ETF Edge - Famed financial advisor Ric Edelman on crypto, income and your longevity and the missing money smarts of a generation 5/5/25

Episode Date: May 5, 2025

Ric Edelman, founder of the Digital Asset Council of Financial Professionals and former head of Edelman Financial Engines weighs in on how to responsibly incorporate crypto investing into any diversified portfolio, explains why 60/40 is dead… because you’re not going to be… and discusses the importance of instilling financial education in the next generation.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by Invesco QQQ, proud provider of access to innovation for the last 25 years. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you are looking to learn the latest insights on all things, exchange, traded funds, you are in the right place. Every week, we're bringing you interviews, market analysis, and breaking down what it all means for investors. I'm your host, Bob Pisani. The crypto-etf ecosphere is exploding with new regulatory hurdles, getting cleared. With more choice comes a lot more complexity to make sense of it all.

Here's my conversation about all that with Rick Aedlman, founder of the Digital Asset Council of Financial Professionals and former head of Aedelman Financial Engines. Rick, it didn't take us very long to go from Spot Bitcoin to now we have buffered Bitcoins to leverage and inverse Bitcoins. It makes sense of this explosion of new products. Some of them make sense or some of them not make sense? Some do, some don't, Bob.

You're right. It was 14 months ago that the SEC said yes to the Spot Bitcoin ETS. And in less than a year, they raised $100 billion in investor assets, the fastest growing ETF category ever. When you create that kind of liquidity, you naturally create an options market. Same thing happened in stocks, not a surprise that it happens in crypto. And now you have an explosion of additional kinds of ETF categories. You mentioned some really exciting ones, buffer ETFs and yield ETS.

You can now invest in Bitcoin ETS that protect you against the downside volatility while preserving your ability to enjoy the upside profits. Colamos, Innovator, are two leading ETF companies that do these kinds of things. You also have the ability to generate yield off of Bitcoin now thanks to these covered call writing ETS, just like you have in the stock market. And because the out-of-the-money calls are so extreme, you can generate massive amounts of yield much more than you can in the stock market. Yeah, so there's funds to generate income through covered call writing. We've had these for a while. This is similar to the S&P 500 funds. Exactly.

JetB, for example, which writes covered calls and you collect income on them. Grayscale has one, BTCC, Roundhill has them as well. What's the downside, though? You're limiting, you're selling calls, right? Sure. So the downside is you're limiting your upside. But considering that the upside is predictably so high for crypto, limiting yourself to a 50% gain, that doesn't seem to be too bad a deal to me. Yeah, and you can go long and short Bitcoin now. You, you, you, you You pay some very steep fees here, but look at some of these ones. The volatility shares, 2X Bitcoin strategy, BITX is out there.

I have problems with leverage and inverse. You know this. 1.8% fees. There's a daily reset that people have a hard time wrapping their heads around. Most folks don't even realize what that really means, Bob, and this is the biggest issue that we both share this concern about. These ETFs, these inverse ETFs, these leverage ETFs often have an assumption you're going to hold the fund for a single day, a daily reset.

That's literally the same thing as buying a lottery ticket. This isn't investing. This is pure speculating like buying a ridiculous speculative thing, and it isn't something that most ordinary investors should go anywhere near. And all of this, the roads returns over time, high fees, daily reset, something like that. I guess the good news here is there's now very easy ways to allocate money to crypto. And for advisors, it's fully compliant. You're in an ETF format, right?

Exactly right. The bad news is these are very complex products. You've got very high fees, and you have very high risk, right? I mean... It's the same thing as you have in the stock market. You have some pretty secure, understandable, low-cost ways like S&P 500 funds. And then you've got funds that invest in penny stocks on an inverse leverage basis. So like in any investment category, you've got to do your due diligence.

You have to make sure you understand what you're investing in. avoid the get-rich-quick nonsense. Crypto is meant to be a long-term hold, just like the stock market. It's meant to diversify the portfolio, just like the stock market. And if you try to engage in a get-rich-quick, I'm going to make money on a free, risk-free basis. Chances are you're going to get what you deserve. It sounds like the same thing as investing in the stock market, essentially.

Yeah. You sound essentially like Jack Bogle investing in index funds. And the difference. You want to speculate, here it is, but you're probably going to lose money long-term. And on the other. other hand, if you recognize that portfolio diversification, portfolio rebalancing, dollar cost averaging, tax loss harvesting, all of this applies to investing, and crypto should be a part of that. You have been an advocate of long-term index investor for decades, saying the average

investor is better off in low-cost indexing for both stocks and bonds. You've also been a big advocate for crypto for a while. What is the argument that crypto should be a part of your overall investing portfolio and how much? I know it depends on age groups, but give us some of What are you telling your clients now? Well, I'll give you two pieces of this. Number one, Bitcoin clearly, over the past 15 years of its existence, has been the best performing asset class in history, bar none. It is widely expected to continue that track record over the next 10 years.

So on an attitude of trying to create wealth, long-term, crypto makes a lot of sense. Second, most importantly from investment advisors' perspective, Bitcoin's price movements are independent, independent of all other asset classes. The prices don't move in sync with stocks or bonds or real estate or gold or oil or commodities. And that makes it a perfect addition to a diversified portfolio. If you engage in rebalancing, which all investors ought to do periodically, owning Bitcoin helps to lower the risk of the portfolio while improving the returns.

A risk-adjusted profile is one of the big claims to fame of adding Bitcoin to a diversified portfolio. It's really the big claim. for adding to anything. I mean, why do I need a new asset class? Okay, I have stocks, I have bonds, I have a, I have a nice fund for short-term money. I have a money market fund and have a little bit of gold. Why should I add Bitcoin? Your point is diversification, lower volatility, potentially adding to returns. Those are good reasons. That's all there is to it. In other words, if you believe in modern portfolio theory, if you believe in Harry Markowitz and his Nobel prize-winning research that says investing is as much about risk as return, we want to manage

that risk. We want to diversify so that we don't have 12 eggs in one basket. We have 12 eggs in 12 baskets. Well, if I can add a new basket, if I can further diversify my risks to protect myself on the downside while preserving my potential for upside, why wouldn't I want to add the newest asset class, the first one to be invented in $100? 70 years. Last time we had a new asset class was the discovery of oil in the 1850s. This is a wonderful opportunity to further improve the diversification. And all the academic data tells us. And what percentage are you advising at this? Most are recommending in low single digits, two, three, four, five percent allocations. But if you talk to people who are deep into crypto,

they're doing between 10 and 40 percent allocations to crypto. So it's a lot of risk there. considering the volatility of crypto. It's a lot of risk. If you recognize the investment potential, you recognize the value of rebalancing, and you can afford the volatility in the long term, it can make a lot of sense. I want to move on, talk a little bit about, you talked about the 6040 stock bond portfolio for a long time. You say it's dead. Yeah. But not because bonds have no value. Why is the 6040 portfolio debt? It's dead because of longevity. We are living longer than ever before as a species. Nowhere in human history have humans live this long and it's widely projected due to exponential technologies and biotech and health care, neuroscience, bioinformatics, 3D printing,

robotics and AI that over the next 30 years, humans are going to be routinely living to age 100 and beyond. Run your financial planning model assuming you live to age 100, odds are good you're going to run out of money. If you're going to die at 80, it's not a problem. You live to 90 or 100 or it's an issue. So you need to have more equities, 70% allocation, 80%, not 6040, 70, 30, 80, 20 to make sure you don't run out of money. This makes a lot of sense. I'm approaching 70. My long-term plan was to live to 90. And every time I talk to you, you tell me, Bob, think longer. For sure.

Odds are going to be really good. By the time you're 95, you'll be healthier than you are today. That'll be interesting. So the bottom line here, Rick says people need higher equity exposure and for much longer than most advisors have traditionally recommended. You know, a few weeks ago, I had Nate Conrad on. He's the, for those who don't know, he's the head of Lifex and Lifex ETFs. We had them on ETF Edge. They have a suite of bond ETFs.

They call longevity income ETFs. These are essentially bond ladders that pay out principal and interest over a defined time period. And I found it to be a fairly simple and elegant solution for people who want income. And I'm wondering, what do you think? What do they do and are they right for income? a right for investors seeking income. I really like the idea. We recognize that if people are living so much longer,

the big fear everybody has is running out of money. They want guaranteed lifetime income, and that's what Lifex is delivering. It's an incredibly boring ETF. They're buying U.S. Treasuries, period. End of story. And they're generating income from these that are not only generating you

the income off of the interest from the Treasury, they're giving you return of capital as well, thanks to the bond ladder. So you can buy a 10-year ladder, 20 year, 30 year, 40 year ladder, so that no matter how long you live, you're going to get a monthly stable income from the safest investment in the world with an extremely high level of predictability. And you can buy these in different maturity. So you go out and you can buy one that's 10 years.

It has, you know, one year, two years, three, five, seven, ten. How long do you think you need the income? 20 or 25 years. But looking at the 10 year, you own a bond ladder of treasuries that go out 10 years. You get an annualized yield. The target is 10%. And right now I did this. Not a yield, but an income distribution.

That's great. Thank you. Right now it pays $493 a month for 10 years. 40% of that is sort of the yield from the bond. 60% is distribution of capital. And what's amazing is, in theory, I could do this at home. You and I were talking about this. But nobody actually does this.

I could buy a bond ladder of 30-day, one-year, two-year notes going out 10 years, put the 100,000 equally and then collect the interest and then just sell the bonds off. But nobody does that. You'd have to buy 120 treasuries. going from 30 days to 10 years. What a nuisance. This ETF does it for you and a tiny little convenient package for 25 basis points. And they do it all for you.

So here's the key point people have to understand. After 10 years, all the money is distributed. That's right. And you need to understand that. There's no return of capital you've already got that. It's giving you capital back. And this is an ETF. So you can buy and sell this at any time.

The price of that may vary, but you can buy. Now, when interest rates change, what happens? I mean, essentially, you're buying a ladder that already exists. It's not going to make any difference to your income stream. It would have a difference and impact only if you were to sell it. So you can either sell it if interest rates go down or you can hold onto it if interest rates go up. Your income that you're getting, the distribution isn't going to change. We're talking about $900 a month that you're going to get.

That's for a $100,000 investment. Yeah, and about 400 of it is interest taxable. The rest of it is not. So this is a very tax-efficient way to generate a guaranteed income. for as many years as you want to guarantee it. It's an innovative idea that I think is going to catch on. And these are government bonds. They're not corporates or munis.

I gather they did that for safety. That's the safest thing. And you mentioned in the tax treatment here. When I pay taxes, I'm just paying taxes just on the dividend, right? Not on the... Exactly right. So if the yield is in the neighborhood of 11%, or if the total distribution rate is about 11%,

you're only paying taxes on about 4%. The rest of its return of capital. So it makes it very tax-efficient and a very good way to generate income for as many years as you want on a guaranteed basis. So this might be even better to be in a taxable account rather than a 401K, for example. I would agree. Okay. And there's two flavors here. We have only gone over the plain vanilla one.

There's also an inflation-protected one as well. You get less return, but you get inflation-protected. So how do you play off first-term? If you're going to go with a 10-year maturity, I probably would go with just the straight one that gives you a high-term. income if you're going to go with the inflation adjusted that would make sense if you're going to go with a 20 or a 30 year bond ladder either way it makes a very easy way for you to generate a high amount of current monthly income for retirees who are looking for that benefit now and again this the inflation

protected is based on changes in the in the CPI but what if somebody dies before that their term is over it's like any other ETF the money the account just goes to your heirs it goes to your estate right and the airs continue to receive the monthly distributions. If they want, or they can sell it. Exactly. Okay. Let me move on because you've been doing some very exciting things recently here.

In December, you ended your long running podcast for many years. You had a radio show even longer before that, but you still run the Digital Asset Council of Financial Professionals to educate people about investing in crypto. But you also founded a diagnostic research company. This is Doran. Now, tell us what you're involved in. It's a fascinating research. My wife and I have been involved in the fight against Alzheimer's for decades, and we had

the opportunity to acquire a company that is in doing some really innovative technological research in diagnostics of Alzheimer's disease. And we are hoping to launch a blood test that will be able to tell you 10 years prior to symptoms if Alzheimer's is in your future, with 95% accuracy. We're hoping to bring that to the market within the next several months. We've discovered that our technology is also applicable for other neurological diseases such as Parkinson's. And we also now see that it has potential in cancer as well.

So we're working very hard to develop this technology and bring it to market. And it's a very exciting exercise. Do I want to know if I have a 95% chance of getting Alzheimer's without any real cure immediately? But there is benefit today. Ten years ago I would have agreed with you. Why would I want to know if I'm going to get Alzheimer's? But today we now know that fundamental lifestyle change.

changes can help you delay and reduce the symptoms, changes in your diet and exercise, sleep, in stress. All of the things we tell you to do for your heart are applicable for your brain. So if you knew that you had this in your future, it might cause you to drink less and stop smoking. Ah, well, at least one of the two I might consider doing. I'm not a smoker, by the way. It is quite amazing, though, to see the research on this. grandmother died of Alzheimer's and my father was terrified of his own life and he lived in 90. The only thing he did not die of was Alzheimer's, but he was terrified of it his whole life.

It's understandably so. None of us want that kind of a future and yet it is very prevalent. We all know somebody who has or has had Alzheimer's. It's 100% fatal. It is the most expensive disease to treat because the average patient from symptom to death lives 12 years and typically requires 24-7 care. It bankrupts millions of American families. And I see what the effects of stress are on a lot of people, even myself, it sort of circuits the brain a bit.

It makes it harder to think, and I can't help but think there's obvious effects neurologically. One of the things are discovering are hearing aids. If you are hard of hearing, you're forcing your brain to work harder. If you get hearing aids, you reduce the effort on the brain, which can help reduce the onset of Alzheimer's. That's amazing. Now, you've done other things. You just opened a fossil museum. The Edelman Fossil Park and Museum in Browen University.

This is in Southern New Jersey. Suzanne, my wife and I were there over the weekend. It was fantastic, a beautiful, interesting experience. Literally on a fossil bed. 70 million-year-old fossils. Most people don't realize that the very first dinosaur ever discovered was in Haddonfield, New Jersey, outside of Philadelphia in the 1850s. New Jersey is a hotbed for fossils,

and there happens to be a quarry right there in Manchester. a township where now that we have the museum, you can go into the dig site, dig for fossils, anything you find, you get to take home. It's a fabulous experience. Yeah, and there's a virtual reality exhibit that's really wonderful, takes you back to the Cretaceous period, literally, and it's very lifelike. It's amazing how far the technology on VR has evolved. The museum is an awful lot of fun.

I'm glad you enjoyed it, and we encourage everybody to go visit. It's a great time. I want to move on and talk about financial literacy. This is something near to my heart and very dear to your. You've spent decades talking about financial literacy. How do you feel about the current state of financial literacy? I see surveys that indicate people, financial literacy level seem to be a little higher, but then again I see people investing in lottery-like behavior, and I think,

I don't think people are necessarily smarter than they were 35 years ago when we found at CNBC. What's your thoughts about? I'm afraid you're right. Both of us, of course, on the board of the Museum of American Finance, we spend a lot of time trying to improve financial literacy among American adults, we stink at it. Less than half the high schools mandate a course in personal finance for their students. Our parents generally don't talk about money, our employers don't help us with money. The only way we discover the issues of money is through the school of hard knocks as adults.

And we're over our heads when we're trying to buy insurance or buy a car or get a mortgage or deal with college planning for kids or writing a will. We're in over our heads because we're not taught this. And all the data shows that we're no better out of it. better at it than we were a generation or two ago. We need to integrate the subject of money education, recognize it isn't about speculating on a get-rich-quick environment, but dealing with the fundamental issues of credit and debt, of dealing with wills, homeownership, paying for college, paying for a wedding for that matter, buying versus leasing a car. This stuff's

not complicated. It's just that most in corporate America want to make it seem complicated so they can make you their hostage rather than their customer. This is why we've grown to love And we love to hate banks and insurance companies and credit card companies. Are young people more inclined to engage in lottery-like behavior, as we said, which is roll the dice, let's bet on all the money on Bitcoin or all the money on Nvidia? Or is it because there are vehicles that enable them to do that now that they didn't used to have before? It's a little of both. You have companies like Robin Hood, which was infamous for the confetti every time you made a purchase,

that triggered the parts of your brain, just like the triggers affection for drugs. On the other hand, today's youth are looking at their parents and grandparents and recognizing how poorly prepared they are for retirement. And today's youth are saying, I don't want that to be my future. Just like I'm looking at my grandfather who used to drink and smoke a lot and how bad his health is, I'm not going to drink and smoke like he did. Youth today are more interested in the world of money because they do realize the importance of it. Their challenge, they don't make a lot of money.

And if you don't make a lot of money and you're struggling to pay your bills, there's not a lot of money left over to save and invest. Seems to me like the young people today are a little better at savings than we were in the 70s. We did very little. My generation, I'm the classic baby boomer. My generation did very little savings. And as a result, we didn't start saving money into our mid-late 30s. Well, we didn't know we needed to because we were the first generation as boomers that was going to live as long as we are. Everybody before us, our parents, grandparents, and elders,

they all died in their 50s and 60s. You didn't have to plan for your future. You weren't going to have one. But our children and grandchildren realize I am likely to live to 80, 90, 100, and I better take this seriously. That makes me very happy when I see young people doing that. At the same time, though, I see them engaging in this lottery-like behavior. Exactly. And you want to say, why don't you take a little cue from the rest of us? When so many of them are getting their financial education from TikTok, that's a little scary.

Yeah, it is certainly. Rick, always a pleasure chatting with you. Thank you very much. Now it's time to round out the conversation with some analysis and perspective to help you better understand ETFs, this is the Markets 102 portion of the podcast. Rick Aedleman, founder of the Digital Asset Council of Financial Professionals and former head of Adleman Financial Engines continues with us now. And Rick, we had a great conversation about ETFs, bond ladders, long-term saving. What's interesting to me this year is, despite all the market volatility, there is still a

regular inflow of money into the ETF business. We may even have a record year potentially. We're north of $300 billion in money coming in. A lot of it is of the active variety. I think that's encouraging to a certain extent. A lot of that active money is, I would call it index plus people like dimensional funds and Avantus who have an approach that's slightly value oriented, but it's largely indexed with a slightly active management tilt. You look at ETF flows.

Anything stick out to you this year? Well, it is very exciting because ETAs. ATFs are the probably innovation of the second half of the last century. We recognize that these are incredibly convenient. They're incredibly inexpensive. They are incredibly broad-based. There is really no better way for the ordinary investor or investment advisor to allocate in a diversified fashion.

What's not to love? So it makes a lot of sense that the flows are massive into ETFs compared to net outflows for mutual funds. Mutual funds are priced only once a day at the market close. are priced all day long. ETS are a fraction of the cost of mutual funds. They're far more tax efficient than mutual funds. So this makes a great deal of sense. The big question, as you noted, is should the money be going passive

or should it be going active? DFA and Aventus, I think, are in the great middle space. They provide active selection, but passive management. Those that are trying to go into pure active are making the bet that that manager is going to beat the market. And we don't know what the data tells us the overwhelming majority of active managers failed. managers failed to do that. Yeah, of course, every year, S&P does the SPIVA study, and every year,

for 20 years, they've come to the same conclusion. 90% of active managers underperform their benchmarks over 10 years. 90%. And it's easy to understand why. Fees alone, their fees on active management, because you have to pay for research analysts and you have to pay for those money managers. That radically increases the cost of the fund. And the trading and churning creates an increase in tax liability, it's hard for those funds to overcome those two hurdles. Yeah. Now, we were talking about asset allocation earlier. You've been a big advocate of roughly 5% allocation to crypto. Stocks, bonds, there's also gold in there that a lot of people have. And it's been interesting earlier in the year, gold was hitting new highs.

And yet the flows into gold ETFs were not significant at all. Some people attribute this to central bank buying. They don't buying gold ETFs. They're buying gold. directly, and that was a big supporter of it. Where does gold fit into a portfolio? Gold's another diversifying asset class, just like all the other asset classes. If you truly believe in diversification, you ought to own a little bit of gold. You could also add other precious metals like silver and platinum and minerals, you know, like copper and zinc and tin and aluminum and so on. That's what diversification is. You shouldn't be buying or avoiding gold because of your views of it. You should simply own a little bit of everything. That's what

modern portfolio theory dictates. Yes. So let's pick somebody who's older, who's approaching retirement, a 65-year-old, they're thinking they're going to live to 90. 5% gold, 5% Bitcoin,

70% stocks? I would argue that that 65-year-old isn't going to live to age 90. They're equally likely to live to 95 or 100 or even longer. Is that what I agree for a higher allocation to stocks? Exactly. The 60-40 should probably be

75-20. 25 for another 15 or 20 years. That gives them more exposure to equities, and that means, sure, a mid-single-digit allocation to gold and precious metals can make sense. I would argue that crypto ought to be somewhere between 10 and 40 percent of the allocation, simply because of its diversification benefits of lowering the volatility of the portfolio, and most are expecting it to outperform virtually every other asset class for the next decade. Yeah, that's a pretty aggressive allocation for 10 to 40%, even for a 65-year-old for Bitcoin.

And are there any new asset classes that sit out there that are interested? Bitcoin is really the first one in a long, long time that we've seen. Well, there's obviously a lot of conversation about AI these days. AI has a couple of problems. Number one, there's really no such thing as an AI company yet. You have other big tech companies that are building AI software within them. You can invest in IBM, for example, which has a massive AI company. Konik or Microsoft or Apple or Google, etc. So it's hard to make a direct play investment in AI.

Second, we are finding that as big a benefit to AI are not the people developing the software, but the companies that are using the software. So Walmart will be a huge user of AI, even though it may not be building the tech itself. So AI isn't a pure direct play itself, it's part of a bigger, broader play of the S&B. Will AI create this elusive productivity gains that we keep looking for? We've been talking about for years how productivity has not grown as much since the 1970s or 1980s, a lot of people hold out AI as there's a potential hope to improve productivity. Very much so, but there's going to be a downside and that means massive job layoffs

or the failure to hire a lot of people. You're going to see attrition. As people naturally leave companies due to retirement or disability or death, companies won't be seeking to replace them. They'll be replacing them with AI and robotics. That puts pressure on the employment numbers because a lot of the first. folks are going to be discovering that their jobs are becoming obsolete and they're going to have to go get retrained. That takes a lot of time and money and that's going to create a drag on GDP

while we go through this transition. We went through the same thing when we left farms and went into factories and from factories into offices and now we're going from offices into digital, into the cloud. And so this transition is going to be a bit of a challenge for a lot of individuals, but it's something we'll overcome. Other than the number one question I get is, will AI affect the job market? But the number two question I get from people is, how can I use AI to invest? So how do I get Bob 2.0 that has a personal digital assistant,

invest in stocks, and outperform and make a fortune? And my usual response is if everyone has access to the same amount of information, therefore by definition, it's not going to matter. Do you have any thoughts about the use of AI for investing? No, I agree with you, Bob. I think the real key is to look at the companies that are deploying the technology,

because there's always going to be somebody building a new or better tech. and today's greatest tech will be obsolete tomorrow. But look at the companies, whether it's the airline industry or the pharmaceutical industry, or the hospitality industry, who's using the technology to make their business, faster, better, cheaper, more profitable. That's where you want to focus on your AI angle. In other words, it's not AI that you need to worry about.

It's your competitors who are using AI. The only other thing I say to people is the only caveat I have here is that you might be able to outperform if you had a database that had access to information that other people don't have. For example, if Blackstone, for example, has associations with companies and is investing with those companies, and this information is only privately available to them, they may have a competitive advantage. But in general, for most other situations, that's not the case. It's going to be hard for you to identify.

I consider AI, in a weird sense, a glorified fax machine and photocopier. Companies in the beginning had a big competitive edge and productivity, if they installed faxes and photocopiers. But it didn't take long for everybody to have one, negating that advantage. Rick, thank you. Always a pleasure chatting with you. A lot of big topics talked about today, folks. That's what we do here on ETF Edge.

And that does it for this week's ETF Edge, the podcast. Thanks for listening. Join us again next week. Or remember, go to our shows, etfedge.cc.cc.combec.com. How does InvestcoQQQQRew think possibility? By rethinking access to innovation and the NASDAQ 100. Let's rethink possibility. Investco Distributors, Inc.