Bitcoin, Cryptocurrency & What It Means For Financial Advisors

Big brokerage houses, primary dealers and news media have begun to report on Bitcoin. For Bitcoin maximalists out there, this is a long time coming. For some, it’s a “that’s cool” type of development and for many… they haven’t even noticed.

At Longevity Achieved, we are a new breed of broker. This requires ways of being and acting that aren’t industry standard. We are insatiably curious – not just for what’s happening in our client’s lives, but we are constantly forward-looking, discovering that which could help our clients have their life “achieved”.

So let’s take a quick look at what Bitcoin is, why it’s valuable, and why the new breed needs to stay abreast of this new asset class.

What is Bitcoin?

Bitcoin is a digital currency that is not issued by any central authority like fiat money such as the Canadian Dollar, US Dollar, Japanese Yen, Swiss Franc, et al…. It was created anonymously by Satoshi Nakamoto, a pseudonym for some person or entity. There are no physical Bitcoins; it is entirely digital and balances are kept on a public ledger built on blockchain technology. 

Why is it valuable?

Throughout the course of history money has taken different forms from sand, to seashells, to wooden sticks and to the more modern times of digital numbers on a computer screen. Aristotle, Greek philosopher and student of Plato, was a fan of money – he knew that there could be a medium of exchange that would represent the value of literally anything that could be measured in space and time. He determined that for money to be useful, it ought to be durable, portable, divisible and intrinsically valuable.

It turns out that Bitcoin fits these traits extremely well. Bitcoin is highly durable and it cannot be destroyed – yes, Bitcoin can be lost – however it cannot be destroyed. Bitcoin is also highly portable, in fact you can transact with people across the world and in various jurisdictions with ease. Bitcoin is also highly divisible.

One (1) bitcoin can be divisible up to eight (8) decimal points [0.00000001 is called a “Satoshi” – this would allow for quadrillions of individual units of Satoshis to be distributed throughout the economy world wide].

When it comes to intrinsic value – some would argue that Bitcoin is merely a digital currency, backed by nothing and made of fairy dust. This argument is trumped by the fact that it requires REAL energy and labour output to create a Bitcoin – just like it requires REAL energy and labour output to mine gold out of the ground. Assuming real energy, labour output, and scarcity give something an intrinsic value – then Bitcoin definitely fits the bill.

And now, even if these traits of money that Bitcoin arguably represents very well are disproved,  Bitcoin is still being talked about and touted about by big brokerage houses, primary dealers and news media. 

Why should you be abreast of this new asset class?

People Are Building Wealth With It

I’m sure you’ve sat down with a client and hopefully, if you’ve done your job right, they’ve given you the world of what their life achieved looks like. More often than not it’s filled with visions of grandeur…to live in a foreign country…buy a cottage…pay for their child’s education… In other words, a lot of that conversation looks like building wealth to achieve a goal.

Anyone who invested in Bitcoin for the past 10 years has done extremely well and there are no signs showing that this trend is going to stop anytime soon. Institutional research has already shown that adding just 1% of your portfolio into Bitcoin from 2015 to 2020 would have boosted your average annual returns by 1.36%. A 5% allocation of Bitcoin in your portfolio would have boosted your average annual returns by 7.24%. All without a significant increase in risk!

You owe it to your clients to keep them abreast of opportunities that can build their wealth. 

Institutional Adoption

We’ve seen companies like Square, Paypal, Tesla, Overstock, Microstrategy announce purchase of Bitcoin for their treasury reserve assets. In other words, institutions are saying; “Hey, you know what? It makes sense to turn some of our FIAT currency into Bitcoin.” This is an indication that institutions are perceiving Bitcoin as a storer of value. Media companies like Bloomberg are reporting on Bitcoin, and financial institutions like JP Morgan are creating cryptocurrency debt instruments tied to companies that are directly or indirectly related to cryptocurrencies or other digital assets.

You Are A Trusted Advisor

As a new breed of broker, you are committed to being a trusted advisor to your clients. One way to do that is to be credible, professional and trustworthy. Nothing builds that kind of relationship more than providing your clients with the knowledge they need – not to simply sell a product – but because it would make a difference for them.

Imagine their delight, and yours, as you share investment opportunities that you don’t necessarily profit from – simply because you thought it is in their best interest. Imagine.

Your client’s already know that you aren’t just in it to make a quick buck – they know you have their best interest at heart, you’re forward-looking. This is a chance to put your money where your mouth is.

How Life Insurance Can Benefit Your Financial Plan

In the world of personal finance, we all know life insurance is an important tool that requires important consideration. If you have anyone that counts on you financially, then you owe it to yourself and them to have life insurance. Life insurance is a risk management tool in this context; it’s how most people relate to it. Now, what about obtaining life insurance like a Universal Life or Whole Life product to diversify your portfolio?

I believe everyone should be invested in various asset classes, such as stocks, bonds, real-estate, precious metals, and yes even life insurance. If you want to know about some advantages that permanent life insurance can provide to your financial plan, read more

Life insurance instantly increases your net estate value.

With life insurance, what you are worth when you pass away goes up due to the death benefit. Let’s look at a simple case study to illustrate this point.

We have John, he has $25,000 in a TFSA (Tax-Free Savings Account)

$35,000 in an RRSP (Registered Retirement Savings Plan)

A home with a market value of $560,000

A mortgage with a balance of $400,000

Adding up all his assets John’s net estate value is $220,000 not taking into account any fees or taxes paid on the disposition of these assets ($25,000 TFSA + $35,000 RSP + $160,000 in home equity). Now looking at the same example let’s add in Universal Life policy with a death benefit of $200,000. Automatically John’s Net estate value is $440,000 not taking into account any fees or taxes paid on disposition of these assets ($25,000 TFSA + $35,000 RSP + $160,000 in home equity + $200,000 death benefit.)

At its worst, life insurance is an amazing savings tool.

Life insurance products such as Universal Life or Whole Life provide you with savings and investments options. They are competitive to most GICS and traditional investments like mutual funds, segregated funds, or index funds. In the worst case scenario, the money you put will be equal to your “cash surrender value” after a certain period of time, depending on the policy’s configuration. Plus you know you have what again? That’s right – an increased net estate value. The bottom line is, if you can afford monthly contributions for at least 10-15 years that won’t strain you – permanent insurance can be used as a forced savings tool, with good returns all with a death benefit.

At its best, life insurance is a well performing investment.

Your investments in Universal Life insurance policies can be highly customizable – looking for actively managed funds? You have that option. Looking for lower cost funds that use ETF’s and are passively managed? Those options are available to you as well. The beautiful thing about Universal Life is that you have access to a variety of quality funds managed by highly sought out fund managers. Your investments in a whole life are not customizable – but they are stable and paid out as dividends. Dividends paying on a Whole Life pay anywhere from 4-6 percent and have proven to show stable reliable returns for many decades.

Life insurance can provide leverage for future investments and purchases.

 Companies of all magnitudes use leverage (in other words, borrowed money) to expand their operations and/or consolidate your debts. Did you know the cash value in your life insurance policy resembles the equity in a home? For example, if you have a cash value of let’s say, $50,000 because you’ve been contributing into the policy for quite some time you now have cash value.

It is your cash value that resembles equity that people may have in their homes. This cash value can act as collateral if you decide to borrow from the cash value. In this instance, a loan will not reduce the cash value of the policy, it will however act as a credit against your death benefit. Cash value also dictates how much you can withdraw from your policy, this would be a cash withdrawal and it would reduce your cash value. On top of the obvious benefits of permanent life insurance, such as the death benefit and the cash value increase, the fact that you can leverage that money or spend portions of it is just another added feature.

In summary, I believe permanent insurance should be part of everybody’s portfolio as allowed. If you are just struggling to make ends meet month to month – permanent insurance may not be wise. However, if your financial house is in order and you’re diligent with your financial plan, there is no reason that a permanent life insurance policy should not be part of it. The benefits available to you if you’re patient and disciplined are far too attractive.