Often for what's developing. This is just developing out of the Middle East now right now, it's developing.
Fifty five KRC the talk station AATO six fifty five k r c D talk station. Happy Monday always made happier, at least from my perspective. Money Money with Brian James from Allwar with Financial Joints. The program. We talk about well investments and strategies and thinking about retirement and talking to financial planners about that and thinking about how much money you do here? Is that what we do, That's
what we're supposed to do. Get people incentivized to sit down and give some thoughtful planning for their future.
That's a good idea. Let's talk about that.
I like that, Amen, get yourself a fee based financial planner because that means they have a fiduciary obligation to work for you and maximize the return on your investments. With that speaking, you're going to have to start from the very beginning in little tiny points that a fourth grader can understand. Because all I have is a headline from Bloomberg subscription only service. Bloomberg Blackrock puts private equity and credit into four oh one K funds. What does
this mean for your average investor? Does it impact us? What is this all about? Brian James?
Yeah, so I sort of anticipated that the questions might come up that way, and so that's the research that I did this morning in wonderful addition to that. So, yeah, when we normally think of our four to oh one K as our investments and things, we are thinking of stocks, bonds, mutual funds, those kinds of things. Those are what are referred to as publicly traded, meaning pretty much anybody can buy and sell all the time. You can log in online. Back in the day we looked it up in the
newspaper whatever. But the closing prices and the daily the minute, the minute changes, all that stuff is publicly available, ready.
At your fingertips.
And so now the change is Blackrock is going to be integrating private equity and private credit investments into four oh one K target date funds by mid twenty twenty six. So obviously the differing word there is private versus public. So what does that actually mean. A private equity or private credit is literally that it's a private arrangement set up by you know, a small group of people to
either support a business. Right, you might see you might see some business that's developing out there, a new restaurant or just something that you know, a small industrial company or something like that. A lot of times those are owned by private equity organizations. The difference is there's there's a little there's a little more risk involved. There can be there's a reason that they need they want to
keep it private. Oftentimes they're not big enough or they're just not stable ready to deal with larger financial institutions and it's just not an option. But they can be really lucrative too, given the fact that these are small companies, and they can shoot for the moon and go ten x or they can go negative ten x. That's just kind of the difference in the in the risk there that we need to be mindful of in terms of private versus public.
Okay, so in a real world context, there was an article in the Wall Street Journal about this company that is manufacturing from wood waste, this new ultra light wood which is as strong as steel, and it's got all these different potential applications. One, it's wood waste, so that's readily available and unlimited supply basically, but that it's lighter, it's you can use thinner amounts. You could put it
like carbon fiber, pretty much turn it into anything. And it's sounded like this is just guaranteed to make millions and millions of dollars and it's a private company right now. So to the extent I could get a slice of that, that would be private equity.
Correct, Yeah, because you're simply you know, if you know the organizers of this, you're somehow connected to the group that's putting it together, and then yeah, that's how you get invited into the fold to be a part of this. So what Blackrock is doing, and several others as well, it's just black Rocks in the headline. What they're doing is making it available, making it possible for people to participate in these markets, just by putting it inside mutual funds.
So the catchphrase is they're democratizing private equity. So hopefully there's not a ton of detail yet about how they're going to do this, but hopefully there's somebody out there vetting these opportunities the one you just described, Yeah, that sounds great. The risks there is what if some big company decides, you know what, that's a great idea, and with our scale, we can do it a heck of
a lot cheaper. Well, and there's there are ample stories out there of some little company came up with a great idea and got blown out of the water by a big company. Look we're bought out, Yes, exactly which and and honestly, that can be.
That's a great point. That's a good thing. That can be.
That's a good thing, and it can be the ultimate goal. I want to build something that some other company goes, you know what, we could build from scratch, or we could just buy these things.
That can be the exit strategy. But it can go the other direction too, all right.
So in my hypothetical scenario, I've actually got access to invest in this they let's say they do sell out. They sell it for a billion dollars or something, and that allocation that purchase price is divided amongst the various initial investors. I presume that's how the scenario would play out. So whatever pile of cash I got from that would go into my four oh one K. Would that be considered pre tax like four to one k contributions are now under a non roth product or how would that
be treated? And does this happen?
Yeah?
Right, now you're getting to the fund stuff, right, this is what makes everything complication.
Yeah.
So not not only that, but but the other thing you didn't mention in there is this is happening inside of a mutual fund, inside your four oh one K. So all that's really happening now is they're kind of throwing the doors open. But how is this actually going to work with regard to reporting. So one of the big things that we didn't touch on yet was if I'm a small company and I'm a private equity funded organization, then that means I don't have daily pricing, So how
do I know what this thing is worth? So Blackrock says they're gonna they're gonna put maybe maybe twenty percent, and then more aggressive funds twenty percent could go into private markets. So that's twenty percent of your fund where there isn't a daily valuation. Yeah, So it's not going to be a conglomeration of a little businesses up and down the street that you drive by on the way back and forth to work. These You're gonna have to
be places that have some ability to price their value regularly. Otherwise, how do you have any idea what you're mutual foot inside your four oh one.
K is worth.
Now to mention required minimum distributions, that's a whole other animal.
Well, and I have to assume or presume that these would be limited to some entities that actually do put these financial projections together, so you would know the value. Otherwise you, as a financial planner, would have to go out into the world and acquire that information in order to provide guidance to your client or whether or not they're making money.
Right, that's the exact point. So hopefully there's a go between.
But as we know, in four oh one k situations, which again that's the whole point of this article, that's where they're talking about putting these things, there's very rarely an advisor in the middle. A matter of fact, the company itself. A lot of people don't know this. The employer itself is a fiduciary.
Right.
You could be a company that makes widgets, you make do hickeys, and you sell them to other do hickey making companies. You have nothing to do with financial advice. But if you offer your employees of four oh one k, you are indeed a fiduciary, just like me here at all worth, where I sit here and do financial plans all day, every day. So you have a duty to make sure you're your employees have what they need and
have some level of advice. But there is very rarely an individual person that's going to sit in between the employee participant and that four one okay to say you should do this, you should not do that.
Right, all right?
Well, if the risk of going over a little bit in this segment. The other article, and I'm not sure if it's a corollary to this Blackrock and private equity, but headline from Bloomberg again, and I don't have any details on it, Congress will open private markets to everyone next year. What's this one all about, Brian James?
Well, it is very similar.
So the whole point of this, so where we started was just blackrocks a little corner of the world there, right. The reason where this is coming from is by the end of twenty six Congress is expected to relax the rules for private market access, which is the exact same thing we're talking about. What this means is that non accredited investors could be allowed to invest in private equity. So that's a big fuzzy word. Let's talk about what
that actually means. An accredited investor is somebody who, if you're an individual, you have earned two hundred thousand dollars.
For each of the past two years.
Where if there's a spouse or spousal equivalent is whether the words work in the mix that it's three hundred thousand or you're worth over a million dollars. That's the definition of an accredited investor. It doesn't say that you know anything about money. You know anyth about investments, is just how much income and what's your networth? So those are the rules where they're starting to say that private
equity may no longer require that to happen. And again, this is all being spun in a manner of democratizing investment opportunities.
Okay, and I find no problem with that.
I mean, if I have money and I want to invest it in private market, I should be allowed to do it regardless of what my annual salary is sort of demands asking the question why is the current rule in place? Why is it limited to people with worth of a million dollars or making salary of two hundred or three fifty depending upon marital status.
Those rules have been in place for decades upon decades. I'm going to go ahead, I'm going to take a stab here. Somebody might know the history better than me, but I'm going to go ahead and say that a lot of this was wald off years ago because it was just a kept for the people who could truly you get into it, of course, And I will also
say technology plays a rule a role here. So in other words, thirty forty years ago, if I am a you know, a company that wants to woo private equity and bring dollars in, I don't want to have to spread it across hundreds of thousands or millions of people with a couple thousand dollars inside of a mutual fund, because I have to track and deal with all that and report to them all and follow all those rules. Well, technology has made a lot of that a lot, a lot,
a lot easier. It's not unsimilar to where exchange traded funds came evolved out of mutual funds. So I think that the technology the ability to track the different shareholders and report to everybody, since this is again not publicly traded stuff. This is stuff where you just have to wait for an accounting for them to say here's what it's worth. And sometimes that's only once a year. The need is to get that information out to each every
tiny little shareholder. So I think those hurdles have been cleared, and now it gets a little easier.
Okay, I guess it's a complicated thing investing in private market, some for the reasons you've obviously stated. But then again, let's say the company has improved and it's you know, it's worth more in your slice however it's expressed. I guess is are are they considered shares in this type of arrangement or is it depend on the arrangement.
Well, it very much depends on the arrangement. Right.
So when we were talking about black Rock a little bit ago, that whole point was you inside their target date funds. Those target date funds, those are the set it and forget it options inside your four oh one K and that was specifically that announcement. That's where it's going to be available. So in that case, you would simply own shares of a mutual fund that in turn owns shares of some private equity firms. The more broader
range here, Yes, you still own shares. You'll still own a certain number of shares of a private equity type arrangement. You might be a limited partner and you are subject to whatever the general partner, who's kind of the boss of the whole thing, does, But there are still shares that are divided out by however much you put into the arrangement.
So and that's how you end up getting the money out. Let's say, okay, I want to sell I need that money, or I'm retiring, I want that money. Those have to be sold, but they are sold on a private market, as opposed to being posted on the or just being easily dumped on a stock exchange.
That's correct, and a private market basically means again it's not out there, it's posted for sale to the entire world like the overall stock market is. It basically means that all the other partners are informed that one of the partners wants to sell out and they can either buy it that they can pick up those shares and get you out at that time, or you might be
stuck with them. A lot of times there's a lock up here where you can only get out once a year's and sometimes they actually have the opposite where they can come back and do a capital call where they require you to put more money.
In okay, And that's actually where I thought the rule came from. Having a certain amount of financial ability. The million dollar a worth because that could happen, and if people invest and they don't have the resources to pay that kind of price, they're going to find themselves in a financial world of hurt, like a protectionism type measure to save.
It, and you could wind up if you don't have the ability to put more in. The fund itself might be okay with that, but that means your shares are going to be deluded. If everybody has doubled their investment after that capital call, now you have half as much as you did, proportionally fair enough.
I think you. Thank you very much for walking me through that no idea about what we started, and I feel a lot more smarter. I spill smarter now. Brian James will continue to find out some new crypto rules that're unveiled by some Republican senators. That's going to be next. It's eight eighteen fifty five k stee talk station and plum type plumbing. You deserve better, They know you deserve better, and plumb tight delivers on better. Treat every call like
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Iheartly thinking about parcit talk station Brian Tummas with all Worth Financials, Brian James H. I've always view crypto is like the peace of God. It passes my human understanding and so I don't understand it. But what is this legislation, this bill which apparently is going to define when crypto is a commodity or a security? I guess it could be either. What does this mean generally speaking?
Brian?
Yeah, So, so the first and most important thing that means is that we are finally going to have some kind of definition as to what this stuff really is and really what this is. It's kind of a fight between what regulatory body is going to sit on top of it and govern it. So the interesting thing though, is it it's coming in a bipartisan manner, so there are there are people on both sides who are actually starting to agree on something for once. So the big
debate is is a is crypto a security? Which basically means that it's a for profit venture that you that you enjoined with a few groups onto and again in the hopes of profit and from the efforts of others. That's the definite definition of a security, right. That's the difference between if I own a business and I run it for a profit, that's different.
That's not a security.
But if I buy a stock that is a business and I'm waiting for other people to make money for me, that becomes a security.
Okay.
Uh, And so that's the big debate. If if it's a security, then the SEC controls it. The opposite would be is it a commodity, which means a group called the CFTC would control it. Democrats prefer the SEC because there's more oversight, a little more a little more strict. The CFTC is preferred by Republicans because they think there'll be a wider playing field, a little more flexibility.
Hmm, Well, what what is the dollar? The dollar? Dollar is just pure currency.
A dollar is the definition, and we are currently the currency of the entire world.
But I mean there's there's investment opportunities. People invest in currencies all the time, don't they.
Correct, It's a little different from the standpoint of the dollar is used as a medium of exchange. Crypto generally is true. This is why there's a big debate. It acts like a commodity. It's where a commodity is just something where it's worth what everybody says it's worth.
Correct. Yeah, Oil pulled out.
Of the ground in one part of the world is not much different from oil pulled out of the ground another part of the world. Same with wheat and any
other type of copper, those kinds of things. That's why they're all commodity commodity based, and they will go with whatever the market thinks that those particular things are worth at any given time, versus a security where somebody will say, Hey, we're going to invent this new product, we're going to find this new market, here's how we're going to make money, and so forth.
That's the big difference between the two.
Well, it's kind of like the wild wild West out there. I get the impression of with regard to crypto, there's some kind of new cryptocurrency coming out every five minutes, and I don't know what the regulation is going to do to change that reality, other than to provide some sort of oversight monitoring of it so they can collect tax dollars so they can prevent money laundering. I mean, I guess I have more questions now than I had before we started.
Yeah, I think all of the things really, so there are no answers right now currently, which is literally why they're calling this the Crypto Rules of the Road Bill, because they're just starting to define this thing. So generally speaking, when Republicans look at this and you have Cynthia Loomis and Tim Scott. They're looking for clear guidelines that limit
SEC authority the things that they're after. They want to support the exchanges like Cornbased Kraken Gemini, who have long pushed for clarity between the SEC and the CFTC, crypto ad advocacy groups like the Blockchain Association, and they're they're all supporting the idea that there should be government but not too much. But on the other hand, those who disagree. SEC chair Gary Gensler go figure he strongly opposes any framework that's going to weaken his authority to govern these things.
And he's saying that most digital assets are securities and they already fall under existing securities laws. We don't need
to set up anything new. And he's supported by people like Elizabeth Warren and Brad Sherman, and they feel that crypto poses systemic financial and national security risks because of the way that you can move money around quickly and kind of hide it, So there's money launderings concerns, tax evasion scams, and just a speculative nature of assets has some people kind of up in arms as to, you know, whether they want to support this or not.
All right, Brian James.
Always appreciate the information and you're helping me understand it.
At least I can do.
Good to have you on every Monday here for Monday Monday with Brian James, Mollworth Financial. Thanks all Worth for loaning out for a while, and I hope you have a great week. Brian, all right, you too, have a go one eight twenty seven right now if you have
KCY the talk station. Interesting investigative story from the Ohio Press Network president and editor in chief is going to join us Jack Wins who joins the program talking about this Ohio family farm in a fight with the county, fighting for food freedom.
That'll be next fifty five KRC. The Simply Money Minute is sponsored by Emory