive and easy for people to understand. I think people get stocks and bonds in a way that they maybe don't quite understand other alternative assets. So, it's not hard to imagine why this has become sort of the security blanket for allocators and advisors and their clients when it comes to, hey, how do you build a balance portfolio? I think the challenges are a couple of things. You can get stretched equity valuations, and we know valuation doesn't really tell you anything about what the market's going to do the next year or two years, but over a longer period, really, really expensive markets tend to forbear lower than average equity returns. And you can pick any evaluation metric, none of them are screaming, hey, the stock market's cheap. Most of them are telling you the opposite, particularly for US large cap stocks.
Eric Jorgenson: As of this moment in November 2021 at least.
Phil Huber: So, one way to mitigate that is diversify globally, maybe to look outside of the US, maybe those markets are priced a little cheaper, look at things like small cap stocks and value stocks as a way to maybe tilt away from some of that expensiveness. But that's just one area to focus on. The other, I think the bigger piece of the 60/40 that might be a little challenged going forward is that the 40, the bonds. It's really, really difficult to generate a meaningful return from a 60/40 portfolio when you're starting yield on bonds is 1.5 to 2%.
Eric Jorgenson: It’s an really diplomatic way to classify recent bond performance.
Phil Huber: Yeah, I mean, it's just the math is the math when it comes to bonds. Like your starting yield is going to probably explain 90% of your future ten-year returns in whatever bond asset class that you're looking at. So, when you net out inflation, and obviously that's a bigger concern today and it's higher than it's been over the last few years, you're looking at negative real returns from bonds, at least for right now, based on where yields are and where inflation is. And so that's not a great recipe. And I think we know too, we talk about the correlation of stocks and bonds, and I think there's an assumption that they're always going to diversify one another at that low correlation aspect. But we have seen environments in the past where they do go down in concert with one another. And the reason, typically the variable that causes those two asset classes to have their correlations go up and potentially go down at the same time and not be diversifying is inflation. And I'm not a- my guess is as good as anyone else's as to whether the recent high inflation we've had will persist over a longer period of time. But I think it's a risk we need to account for and be prepared for. And so, I think by opening up the spectrum of investible asset classes a little bit, you can introduce some things that maybe don't have that same level of inflation sensitivity and could still be diversifying to what you own and might have a higher expected return than you can get out of fixed income right now. So, I think that's ultimately where I wanted to start the book there, that 60/40, because I think that's where a lot of people anchor to. But at the same time, I think the notion- like the principles behind why people adapted 60/40 in the first place remain true. Like people want to manage risk. They want to diversify. They want to have a responsible strategic allocation that can deliver meaningful returns. So, I think that the objectives remain the same, it's just we have a bigger toolkit now than we used to. So why limit yourself to these two kind of building blocks when there's other building blocks that can probably give you a greater odds of achieving that same outcome that you're looking for.
Eric Jorgenson: Yeah, a shitload of other building blocks as it turns out.
Phil Huber: That's the funny thing with a term like alternatives is all it does is tell you pretty much anything that's like not stocks and bonds, which is a pretty wide universe. So, a lot of things I was already familiar with going into the book, other areas that I probably needed to research more and get more familiar with myself. But that was kind of the inspiration for the book was in my own practice and in a lot of the conversations I've been having with advisors and clients about the portfolio and questions clients had, most of the questions centered around the alternatives we were using, even though they were typically like 15 to 20% of a client's portfolio. So, you've got this non-majority portion of alternatives, but it's accounting for the majority of questions that people have. And I think there's just a general gap in education that I thought was worth trying to fill. And then I think about where I was in my own educational journey with alternatives 10 years ago, I wanted to write the book that I wish was there when I was on that early path, going down those rabbit holes. Because I spent a fair amount of time in my career, just based off interest and passion and curiosity, like digging into a lot of these different verticals across the alternative spectrum. So hopefully someone out there that picks this up is where I was 10 years ago and finds it of value and it gives them that additional confidence they need to go out and implement for their clients.
Eric Jorgenson: Yeah, I think writing it for yourself is maybe the only way to get through it, because it's tough.
Phil Huber: You're going to spend a lot of time with it. It's going to become like your baby. So, you can't really pick a topic that you find boring.
Eric Jorgenson: Well, you set out to open the spectrum, and open the spectrum you did. So, to kind of, I don't know, summarize or elevator pitch it, like this whole book is a catalog of various alternative assets. It is called The Allocator’s Edge. But it really explores-
Phil Huber: Yeah, make sure you get that plug in there.
Eric Jorgenson: Yeah, a lot of just places to put your money like other than stocks and bonds. And there's a really helpful kind of like full page spread in here that is the point of pique overwhelm where you can see the farthest, like this periodic table of all of these things. And if I eyeball this, it looks like a hundred or so various alternative assets.
Phil Huber: Yeah, that periodic table you are referring to, I created, think of the periodic table of chemical elements that you learned in high school, like same visual, but just with investment building blocks instead. So, it's not just alternatives in that. I used everything from stocks, bonds, and alternatives, just to give a kind of a view, that was the way I looked at that analogy of the periodic table was not all the chemical elements got discovered at the same time. Like that was a multiple centuries type of process for the 116 or whatever the number is that we have today, the same goes for investing. Like as time goes on, people get smarter, technology gets better, we discover and access new asset classes and strategies. And those same asset classes and strategies get more democratized, broader access, lower cost, etc. So, it's just kind of that general path that things are on. Portfolios are always evolving, or our understanding of building portfolios is evolving. And so, I think we don't want to be static with how we think about building portfolios. We just want to say, hey, like what are the building blocks and raw materials that I have in front of me? How do I best combine them together to achieve a particular objective in light of expected returns? And so, I thought that was a good way to visualize that. And it's like you can make a lot of different combinations of those different things, and they'll ultimately lead you to different places. But I think it's about figuring out, like it has to start with the objective and the constraints, and then you kind of back into how do I want to combine these things in a new portfolio.
Eric Jorgenson: Yeah, I mean, there's a ton of options in here. It's really interesting to just see it kind of all laid out in one place even, a bunch of stuff I'd never even heard of, things that I've heard of but not really considered as alternative assets before. There's a lot of directions I want to go. So, I want to go a little deeper into inflation before we kind of go into a few of these specifics because there was a really good two by two, a little matrix of like high inflation, low inflation, accelerating inflation, decelerating inflation. And it was like there's all sorts of different assets that you can use from this table based on your own hypothesis, not Phil's because he won't tell you his opinion of what is going to happen with inflation, and like things that perform well. It's not just does inflation exist? It's is it accelerating or decelerating, is it currently high or low? And I thought that was an interesting kind of nuance to it and a bunch of different assets that are like the right play to run if you think that things are going this particular direction.
Phil Huber: Yeah. I mean, you can think of like these four quadrants and these two variables, and two variables being economic growth and inflation. And then you get the four-quadrants – is it high and rising, or high and falling? And so, you can map historical asset class returns over those different economic regimes and get a sense of what types of things perform well or poorly in different environments, not that we have any crystal balls to know exactly what environment we're in at a given point in time. But I think, again, that's the point of diversification is humbly saying I don't know so- If we had a total crystal ball as to what the future looked like, you’d just put it in that one asset that would do the best, but we don't have that. So, we can say, hey, here's a number of different potential outcomes. I want to be prepared in some form or fashion for all of them. And I think that's a good point there is even just like fixed income, like we've been kind of bad mouthing bonds for a little bit here on this podcast, but I don't want that to come across like we don't own fixed income in our portfolios or the client- No, like clients still have bonds. Some have use and allocation of bonds. Some of it has to do with, again, they still have a role in a portfolio to suppress volatility and provide a source of stability to the portfolio, as well as, hey, like inflationary environments, even at low yields, bonds can still do really well when the rest of the world might not be doing so well in a low growth, deflationary type of spiral. So, you want to have some bonds that even if the yield's not that enticing, there could still be a time and a place to have them. So again, you want to have some assets that are sensitive to the different parts of the cycle and also some asset classes that are a bit more completely insulated. Like a good example I use in the book is there's a chapter on insurance linked securities. It's an area called catastrophe reinsurance.
Eric Jorgenson: I heard you mention that in another podcast, and that was something I'm interested in. That was a totally n0ew concept to me, so I’d love for you to actually explain that a little bit.
Phil Huber: Yeah. There's a whole spectrum of securities that are kind of broadly bucketed as insurance linked securities. The most common or most well-known, which are things called catastrophe bonds, where essentially, you're accessing reinsurance risk, which is taking- So essentially, you are earning a premium as compensation for bearing the risk of a potential large scale insurable natural disaster type event. And so, the reason that could be valuable is the asset class, as long as we have data for it, has exhibited almost stock-like returns with lower volatility and essentially zero correlation to stocks or bonds. And there's an intuitiveness to that as to like, oh yeah, like stock market being down 20% isn't going to cause a giant hurricane to go off or something like that. So, it's one of those very few like truly structurally uncorrelated asset classes that, yeah, like there's risk to it certainly. That's why it’s earned the premium it has over time, but like reinsurers have been around for centuries. Like some of the biggest reinsurers in the world have been around, there's like Swiss Re and others, they've been around for a few hundred years, and they've been profitable over that time period because they've effectively priced that risk and earn more in premium than they paid out in claims over time. So essentially that sort of business model is now an investible asset class that investors can tap into through funds. And there's a handful of funds that provide direct exposure to that asset class, that, again, it's not a free lunch, and it can have bad years. And the last few years are actually a good example where we've had a higher degree of material insured losses from different events, whether it be hurricanes or wildfires or what have you, but at the same time, like that's not going to happen every year. And so that market adapts. When they have bad loss years, rates go up, your premiums go up. And so, over time, you tend to get that low correlation benefit, but hopefully a meaningful return to go with it. So that's just one idea of something, if we think about and we go back to like that matrix and that kind of four quadrants, catastrophe reinsurance has zero connection to growth or inflation. So, that makes it a really valuable diversifier in a portfolio. So not every alternative is like that, but it's just one example of things that you can start to think about adding to a traditional mix that can ultimately create overall better portfolio resiliency.
Eric Jorgenson: Interesting. So, is that you're actually buying stock in those reinsurers?
Phil Huber: No. No. So, I mean, there are some publicly traded reinsurers, but the caveat there is like any publicly traded company, you're going to have some market beta for that. So, these are actually like actual catastrophe bonds, like individual securities. Some are more liquid than others. There's also a form of reinsurance called quota shares; it's more illiquid. But regardless, you're actually just accessing the pure risk as opposed to the balance sheet or capital markets, fluctuations of the reinsurer itself. So, that's an interesting area to us.
Eric Jorgenson: Interesting. And you said it's, well, it is uncorrelated in the sense that a 20% decline in the stock market doesn't cause a hurricane, but the reverse could be correlated. So, are you just betting that the underwriting is good enough to outpace that?
Phil Huber: Yeah, a lot of these reinsurers, they employ dozens of climate scientists, and they have really advanced catastrophe modeling software that they use. And so, you're betting that they can price these insurance linked securities in a way that, yeah, like there's still risk there, but they're hopefully charging enough in premium that over a longer period of time that they'll make more money than they pay out in claims. And that's the idea behind the asset class.
Eric Jorgenson: Cool. Yeah, that was a really interesting one. And another question I had that I think is addressed in a lot of these, but it's just accessibility. I imagine a lot of these are not accessible to the retail investor, which is industry code for normal people. Is stuff like that accessible to an individual investor?
Phil Huber: It is. I think most of the categories in the book are relatively accessible today to the average investor. Some are not yet. And I say yet because I think the trend is going towards more access over time. There are some limitations based on accreditation too. Like you kind of think of like three buckets. There's like your non-accredited investor like that might be kind of smaller dollar size. And so, there's still alternatives they can access through like mutual funds and ETFs, and even like fund structures, like things called interval funds that are able to hold less liquid securities, but you don't have to be an accredited investor to buy them. So, there's that kind of bucket. Then accredited kind of opens up a different sleeve where you can start to get into different, some limited partnership type arrangements and things like that. And then qualified purchaser is like that kind of higher level of typically 5 million and above in investible AUM is what qualifies you as a qualified purchaser. And so, certain areas within hedge funds and like private equity and things like that, some are available to accredited investors, others are limited to qualified purchasers. And so, you've got some of those things that are outside the control of the advisor or the clients. Just these are what the regulations are as to who can or cannot access these vehicles. And then you have preferences, client preferences. Some clients just prefer to have things very liquid. So even if they have the size to go into something like private equity, they might just not have the interest in it because they don't want to lock up their money for 10 to 15 years. So, it's a lot of things that you have to take into account both at the sort of regulatory accreditation type level, but also the client preference level when it comes to things like liquidity and costs and complexity. Like you start to get into private funds, you introduce additional tax complexity with versus 1099s. So, there's a number of different factors to consider when you're looking at different types of alternatives depending on your audience.
Eric Jorgenson: I think you're dead on, the trend is towards greater access. It is cool to see stuff like, I don't remember, Fundrise, if that's the real estate platform.
Phil Huber: Yeah, they do real estate. And yeah, I wrote about that a little bit in the book. In the last, particularly the last like five years, we’ve seen like a proliferation of like I call it alternative investing apps or platforms that aren't even necessarily like delivered through intermediaries, like financial advisors, they're just sort of like more direct to consumer. Like anyone can go open a Fundrise account to my knowledge, like same thing with things like Rally or Otis that are focused on like collectable assets and things like that. Or like Masterworks, I think Masterworks is accredited investors only, if I'm not mistaken, but again, they're focused on like blue chip art. So, like you're seeing barriers kind of broken down a little bit where things like art and collectibles, again, like there’s nothing-
Eric Jorgenson: Yeah, that’s in your periodic table of instable assets.
Phil Huber: And there's nothing new about those areas. I guess what's novel today is this notion that you can view those as investible, and you don't have to be an ultra-wealthy like hobbyist to be able to afford them because you don't have to buy the whole thing itself and store it somewhere and all these other things. You can buy- they're getting securitized and you can buy fractional shares. I guess it's like this trend of fractionalization where you can go to Rally and build a diversified portfolio of collectibles with a very limited amount of money if you wanted to, because the minimums are super low and all these things. I think it's just like that's what's kind of interesting, like this trend towards leveraging technology to open up previously inaccessible asset classes to people. The flip to that on the technology side is the dawn and kind of emergence of brand new asset classes altogether. And this is an area I know you're very familiar with.
Eric Jorgenson: Crypto! Let’s talk about it.
Phil Huber: You're probably well beyond me in terms of crypto knowledge.
Eric Jorgenson: I saw the table of contents and didn't see crypto and got real nervous. And then I was like, oh, digit assets, he calls them digital assets. And there's like a whole section in here at the end.
Phil Huber: I mean, you could probably have- crypto could probably have its own periodic table at some point. Maybe that'll be another with the amount of-
Eric Jorgenson: It’s just constantly growing over, like yeah.
Phil Huber: Who would have thought, like think about this – Bitcoin, well, 2008, 2009 is the inception. That's the dawn of the asset class before the spawn of all the other coins. Like that's not that long ago, when you think about like other asset classes that have existed for centuries, and we have tons of data on, this is like a teenager relative to stocks. And so, it's just amazing that like out of thin air, you could have this brand-new asset class that I think today is, I don't know, if you want to coin market cap, probably 2.5 to 3 trillion across the entire landscape. I mean, that's insane. And it's amazing. Like that's why the definition of what's considered alternative is continually evolving because out of the blue, you've got this brand-new large asset class that institutions are just trying to get their arms around and figure out what it means and if they should be investing in it. And then you have an entirely different audience, a generation of Millennials and Gen Z and younger investors who all they've known as crypto because it came around during their formative years. And so, to them, it's really not alternative. They're just like, oh yeah, I opened a Robinhood account, and I trade crypto and stocks, like duh.
Eric Jorgenson: Yeah, but please don't use a Robinhood account.
Phil Huber: Bad example. But you get the idea. It's like what might be more foreign, or my grandpa might not want to touch crypto with a 10-foot pole, but my cousins who are in their twenties are like eating it up with a spoon. So, I think depending on who you ask, you get a wide range of responses to different- That's why alternatives are so vexing is because we can't even like agree as an industry on how to categorize and bucket things. Like I included, there is an area in the book, I included a tweet that I did or a tweet poll I did like a few years ago where publicly traded REITs, like real estate, I was like are REITs stocks, real assets, or alternatives? And literally the results were like split down the middle, like a third, a third, a third, and I think it was like 800 responses. I assume most of my followers are like investment industry people. So, it's like we can't agree on what to call things, and so it makes it for challenging portfolio construction in that sense. I mean, again, there's a little bit of semantics involved, but at the same time, that has real impacts on how people view certain things. Like some people have natural aversion to the word alternatives because it might signify something that's more complex or more illiquid or has higher fees. So, they might shun something if it gets put under that bucket, even if it might have value to their portfolio.
Eric Jorgenson: So, I want to stay- I want to dive into crypto a little more because of this whole table, that's one of the things that I think about the most and maybe am most bullish on, knowing that everything kind of has its place. But it's a really unique intersection right now, probably because of, as you talk about, like the custody issues and the uncertainty about how it fits into things. So, talk to me about the industry, the investment industry’s sort of current outlook on crypto and the challenges around actually holding it and like what are clients asking for versus what are you able to deliver and how do you kind of see that all unfolding?
Phil Huber: Yeah. I mean, clearly there's demand there. I mean, that's easy to figure out.
Eric Jorgenson: Among your clients?
Phil Huber: No, I would say just the general investing public or just the investment industry, like where there's demand, the investment industry will react accordingly with trying to create supply. The challenge with creating supply and product in crypto is that the SEC has not approved crypto like ETFs or mutual funds or what have you, which tend to be the preferred implementation vehicles for large allocators and advisors who want something that can appear along the rest of a client's portfolio in Schwab or TD Statements or things like that. So, what has been approved, and I think, again, the average person probably doesn't understand the nuance here because they'll just see like Bitcoin in the name, but like we have had a few Bitcoin Futures ETFs and mutual funds approved, and those are out there. That is not the same as owning Bitcoin directly. There are some performance headwinds likely to come from Bitcoin Futures in the form of roll costs, when you're rolling one Futures contract to another. So you're likely going to underperform Bitcoin potentially by a sizable margin by owning those types of products. There’re also some tax complexities embedded in owning them via Futures versus directly. There's also like the Grayscales of the world where like, yeah, like they trade on public exchanges. And they have ticker symbols, and you see their price every day. And so, I think people assume, oh yeah, like that's the Bitcoin ETF. Like no, it's not an ETF. And in fact, that particular fund and others like it have traded at significant premiums and discounts to the underlying net asset value. And if you just look at a chart of like performance of something like Grayscale versus Bitcoin, there's a huge delta. So, I think for most people, the best bet and probably will continue to be the best bet is if you want exposure to the asset class, you should probably get it in the most pure, direct way possible. But I think for the average investor, they want that convenience. They want the 1099 tax reporting. They want the Schwab statement. They want the like I can just click a button and buy it with a ticker symbol. But that doesn't really exist today in a pure form. And so, where a lot of people are fine like opening Coinbase or Gemini or some other avenue to get access to crypto, there's a big audience of people out there that they just don't understand, they don't know what to do. It seems like too much effort or work to do it. And they're just like I'll just wait until an ETF comes. So, we get questions a lot from clients. Some clients are certainly more crypto curious or knowledgeable than others and some of them already have existing allocations that they made. But a lot of people that are new to the space, they are just more so coming to us for our thoughts on it. It's not like, hey, this is crazy or, hey, I need exposure now. It’s like what do you guys think? Like should we be doing something here? And I think, I mean, for us and for a lot of advisors, it's been a tough area to kind of tap dance around because even if you have conviction in crypto as an investment based on compliance reasons and other reasons, it's been a hard thing to like draw a line in the sand and say like we're recommending this in all our portfolios. It's still a little bit polarizing. Like for as many clients that come to us saying they're interested in getting access and want exposure to the asset class, there's also many that want nothing to do with it. It's too volatile for them, or they still view it as magic internet money, that whole narrative. So, I think it's tough for us to make a blanket assessment that, hey, all of our clients should or should not own some crypto. I think it's something that we want to continue to educate ourselves on and educate our clients on and help them make an informed decision that they are ultimately responsible for and that they're equipped to navigate, and we can kind of be their guide and help them do it responsibly if they're going to go down that path. But I think we don't want to just like send them out in the wild, wild west, and yeah, let’s go open a Coinbase account and go nuts. Because then bad things can happen if we don't have like guard rails in place. So, we haven't figured out like what we're doing yet in the space, but it's a high topic of conversation and something that I'm opting for some solution that we can offer clients there. But I think it's definitely a hot topic of conversation in the financial advice space right now, because again, maybe some advisors are comfortable with the products out there and say, hey, like it's got crypto or Bitcoin in the name, that's all I need. But whether it's like there's funds that own like publicly traded crypto based companies, like the Coinbases of the world and others or things like micro strategy that just have a bunch of it on their balance sheet, but again, that's a little- it’s not direct exposure to the asset class.
Eric Jorgenson: I would love to have the like let's help you build conviction conversation. I don't know where you are with it personally, but I'm very curious about what are you waiting for? Like if the conviction was a given, would it take like a specific ETF directly to the asset? Would it take some sort of very simple direct custody vehicle for you to feel confident allocating? Because just as a representative of some of the industry at the very least, like that's a really- that feels like a big domino to fall, and I'm really curious about like what that'll look like in a few years.
Phil Huber: Yeah, I think a lot of advisors- I mean, I guess I'll start with me personally. I do have conviction in the space; I'm invested in crypto. But just because I'm doing that doesn't mean it's right for every client that we work with. I think the big safeguards or hurdles that people are looking for in our industry are solutions around custody and security. And just kind of more regulatory guidance. I think there's probably not a lot of buyers that want to be like a Guinea pig here and that want to be first mover because they're worried about like for all the potential upside, what's the downside for me if something bad happens, whether it be performance related or security related, whatever the case might be. So, I think there's that element to it as well.
Eric Jorgenson: Is there a missing product or service that needs to exist that we should go build or someone listening should go build?
Phil Huber: I think there's some build- I mean, there's definitely a few firms out there that are trying to build those on-ramps for advisors – no pun intended because there is one called Onramp that my friend Tyrone started. So, there's stuff like Onramp, there's other groups out there that are trying to be that conduit between advisors and their end clients that solve some of those concerns or issues around crypto. But I think eventually it'll get there. I think there's too much demand, and it is becoming too sort of large of an asset class to ignore. Whereas a few years ago, I think that wasn't really the case. It was still sort of on the fringes. But for something that many would categorize as an alternative investment, it gets a lot of mainstream attention for something that's alternative. It's hard to say what it will look like in a few years, but I’ve got to believe it's more of a when not if for a lot of folks in terms of ultimately getting there because I think there is that pent up demand of people that want access, but they want to do it in a more convenient or comfortable way.
Eric Jorgenson: The thing that, I don't want to say keeps me up at night, but a potential future that is particularly alarming I think for the like 60/40 or whatever comes after the 60/40 is that I think there's a potential for a lot of value to accrue outside of the stock market for the first time certainly in my living memory and like maybe in the last couple centuries and that like owning a global index fund is not enough to just capture the tailwinds of crypto because value may accrue to tokens. And if those don't get into company coffers in one way or another, it's possible to just miss it. I have no idea if that's true or how that's going to work, but the difference between holding tokens and holding equities is like meaningful.
Phil Huber: Well, I think there's also the gray area for advisers on like, at least for Bitcoin and ETH, it has been clear like these are not securities, whereas there's other crypto assets where it's still very much in the air whether or not they’re securities, and if it gets decided that these are, and they're unregistered, that creates another kind of headwind for adoption I think for some of the kind of non Blue Chip areas. I mean, again, the upside case is certainly there, and there's a lot to be optimistic about for the potential future there with DeFi and web 3 and all the fill in your favorite buzzword for what the next 10 to 20 years for the internet could look like, and a lot of really potentially attractive things on the horizon. But I think it's just a very strange place for advisors to find themselves in.
Eric Jorgenson: I mean, you're almost a little hamstrung, like in some ways being constrained by the law and the classification of specific securities means you're almost by definition not a late mover, but after the chasm, for sure.
Phil Huber: And I think, too, it's like timing can be everything in crypto because of the huge drawdowns that can occur. I think even for those that are ultimately going to make some sort of allocation, like probably wise to like leg into it and not put everything you're planning on putting in all at once, like maybe dollar cost average it because the last thing you want to do is just get a bit of unluckiness, bad luck and you put it in right at the top and now you've got a 60% hole to climb out of, which could take some time. So, it's tough. I think the other area that probably is a struggle for advisors is a lot of what we do is planning based and trying to come up with expected returns for clients based on different asset classes and their whole portfolio. And for an asset class that has no cash flows and very limited history and data around it, it’s hard to come up with a reasonable like what is the expected return of Bitcoin over the next 20 years? If I'm trying to project out a client's retirement plan for the next 20 to 30 years and have some sort of like assumed rate of return, like we can't just assume the last 10 years of Bitcoin returns to the next 10 years. Like that's kind of silly. Whereas when you have an asset class like stocks, well, if you look at the long history of stocks, it’s kind of in that like 10% annualized return, and if you look at like 20 to 30 year periods of stocks, you get very little variability. So, you have a higher degree of reliability and consistency of like over a long enough period, you're not guaranteed, but you're likely to make somewhere plus or minus a couple of percent from this long-term average, whereas with something like crypto, it's really hard to come up with that assumption. What should I be putting into this turn optimizer? And then what should I be assuming that ETH is going to give me for the next 20 years? It's just so uncertain, so volatile. So, I think that's the other area that gives advisors pause. They just don't know how to fit it in from like a portfolio optimization context, because it's like, yeah, we can always look at the prior year returns, but that doesn't tell us anything formative about the future.
Eric Jorgenson: Yeah, interesting. And that goes back to the kind of mandate to preserve wealth and protect the long-term planning. It's not a make my client rich as quickly as possible despite all risks mandate. So, I'm curious about the process of writing this book because you've been blogging a long time. How does blogging compare to booking for you?
Phil Huber: Apples and oranges.
Eric Jorgenson: Okay, that’s been my experience as well.
Phil Huber: Yeah. I was going to say, you know exactly what I'm talking about. But yeah, just it was a struggle at first. I remember those first few chapters, it was just like hitting my head on the walls some days because it just felt like nothing was coming out. I was doing a lot of reading, a lot of research, but relative to sitting down and cranking out a blog post, it was just a whole different animal altogether.
Eric Jorgenson: And knowing that it's in print, locked forever versus fuck it, I’ll publish a blog post, I’ll edit that next week.
Phil Huber: Yeah. I mean, that's a different feeling too, even just little things like typos. I think every book has at least one typo.
Eric Jorgenson: Oh god yeah, people are still DMing me about typos in the book. I’m like yeah, I know.
Phil Huber: The nice thing is with the eBook is they can fix them pretty quickly. And then if they do another round of prints and stuff, they can fix the ones in the hard copy. But like those are out there permanently, even if they're minor and you're the only one that notices them, with a blog post, you can just go back in and quickly update it or something.
Eric Jorgenson: And nobody is not buying your book because of a typo.
Phil Huber: At the end of the day, the author is going to care more about that stuff than anyone else. But I think once I got into a good- I found it hard to start, but then once I got into a rhythm, I like cranked it out. It was weird. Like I almost did like nothing on it and made zero to little progress initially. I think just based on like a kick in the ass from my wife and you should finish this so you can get back to normal life. And it was kind of like I pushed off my deadline enough times with my publisher that I was like, okay, it’s time to finish this thing. And so, then I got into a better rhythm and developed better habits.
Eric Jorgenson: Shout out to Harriman House, your publisher, Morgan Housel's publisher, they're finding us finance nerds very- supporting us a lot.
Phil Huber: Yeah, they've got the fintech market cornered at this point. They obviously had a ton of success with Morgan's book, which is fantastic. It sold over a million copies. So, listeners, if you're thinking about buying that, that's our objective now is to beat Morgan, and we got to sell more copies then him. Let's get to a million.
Eric Jorgenson: Make Morgan cry and help Phil retire. It is a really- How long have you been working on this book?
Phil Huber: When I was writing a blog post this week, I wanted to dig up the first email I got from my editor. But at the time, I didn't know at all. And it was like October 26 of 2017, which was literally just him dropping in my inbox of, hey, I saw someone shared one of your blog posts. I really liked it. I scrolled through your Twitter timeline a little bit and liked what I saw, like any interest in writing a book? And I was like, oh, A, I'm very flattered, B, no, I haven't been thinking about it, but I would actually be very interested because if I'm being honest with myself, that's something I would've always wanted to do, it just wasn't like front and center for me at that point in my life. But I was like, hey, let's try to figure something out and let's talk about different concepts. So, it was kind of like a loose conversation on like what the book would be about for like a year. Just like there wasn't a super sense of urgency to do it immediately, and then they were patient about it. So, we ultimately landed on this concept, and I got excited about it, they got excited about it. It was like mid-2019 that we decided to move forward and sign the deal. And then, my intention was actually to have it come out like around this time last year. But to kind of rewind a little bit, in 2019, I had some big life events occur. I had my first child. And then we were also in the process of merging our RA where I work now, which is Savant. Prior to that, I was at Huber Financial Advisors, which was an RA my dad founded. So, a merger is a lot of work and integrating. So, it was like having a little kid at home and doing this merger. I just didn't have the time to be honest. So, the publisher was super patient with me and understanding, and they were, hey, we'll go at your pace. And so, with the pandemic and with not having a social life anymore, I was like okay, my weekends are pretty clear for a while, so I should probably get back to this book thing. And so here we are today. But in hindsight, I'm like, you know what, 2021 seems like a better year for an alt book to come out then 2020 ended up being because we’ve seen the markets have gotten more expensive on the stock side, bonds are negative for the year. So, if there's ever a time where people are looking for diversification beyond those two areas, now is probably the time. So, I didn't plan it that way, but maybe got a little bit lucky hopefully. But yeah, super excited. It was a lot of work, but I think definitely worth it. And I'm really happy with the final product. And obviously, I hope readers are too.
Eric Jorgenson: It's incredible. I mean, it's a great book. It’s a ton of detail. That's what made me think about how long it took you, because I mean, there's a ton of graphics and charts and references, which takes a ton of time, and people tend to not appreciate how much work goes into that.
Phil Huber: That part was the most tedious, most time consuming. And I definitely, I did not, I didn't know what to expect there.
Eric Jorgenson: Nobody tells you that that's coming because if they did, you wouldn't do it.
Phil Huber: Yeah. That came like, it was like a lot of things I dropped in there. And I was at the end, I'm like, okay, I'll worry about figuring out how to like get permission or get like whatever later and it won't be a big deal. But then that was like a project in and of itself. Like once the manuscript was kind of like, okay, this looks good, they came back to me and were like, okay, I don’t want to alarm you, but you've got a lot of work to do to get like all these approvals from all these third parties and this and that. And like I just kind of put my head down and cranked through it. But that was, yeah, you're kind of right. If someone told me how much work was involved, I might have reconsidered how much of that stuff that I used.
Eric Jorgenson: The number of times you think you're done and then someone comes and just shoves your head back under water is probably the most brutal part. But yeah, it is really- And prepare yourself now because you'll start getting a lot of DMs and emails from people who want to write a book because you are now, by definition, an expert in book writing. But yeah, it is a very, I don't know, I've never worked with a publisher, but I assume a lot of the value just comes from having stakes and a deadline and like someone to just be standing there tapping their foot being like you said you were going to finish this shit, you better keep going.
Phil Huber: Yeah, they were phenomenal to work with. So, if anyone works in investing and wants to write some sort of investing or finance book, definitely talk to Harriman House. They were a real pleasure to work with. And Craig, the editor there, was a great sounding board and like really honest but like fair feedback on stuff and really helped kind of fine tune things. And particularly with the first couple chapters I shared with him, just because I didn't want to write the whole thing and then send it and he's like start over. It was more like understanding after the first couple of chapters what he's looking for and where he's going to want changes that I think really helped me out with the other chapters where I kind of already had in my head like just keeping certain things top of mind, like cut the word count down, get to the point, make proper transitions from one section to the next, like all things that seem obvious, but you don't necessarily think about while you are writing it. But I think also just like the help around like translating visual components to print is huge and they've got a great design team. Like the cover itself I thought turned out great. And yeah, that's nothing I could have done on my own or what have you. So, I just liked having their designer to help with different concepts, that was cool. That part was a lot of fun. So yeah, I was delighted that someone wanted to work with me and then even more delighted that it was a publisher that I had a great experience with.
Eric Jorgenson: Yeah, it's a remarkable book. I really want to sit here and just like pull your string on 95 other alternative assets. But I won't do that because that's what's in the book and people should just go read it. There's a ton of cool stuff in here. I would say it's probably like- I don't know. Do you classify it as like a 201 or a 301 level book? Like what are the prerequisites to reading this?
Phil Huber: I would say 201. Like I kind of wrote it primarily for like financial advisors and other professional investors or allocators that are just generally seeking to be more conversant and comfortable with alternatives so that they feel more equipped to understand them and implement them and communicate them to their clients. And so, some level of an investment or financial sophistication is assumed. That being said, we're going to be sharing it with a number of our clients, where yeah, maybe some parts are a bit over their heads, but at the same time, I think it'll resonate enough, and they can understand most of it as well. So, I think there is a retail audience for the book, but that's not necessarily who it was written to first and foremost, but so kind of starting with that investment professional, and then I think there's audience a bit below that, but that's not really who it's targeting.
Eric Jorgenson: Yeah. I found it very interesting, as like a rookie amateur kind of allocator of my own funds.
Phil Huber: Yeah, like I say, I kind of wrote it for myself 10 years ago was the way I thought about it. And I've always tried to like with my blogging and social media stuff, just to write in an approachable kind of plain language way. So, sure, there's financial jargon and stuff in there because it is an investing book, but at the same time, I hope it's- I really wanted it to come across as readable and not too dense, not too technical. And so hopefully it hit that objective.
Eric Jorgenson: Yeah, it did. I actually think, I mean, the graphics help a ton. I know you put a lot of work into that too. The stuff in particular, the kind of like source of return stack where you're like, hey, real estate is the asset. These are all of the types. And in particular, this comes from the specific yield. This comes from the leverage component of the yield. This comes from the expected appreciation of the yield. So, if you are tackling this without leverage, like you can expect to lose this chunk. It's a very-
Phil Huber: I think visuals are always really helpful. So yeah, there's plenty of that throughout the book.
Eric Jorgenson: Cool. Well, kudos for doing this. I'm really- like it feels like kind of a very complicated signpost to point me in a ton of different directions to like go learn about marketplace lending or convertible arbitrage or things that just like, oh, I've been missing out on all these gains. Oh, so I forgot to ask you. Just humor me with like a not financial advice asterisk with my dumb ass, what is the YOLO portfolio? Because you have attributes for all these things, like primary and secondary objectives where like some are growth, some are diversification, some are liquidity. What is like the maxed-out growth-oriented portfolio for wealth generation with like little to no risk?
Phil Huber: I would say, it's funny-
Eric Jorgenson: Not little to no risk, not tolerant- intolerance, like give me the risk, give me the returns. Like ignore the-
Phil Huber: I would say, because certain alternative categories are meant to really just be diversifiers and have lower expected returns then stocks but still play a role because they're diversifying and uncorrelated and what have you. So, there's different buckets and different objectives for different- So if the objective is I want a portfolio of alternatives that is going to outperform my public market stock allocation over time, that would probably tilt you heavily towards if you have the tolerance for the illiquidity, private equity, venture capital, and crypto would probably be the areas, maybe certain parts of real estate, like opportunistic type real estate. But beyond that, a lot of the other alternatives are meant to give you meaningful returns, but probably won't be as high as your equity allocation over a long period of time. It's really meant to address, I think, more of the deficiencies of the bond allocation going forward.
Eric Jorgenson: Yeah, interesting. Well, it's given me a ton to chew on and think about, and I didn't even know there was kind of like liquid accessible options for stuff like timber land or farmland, there's just so many interesting little like hmm, where I feel like if I got 12 hours of conversation with you, I still wouldn't quite get to all of the like oh, cool, interesting. So, it's a really good- it’s a great overview. Thank you for writing it. And I appreciate you sharing that with everybody and taking the time on your book launch day, taking a break from all your admiring tweets to talk about it with me.
Phil Huber: It’s probably not a good idea for me to sit around and stare at Twitter and LinkedIn and social media all day.
Eric Jorgenson: Today that's what you should be doing. Just like revel in it. Have a drink.
Phil Huber: I'll have a nice, I think we're going to get some good takeout tonight and probably a bottle of wine with my wife and daughter at home and just celebrate the moment. It feels weirdly anti-climactic because it's not like nothing and then all of a sudden, the book release date happens then it’s off to the races. I feel like I've been doing a bunch of podcasts and media already. Like the copies have been out there. So, like weirdly I think months ago, I would've thought this would have been like a big day, it would have felt different, but in a lot of ways it felt like any other day. But it's officially sort of out there now. So, I really appreciate you having me on today. It's been fun to get to know you a little bit over the last couple of years. I know we've had a couple of good times down at Capital Camp in Missouri, and hopefully again next year. But yeah, I'm a big fan of your work and delighted to be a guest today. So, thanks for taking time with me.
Eric Jorgenson: Yeah, you're the latest in a parade of Capital Camp friends who are coming through the podcast, that seems like a trend. Yeah, this is good stuff. I appreciate it. Thank you for all of this financial advice.
Phil Huber: Asterisk not financial advice.
Eric Jorgenson: I appreciate you hanging out with me and Phil today. Thank you so much for listening. If you liked this episode, you will probably also enjoy my talk with Mitchell Baldrige who is the financial planner and accountant that I use personally. We talk about a lot of the same things, and Mitchell is really an awesome guy and another wealth of knowledge in a similar domain. But before that, take a few quiet moments for yourself, breathe deep and be well.