Ep. 222 - Bitcoin ETF Prelaunch: What Investors Need to Know

  📍 📍 Good day. This is Gabriel Shahin, Certified Financial Planner and your host of more knowledge, more wealth here on every weekend, talking about all important topics of personal finance. My job is to go over the knowledge you need to increase your wealth. Now to the listener, you can always reach out to myself or any one of my colleagues here at Falcon Wealth Planning.

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We're very good with technology here. But there is so much to talk to you about today. Listen, this past week was a roller coaster. We talking about Bitcoin spot ETF coming out. People are wondering, what does that mean? Is it mainstream? Is it something that you should do? It's funny. It's funny because Bitcoin originally was like thought of.

Quite frankly was used for legal activity. We're talking like bad things. We're talking like drugs, money laundering. We're talking about trafficking of all type of negative things. Um, I mean, it was bad. The silk road was a website. People were using Bitcoin to exchange in. I mean, it was just not good and it's weird because the technology has really evolved into so many different positive things through the.

Blockchain technology. It's funny because you have Jamie Diamond who's talking about negativity with Bitcoin, but they use their own version of that through stable coins on their own, so they use the blockchain technology. It's kind of weird how so negative on it, but then JP Morgan obviously is arguing with them by the simple fact they're using that technology.

For their own banking operations. So it's kind of crazy because they're the largest bank in the country, and they have billions of dollars that transact on a daily basis. So it's just kind of funny, and it's funny because everybody looks at Bitcoin. It's like this negative thing, and it's interesting. I own it, right?

I'm not telling you you should because it's still kind of the wild, wild west. What happens with the approval of a spot bitcoin ETF? It just gives it more validity now It gives it more oversight. The irony is with Bitcoin people liked it because there was no oversight. It was Unregulated it was decentralized currency.

What is Bitcoin? It's a currency a digital currency. So it's funny now That there is kind of more control in it. But yet again, just the irony and the whole thing is people are like, it's bad. These are for hackers. These are for people that do bad, illegal things. And then what happens on Tuesday, January 9th, SEC website gets hacked saying that.

The ETF Bitcoin spot, Bitcoin ETF has been approved. It's like, you can't make this up like hackers. How about you shut up? Cause you're validating why they shouldn't approve it. It's just so ridiculous and ironic that that would happen. An SEC like getting hacked, like who's running that thing. I mean, I feel like you get hacked.

You should be fired. That's just kind of weird in my opinion. Uh, but it's just interesting. Because the rollercoaster of cryptocurrency, not just Bitcoin, but Ethereum is also important to a lot of that technology is used in NFTs, which is non fundable tokens. These are property essentially that you can create.

You've seen a lot with paintings, electronic versions of paintings or digital art. You can own a piece of that as well. So, but the idea is, is should you do it right? Because the stock market did very well last year. Bitcoin did very, very well. And now with an ETF, you are able to have much more liquidity to it.

It is more logical to own, because you don't have to worry about a digital keychain. You don't have to worry about a passcode. You've heard of people losing hundreds of millions of dollars on a jump drive, or they couldn't remember their password. And you only have maybe five tries, ten tries, before it goes away.

And you can never access your money. So it does give more validity on that point. But what does this mean for you? I mean, I have clients already that own Bitcoin. They've asked me about it. How do you do it? I used to recommend them to Coinbase or Gemini, something like that. But what should you do? Is it necessary?

I mean, if you did have a million dollars, how much should you do? I don't know. 1 percent of that is 10, 000? I mean, that wouldn't give me heartburn. 5 percent is 50, 000? I mean, that seems a bit excessive. And so, it does There is no right answer. It depends on you. Some people still don't feel the ethical reasons just based on the earlier usage of Bitcoin.

Well, now they're saying that cash transactions are up to 5 percent of illegal activity. And Bitcoin is less than that because you can track the Bitcoin. You can see it on the blockchain. You can see all the transactions through the ledger of who owns it. Even if it's an illegal activity, you can see it.

and they would have to use it and then they could still check it that way. So they still are illegal bitcoins on the blockchain that the government is literally waiting to move so they can track the person that actually has it. So it's just interesting folks, and we're coming off of 2023. That was fantastic.

I mean, the s and p 500 to 24%, it's huge. Now, granted last year was pretty grabby, right? Of last year, lost 20%. And this year made 25%. You're pretty much back at hole. You know what I mean? If you have a hundred thousand, you lost 20%, you're at 80, you make 25% on 80, you're back at a hundred. You see that you lose 20, but make 25, you're not up 5%.

Folks, you're broke even. So a lot of this is just coming back from the crap of last year. Dow Jones up 16%. Nasdaq up 47%. I mean, don't get me wrong, they pretty much lost 40 percent last year. So they're still not back to where they were. And by the way, the beginning of 2024 has been rough for, uh, pretty much the NASDAQ and the tech companies, the Magnificent Seven, and so on.

By the way, folks, if you're just joining me, you're listening to Gabriel Sheen, Certified Financial Planner, and your host of More Knowledge, More Wealth, here on Every Week, and talking about all important topics of personal finance. And I cannot not talk about Bitcoin. And so, and the Bitcoin spot ETF, that's And that's coming out.

And so the thought of all this is because there's 11 ETFs, big name people like BlackRock and so on that are coming out with this is that, what are you doing about it? I'm here just saying that there's going to be volatility where wherever it is still with Bitcoin, it's unproven. The price movement on that is still not fully understood.

So if you were to invest in it, I'm not upset at you anymore. I'm just saying that you have to proceed with caution and be aware that this is a highly speculative investment still. That is a key point to this all. Because when you look at core indices, you don't need, oh don't get me wrong, I would love 25 percent annualized returns, absolutely.

But do you need that for your goal? You get what I'm saying? Is it necessary to take that much risk? Because if you're averaging 25 percent returns, there can be years where you lose 50%. These are the key pieces that people don't look into. These are the key pieces they don't understand. They only see the top of the iceberg.

They don't see underneath the iceberg. You see the successful business owners out there. You don't know the times that they were living on their friend's couch, eating Top Ramen. You only see them today being successful. It's the same thing in the stock market. The people you know with 1, 2, 3 million plus dollars, well, they had to go through last year's 20 percent plus drop.

That's hundreds of thousands of dollars, potentially millions of dollars of drops in their portfolio. You know, it's funny, people say you get rich off individual stock, but you stay rich through diversification. Now, I'm not saying you diversify everything, right? There are some people that are just heavy concentrating on real estate.

Well talk to them. See how they did in 2008 and nine and 10 when the price of real estate was still dropping and no tenants. And oh, by the way, tenants that they had destroyed the home, not paid, taking a year or two to kick 'em out depending on where they live. So the idea here is just straight up diversification, and right now you have the magnificent seven carrying majority of the returns of the market.

You could tell by the NASDAQ doing almost a 50% return in 2023. So when those seven stocks go up, markets do well. When they go down, they do bad. Because they're so massive. This is why people like the Dow Jones. It's not a market weight portfolio. It's a different weighting system they have. It's a simple weighting.

So that's why the Dow Jones is only up 16%. Some say, well, it's more value versus NASDAQ growth. Not completely true. You have companies in there, like Apple and so on, that are big tech. Let's take it a step further. Small cap companies, along with mid cap companies, uh, Russell 2000 and the SP400, up roughly 14 percent each.

Also underperform large cap companies. Why? Because of those magnificent sevens. Let's see if I can memorize them here. Apple, Amazon, Microsoft, Google, uh, NVIDIA. Tesla, I know I forgot one, uh, so, uh, Amazon, Apple, Microsoft, Google, uh, yeah, but probably, uh, uh, I think I said them all now that I think of it, I should write it down.

But the idea here is that those major companies that we all pretty much know are part of that Magnificent Seven. But so the question is, is historically speaking. Mid caps and small caps, small caps in particular, because there's been Nobel Prize winning research on this, should be outperforming large companies.

So it's interesting that it's not. I'll give you a simple concept, guys. Let's say there's two companies, and you can own one of these two companies, Starbucks or Pete's Coffee. You can own one of them, just the whole thing. Which one would you own? Obviously Starbucks, right? There are multi billion dollar corporations, known worldwide, stable earnings on every corner.

Common sense! Of course you would own Starbucks. So as an investor, you would buy Starbucks over Pete's Coffee. So we know that. I know that. You know that. Hell, Pete's Coffee knows that. So Pete's Coffee has to do something to entice investors. They have to trade at a discount. To entice for higher expected rate of returns for you to invest in a Peet's Coffee.

That is called the small cap effect. There is a small cap premium. Small cap companies outperform large cap companies over time. Small cap are smaller companies. Large cap are like these big tech. They're bigger companies. So what the heck? It hasn't been doing that. Didn't do that in 2020. Didn't do that in 21, 22, 23.

Like when is this gonna happen? Up until the middle of the year, small cap was pretty much down. They had a roaring, amazing Q4, almost 20 percent in Q4. So when is it going to happen? Well, let me tell you this. We're going to go on a quick break, and when we come back, I'm going to talk not just more about small cap, mid cap, the valuations and so on, and how you should have a diversified portfolio and take a look at your situation, but I'm also going to talk about international cases.

It's the same story, folks. So we're going to go on a quick break. And if you have any questions on this, you want to reach out to us, we'd love to help. We'd love to take a look at what you're doing and make sure you are prepared for what's coming up in an election year, in a year with already so much volatility.

Vote number is 855 963 2526. That's 855 96 Falcon. Like the bird. Folks, we're going to go on a quick break. We'll be right back.

📍 📍 Welcome back, folks. This is Gabriel Sheen, Certified Financial Planner and your host of More Knowledge, More Wealth. Here on every weekend, talking about all important topics of personal finance. We are talking about today, we started with the Bitcoin ETF, then we moved over into Bitcoin. Uh, talking about, uh, the S& P 500, Dow Jones, NASDAQ, just having such a good year for this year, uh, for last year in 2023.

And now looking at what's to come ahead for 2024, I'm just talking about how small caps. So I was talking about how great large caps did. Magnificent seven were pretty much the main ones that did successful. I was fixating on the simple, uh, small cap companies, the smaller companies, Russell 2000, how it did only 14%, and the S& P 400, the mid cap companies did about 14 percent as well, 14 and a half.

And so, the understanding that when you look at just the valuations of some of these companies, this is why it helps to kind of work with a professional, right? Because you kind of, hopefully you're not doing this, but some people say, oh, look at that 5 star fund, we should buy that. Well, it's 5 star because it already did so well.

You know what Warren Buffett calls that? Buying high. Do you like buying high or buying low? I may argue it might be sense to buy a one star fund. Depending on the situation. Assuming they're not buying crap. Or zombie stocks. Or whatever the case may be. The second piece to this is the actual price to earnings ratio.

Just something simple. Are they making money? Versus what they're trading at. Now when you take a look is much lower than At small and mid cap companies, they are trading at a substantial discount compared to some of these large companies. Some of these large companies are now typically 20 times earnings is a good example.

Why is that? Because it's probably a 5 percent rate of return, right? 20%. If the price of the stock is at 100, okay, and they're earning about 20, uh, we'll say price of the company at 100, and they're earning about 20, Right. 20 percent of what they're making. That's roughly a 5 percent return. That's not bad, you know, so that is just the core.

Well, you have companies trading infinity, right, because they're losing money and they're still trading at Forget the share price, right? 100 a share doesn't matter. 1, 000 a share doesn't matter. It's the market capitalization. That's The price of the share multiplied by all the outstanding shares. That's how they get a valuation.

That's how Apple's a 3 trillion company. Some of these others that are 2 trillion, 1 trillion, and so on. So that's what matters. So the idea is you have these companies valued at a trillion, that some of them are not making much money. Why? Because they're all based on what they're expected to make.

Historically speaking, growth companies underperform value companies. Because of the simple logic is not all of them end up doing what they say they're going to do. Not all of them are able to achieve what they say they're going to achieve. Maybe some of it's not their fault. It could be supply chain issues, political issues, changes that happen in the demand where people don't care.

What if a competitor comes up? If you say in five years from now, I'm going to create a fantastic electric car that's going to drive itself. Who cares if we have self flying cars or forget self flying, even though it's really easy, I'm sure to do autopilot in the air with sensors and so on and the radars, but forget that wouldn't you rather who cares about a self driving to Arizona from Los Angeles for five hours when you can fly there.

For an hour. With no traffic. Or how about from LA to a suburb, which normally takes two hours, it only takes twenty minutes. Who cares about the electric self driving car when you have self flying cars? I'm not saying self flying cars are coming out, or you should invest in it, I'm just talking here. This is why they significantly underperform my, uh, my just my thought here.

I'm just trying to figure this out of why small cap is so underperforming. I think personally not telling you to buy it is that it's a fantastic purchase right now. And for those who have globally diversified portfolios, stay disciplined. This is the core piece. This is when people are getting out of it.

This is when I say you should be getting into it. And for you that were buying and holding the Googles and the Apples and the Microsofts and the Amazons of the world, number one, bravo. But maybe this is a good idea to start looking at divesting out of some of these. Heck, you've got Google and Amazon looking at antitrust lawsuits on monopolizing, and looking about breaking up Google and so on.

We have Apple that really what have they created recently? Like no real innovation at all. They have these headsets that are what like 3, 500 that nobody has any interest of buying. Like give me a break, augmented reality, like good luck. Let me know how those sell. Okay. So the idea is when you look at a diversified portfolio, don't get upset at the losers.

I would say be happy. With the losers because those are on sale and currently they're on sale in my opinion It's a matter of time before those are a big pop in your portfolio And that's why go with a diversified portfolio is huge because you don't know What's gonna happen? Don't even think you know hell don't even think I know I'm talking logic here I'm probably right by the way, but who cares if I'm right or wrong?

I'm not telling you to put all your money in small cap because what I'm saying hell no, I'm saying the opposite of that I'm saying diversify And for those who are just heavily invested in big tech because it's done well, be careful. You have to be careful of that because that could hurt you. Look what happened in the dot com bubble.

It kind of feels like that, by the way. Except the big seven are making money, right? This magnificent seven are. The companies that I've listed and named. But still, it still feels like that. These zombie stocks that are getting like this money just thrown to them. They're getting these bonds of billions of dollars.

Here's why I hate index funds for bonds. Because when they come out with an issuance of 3 billion, 5 billion, 10 billion dollars, whatever it may be, of companies that are probably going to go out of business, and the banks are forced to refinance them because they don't want to default on them, because then they'll never get paid, right?

And the benefit is they're going to sell those bonds. You know why they can sell those bonds? Because companies like Vanguard, BlackRock, StateStream, the BND, They have to buy those issuance because they own the index. Everything that comes out, whether it's crap or not, they have to buy it. You get what I'm saying?

Why would you be subject to buy companies that are probably going to be out of business? Why would you buy those bonds? It makes no sense in the world. I don't understand it. But I understand it from an index point of view, but you're an investor. Like, it doesn't make sense for you to own that crap. But people do it all the time.

Oh, I believe in indexes. Hell, I believe in indexes. I'm telling you, Gabriel Shaheen, president, CEO, founder, principal, whatever you want to call me, best looking person on the radio. Joke, right? Radio, right? But the idea is, it makes no sense. I just get frustrated with this folks. If you're just joining me, you're listening to Gabriel Sheen, certified financial planner, and your host, more knowledge, more wealth here on every week and talking about all important topics of personal finance.

And today I was just going over the simple concept of diversified portfolios and how certain people are just investing in these indexes. Blindly investing in large cap because that's what they think they should do and they're buying like these vanguard total stock market indexes or global indexes that are market cap weighted, which, oh, by the way, is 70 plus percent in large cap, 75%, three fourths of what you have is large cap.

That's not much diversification. And then you start looking at international. Ooh, international. Last year, developed markets did 18%. Not bad. Pretty good. They're due for it. Emerging markets still. I understand China and Russia and all this stuff. But still less than 7 percent 6 percent ish return on that.

Like it's just crazy when you start looking at just the big picture of what's going on in your portfolio. And when you see and you get upset with international man, the international, they're crazy. They have no control or too much control or there's too much corruption or there's just not as much growth.

Whatever the case, whatever you feel is the reason you shouldn't do it. I'm telling you, I'm telling you now. That is something that saved people in the dot com era. International exploded during that time. And America right now, think about this. Our growth rate, a married couple on average has 2. 2 kids.

Well that's two people, right? Two. America, right? Two people that create 2. 2 kids. It's equal growth. America, our population will not grow. If anything, it would be a declining population. That could even be more true, but the simple fact of so many baby boomers are old. So many people are over 65. One third of our population is over 65 years old.

That's a declining population. You know what has helped America? Immigration. And that kind of became like an issue. Now we have illegal immigration, illegal immigrants. Illegal aliens, whatever the hell you want to call it, whatever the hell is going on at our borders, south borders, I mean, holy smokes, that's crazy.

I'm not talking about that. That's just stupidity. We're talking about people coming over that are PhDs, medical doctors, college graduates, engineers, software engineers, civil engineers, people in finance. He has so much quality people that can come to America that helps our country. The majority of the innovation that we've had, hell, Elon Musk, he's an immigrant.

We've had so many people that's helped people, uh, our society, America, our economy, because we are a country that accepts immigrants. The idea here is, don't just accept idiots. Don't accept people with fake addresses. Don't affect people of, uh, how do I say, uh, how do I say this politically correct? Uh, ties to terrorism.

Ha, ha, ha. Ah, it's just frustrating. Because portfolios are sometimes reacting close to the news, which is no logic. When you look at how cheap emerging markets is, I wouldn't be shy, I'm not telling you to buy it. I'm telling you, you should own it. It should be a piece of your portfolio, not your biggest piece in the portfolio, but there should be some exposure to it.

And same with developed markets. Emerging markets, like academically speaking, is the highest expected rate of return asset class that you should be holding. And that you would own. Some would argue that with Bitcoin because it started at a penny and now it's worth 40 something thousand dollars. I get it.

I'm just telling you. Diversification is key. And folks, if you need help with this, what I'm sounding, talking, it's like, Oh my gosh, well, I, I always did indexing because Gabriel said that before. Uh, now he's saying me bonds and they're owning crap, which they are owning crap. They have to own everything.

Keep that in mind. Give us a call. This is why we're offering a free financial assessment. One to two meetings, one to two hours of our time at no cost folks. We can help our phone numbers. 8 5 5 9 6 3 25 26. That's 8 5 5. 96 Falcon, like the bird, or visit our website at falconwealthplanning. com. That's falcon, WP.

com for short. You can get this episode, any one of our previous episodes, go to our knowledge center. That's such a fantastic thing. You see something you like, share the hell out of it. It's so important and these things that people don't like talking about, people don't want to talk about that. Some of these are like the, the, the hidden secrets of our industry to help.

You, and that is what brought success to our company. It's having podcasts like this, radio shows like this, going on media, the circuits and just telling you what you should be doing. Because a lot of people say, Hey, I got all these ways I can help you. But you have to pay us first before we can help you.

No, no, no, I don't believe that. I believe, let's, how about this, how about I selfish, self, uh, lessly, I selflessly help you? Well, selfishly, you benefit me later. Cause you're like, look at how competent these people are, look at how honest they are. They truly just want to help. If you're just a good person, good things will come your way.

Right? If you're a good person, you'll probably have friends that are good people. If you're a jerk, you'll probably have friends that are jerks. Anyway, I could talk all day folks. I want to limit me for 30 minutes here. But folks, I want to thank you for tuning in with me. You can always reach out to myself or any one of my colleagues at Falcon 1 Planning at 855 963 2526.

That's 855 96 Falcon. Like the bird or visit our website at falconwealthplanning. com. That's falconwp. com for sure. We can get this episode, any one of our previous episodes on iHeartRadio, podcast, or Spotify. And go visit our knowledge center on our website as well. That's fantastic. I was just talking about that earlier.

So many great videos there with tens of thousands of views on each one for a majority of them. And folks join us every single week that we talk about all important topics. And if you want us to read off your topic, please send it to radio at Falcon WP. com. That's radio at Falcon WP. com for short folks have a fantastic week.

Have a great long weekend, happy MLK day and God bless.