Tyrone Ross, Jr., President and Founder of 401 Financial, joined Keith Black, Managing Director of RIA Channel, to discuss financial planning for the next generation of investors and their interest in cryptocurrency investments.
401 Financial is a non-discretionary RIA that doesn’t custody assets or transact on behalf of clients. The firm believes everyone should have access to financial planning on a fully digital basis, especially investors in the next generation with a high-risk tolerance who are just getting started in investing. Services are offered on a monthly fee basis, not on a percentage of assets under management. Clients of 401 Financial have access to the Kubera app, which provides access to bank and brokerage accounts and tracks clients’ net worth in real-time, including stocks, bonds, funds, homes, cars, and digital assets.
Many investors have an interest in cryptocurrencies and digital assets but may be concerned that their advisor isn’t able to have that conversation. 401 Financial seeks to educate investors on what role cryptocurrencies can play as part of their diversified portfolio. While cryptocurrencies and digital assets are not suitable for all investors, Ross notes that younger and more aggressive investors who truly understand this sector may hold an allocation of 5% to 10% in digital assets.
In order to be a successful investor in crypto, investors need to understand both investments and technology, such as understanding the difference between holding digital assets on an exchange or in a wallet. Ideally, these assets would be a long-term holding in a diversified portfolio rather than a quick way to increase wealth in a risky way. A complete understanding of both the investment and technology risks would include estate planning, where an investor’s family would know how to access those digital assets after their passing.
First-time investors may want to invest in cryptocurrencies in an amount equal to an expensive dinner. This can allow the investor to get comfortable with the technology and price volatility of the sector while risking an amount they can afford to lose. In addition to understanding the price volatility and custody issues of digital assets, it is also important to consider the tax implications. Young investors with millions of dollars in digital asset holdings may wish to reduce their concentration in these assets, even at the cost of paying long-term capital gains taxes.
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