#124: Looking Beyond the Public Market, Where Has Financial Literacy Gone?
LISTEN AND SUBSCRIBE
Apple Podcasts | Google Play | Stitcher | Spotify
Want to grab the transcript of this interview? Click here!
Welcome back to another episode of the richer geek podcast today we have Eric Satz. Eric is a serial entrepreneur, early-stage investor. What he did is he discovered tax advantaged retirement accounts that can be used for long term potentially high return investments. And he wasn't happy about how long the investments took. So, what do you do when you're not happy? You start your own company, and do it the way that you think you should accomplish it. So, he started Alto, which is company that helps people invest in alternative assets to take control their IRA money, and their future. I think all of you will be very interested in listening to this.
In this episode, we’re discussing…
[2:14] About the details that made him say “I need to start my own thing”, and say: I’m so dissatisfied
[9:20] Why is it makes sense to do a self-directed IRA
[14:02] About Alto, his company to help people invest in alternative assets
[14:21] How can we teach people that might be confused with price and value
[19:30] Why is not a job from ‘Alto’ to tell you what to invest in
[21:37] How did he make it easier when Alto gives you an idea of all the different types of things that you can do for your self-directed IRA
[24:44] What is a kind of a base or there’s an amount in your IRA that you could tell our investors or our listeners when they maybe start investing into self-directed
[26:50] Should there be a Cap on your IRA investments?
[29:55] When can we get the taxes, get a percentage of it, is it differed?
[31:20] The importance to have a great portfolio diversification, there’s no shortcut, requires patience, diligence and homework
Resources from Eric
Alto IRA.com | YouTube | LinkedIn | Twitter | Facebook | Instagram
+ Read the transcript
Mike Stohler
What if you could be doing something smarter with your money that creates income. Now, if you're wanting to get ahead financially, and enjoy greater freedom of choice, if you want a comfortable retirement, and you know, you'll have more choices, if you can do more with your money. Now, if you've wondered who else is creating ways to make their money work for them, and you want actionable ideas, with honest pros and cons, and no fluff. Welcome to the richer geek podcast, where you here helping people find creative ways to build wealth and financial freedom. I'm Mike Stohler. And in this podcast, you'll hear from others who are already doing these things, and learn how you can too.
Hey! everybody welcome back to another episode of the richer geek podcast today we have Eric SATs. Eric is a serial entrepreneur, early stage investor. What he did is he discovered tax advantaged retirement accounts that can be used for long term potentially high return investments. And he wasn't happy about how long the investments took. So what do you do when you're not happy? You start your own company, and do it the way that you think you should accomplish it. So he started alto, which is company that helps people invest in alternative assets to take control their IRA money, and their future. I think all of you will be very interested in listening to this.
How're you doing?
Eric Satz
I'm doing well, Michael, thanks for having me.
Mike Stohler
Yeah, so let's talk about first off, everyone has a 401k. Everyone has an IRA, most of the people, you know that that is going to be listening to this podcast,
Eric Satz
There's a lot of overlap between the two.
Mike Stohler There is what was it about, you know, give us some details that made you say, you know, this is nuts, I need to start my own thing, because that's a pretty big jump from being just satisfied with something and then saying, I'm so dissatisfied, I'm gonna do it the right way.
Eric Satz
Yeah, it's a serial entrepreneurs personality disorder that I suffer from, and in a nutshell, but so I've been an investment banker, I'm still a recovering investment banker, you never quite get over it. I've been a venture capitalist. And as I mentioned, a serial entrepreneur. And when I was still playing at venture capitalists, I was investing alongside the fund and some of the private companies we were supporting. And I was also investing personally. And, you know, I'd never really thought about what we're about to talk about until one day, my retirement statement showed up. And like, I had completely forgotten it was even there. But I had the proverbial light bulb moment. And and the realization was, these are long term illiquid assets that I invest in, that I don't expect to exit or get any liquidity from, and you know, for at least sort of seven to 12 years, sometimes longer. Retirement funds, by definition are long term investment funds. And so from a duration matching standpoint, it seemed like the right thing to do was to invest my retirement savings in these long term assets that I was investing in.
The only problem was I didn't know if that was legal, like, you know, so everyone kind of has a 401 k or IRA at Fidelity or Schwab or TDE, or something like that. No, no one ever said, Oh, here's a platform that allows you to invest in a private company or real estate or farmland or crypto or artwork or securitized collectibles. So I did want any kind of rational and probably what a lot of your listeners do these, you know, tech savvy folks did this really complicated tech thing, which was to go to Google and search invest my IRA and private company. And, you know, everything that came back, Google basically said, yeah, that's legal. So I was like, great. So I called my I called my financial advisor, and I said, Hey, I'm making another one of these private company investments, which he generally didn't like, because that was me taking assets out of, you know, sort of his portfolio per view and sending it on my own.
I said, Well, this next one, I'm going to invest out of my IRA and he said, Okay, I get it. I said, Great. Well, I'll send you the routing and wire info and you send the money. And he said, timeout, it totally misunderstand me. I think it's great. Like I get it your long term assets long term investment sure makes sense. tax advantage, high returns don't pay, don't pay gains on it. Yeah, I get it. But we're not gonna let you do that. And I said, why? And he said, well, because we have no idea what this company is that you're investing in, and that goes to zero, you're going to sue us? Which, of course, I wouldn't obvious, I'm acting as my own financial adviser. But long story short, so what do I do? And he said, I don't know. And so I went back to my friend, Google. And I said, What do I do, and he said, Oh, there's this thing called the self directed IRA industry. That's how you do it. And it was basically a list of custodians you never heard of in your life. Right. And so then I had to figure out which 1am, I going to make this, you know, significant investment through trusting that I'm going to send them my money, and they're going to send the money to the company that I'm investing. And this process took about 10 weeks. For others who have made private company investments, you know, the paperwork process takes like 10 minutes, not 10 weeks. And so clearly, I figured my research was just insufficient and bad, I put, I picked a custodian that, you know, just wasn't good at what they do. So I made two more of these investments using two different other custodians. And the process just got worse. At which point, I sort of picked my head up out of the sand, and I can ask myself, the question, Who else has this problem? How many people? How many dollars are we talking about? Is, is this an opportunity worth addressing? Is this a problem I want to fix. And it turns out that you've got 30 Plus trillion dollars sitting in retirement savings account,
accounts, less than 2% invest in alternative assets. And it's easy to understand why the process takes too long. There's too much too many people and too much paperwork involved. So hugely time consuming, it's too complicated for most, so you just give up as too expensive for most. So you can't, you know, it didn't make sense to write a $10,000 check and investment because you're sitting on this thing, paying account fees for seven to 12 years get to eat into a $10,000 investment return. So what became the North Star for me was Turbo Tax in a sense that it took us otherwise people in paper burden process of filing your taxes and too complicated for most and time consuming, you know, and it's simplified it by following the sort of bouncing ball. kind of example, right? We're going to ask you a question, you give us an answer. We're going to ask you another question. Before you know it, you're at the end, you file your taxes. And so the idea was to do the same thing for alternative Ira investing, build a platform that could scale that was easy to follow could serve millions of people instead of 10 1000s of people, and therefore it can be cost effective. And so that was that's actually what we've, what we've done at Alto and now, you know, we're on our way, we're about a billion in order and assets under administration, sort of getting close to 30,000 funded accounts. And you can invest in that, you know, as I was saying before, private equity opportunities, early stage venture capital opportunities you can invest directly and funds directly. Farmland real estate have sort of any stripe or color. Artwork collectibles, like antique automobiles, or Rolex watches or Babe Ruth baseball cards. And of course, one of the hottest sectors within alternative assets today is crypto. So all those things.
Mike Stohler
Yeah. So why would someone? Yeah, I understand because, you know, I do real estate syndications. And I have people that do self directed IRAs, invest with me. So I get it. And yes, it was a absolute even on my side as the general partner the pain and everyone's ass, trying to get that money. It was horrible. And the guy almost didn't back out. So I'm excited to hear that, that you have an easier way. Every time I walk into my bank. I get Hit by the young guy who's 20 just split out of college. And he goes, Mike, I want to talk to you about investments. This is fun. And I'm like, you know, now I wasn't interested last quarter, I'm not interested this time. He wants to get me involved in mutual fund 2042 or something like, you know, the cookie cutter data, you know, that he throws everyone in? Why would you say it? I know the answer. Why would you say that? You know what, instead of doing something like that, that is cookie cutter that are going to throw everyone in? Why is it makes sense to do a self directed IRA.
Eric Satz
So there are a couple of different reasons. But ultimately, what it comes down to is portfolio diversification and investing in assets, whose returns are uncorrelated to one another, you know, in today's global and macro environment, I think it's really hard to disconnect returns from one asset class to another, but the fact of the matter is, you know, and your audience is highly educated. You know, there's a, there's a significant delta for from those assets that have a negative one correlation to those assets that are directly correlated and close to one. And then, you know, there are things that sit in the middle at zero.
Eric Satz
And the thing about
Eric Satz
the, and by the way, public stocks and bonds play a role in a portfolio, I'm not anti public investment, I want to I want to be clear about that. I just don't think it's 6040. I think those days are over, I think that's dead. You know, and it's, you know, hope. You know, if you were 6040, you just got crushed the last six weeks. Yeah. Right, like, you know, big time. And the thing about owning mutual funds and ETFs, is that owning more mutual funds and more ETFs doesn't get you greater diversification per se, because they're all pretty much consistent, you know, comprise that the same 400 companies. Okay, so that, that doesn't really help you. So how do you diversify? Well, you diversify by going into these other asset classes, real estate, like you do farm lands, which will characterize as a different form of real estate investing in later stage private companies or earlier, earlier stage private companies investing with professional investors who invest in those things for a living, you know, VCs and private equity guys, investing in crypto, which, you know, and we're seeing it today, there seems to be a lot of correlation all of a sudden, between, you know, Bitcoin and and what's happened in the equities market. I mean, more realistically, I think there's just pricing pressure on everything. And then, of course, today is May 17. I don't know when this is going to go out. But last week, you know, we have the defy explosion, and with Terra Luna, which didn't help the crypto markets at all. But the put the point here is portfolio diversification and the big players that everyone has heard of Fidelity, Schwab, et cetera. And by the way, just between fidelity and Schwab, you've got like 70% of the market, in in kind of 401, Ks and IRAs, they're not going to let you invest in these other alternative asset classes with your IRA. At least not yet. And so that's where alto steps in. Right, and and we help you do that we help you do in a streamline time efficient manner, easy to follow and cost effective.
Mike Stohler
So Alta is a custodian.
Eric Satz We are a custodian. So we have a wholly owned Trust Company. Yep. Perfect. Yes. But so there are two pieces to the business, right? There's the SAS platform. And then there's the holy on Trust Company.
Mike Stohler
Now, a lot of people sit there and say, well, you should buy low, sell high, you should, you know, what's the price that I'm giving you, they kind of get stuck on price of something. And it's like, well, this is I'm not buying this because it's MY GOD $1,000 a share, or I'm not buying this because it's only this amount of share. What's the correlation? Or how can we teach people that might be confused with price and value?
Eric Satz
So you sort of just alluded to it right? Which is and the first thing I Do as I tell people to go do their do their homework and do some due diligence, read Warren Buffett read other sort of public about read other public market investors from a price and price and value are are not the same thing. Right price is what you pay value is what it's worth. And, you know, very Warren Buffett s thing, and it turns out, by the way, we're terrible traders, at least some high 90 something percent of us are terrible traders, because the right thing to do is to buy low and sell high. And what are most people do because they panic, they, they buy hot, they panic, or they follow somebody else's trend. They buy high, and they sell low, they buy high when it's trendy, and and everything's rosy. And then someone pulls the, you know, the plug on the market and drops 30% and they sell. Yeah, like I'm not getting back in until it's safe. Right? And, and, and it's not safe until it's you know, backup 30% right now like yeah, rinse and repeat. Yeah, so I can't teach someone how to be a good trader, or or investor, you need to decide for yourself what your time horizon is, what your risk profile is. But again, knowing what your audience is. On companies, they like industries, they like sectors they like and decide whether or not this is an area where they want to make an investment.
And what I would suggest is buy and hold. And that's the thing about alternative assets, you can't wake up. And other than a crypto by the way, which is 24/7 more liquid than than the equity markets. You can have invested in a private company and wake up one day and say, You know what, I want to sell my interest. Because it doesn't work that way. These are these are illiquid assets, and you're writing this thing for the for the long term. And so if you believe in it, if you have conviction, when you make your investment at at the beginning, hopefully you're gonna have conviction when you exit at the end. But the nice thing about it is you can't succumb to your own human psychology and say, Oh, my God, sell sell sell. The world's coming to an end. It's it's a built in guardrail.
Mike Stohler
Yeah. Yeah, it's, it's interesting. I know I, I've had friends is like, Oh, my God, I'm selling. It was like, No, this is when you put more into it. Yeah, I'm just like, think about it. When did I make all this money in real estate was in 2012? Whenever one was, when, you know, during the during the crash during the recession, you don't, you're not making a lot of money. Now, when everything's at three caps. And, you know, the markets high, you could but you know, becomes a little more circulatory. But
Eric Satz
well, I think, to your point, my goal, and I think if there is a major takeaway, and sort of a tie between real estate and other assets, what I think is often missed is that you don't make money when you sell. You make money when you buy. And so, you know, you got it's uncomfortable at times. But if it weren't, that's an indication that the opportunities probably you know, whittled away. Right? Absolutely. Especially in real estate, you make money when you buy not when you sell
Mike Stohler
Absolutely. Now with alto, are, you know, I'm looking on your site, and you actually have investment partners, you have a lot of crypto and it's really good. It's really set out? I mean, I had no idea I'm looking at all this different Krypton? Like, how many what I mean, how I have two questions. Number one is how in the world do you figure out what you would want to invest in as far as crypto and NF T's and all these different nuances that, you know, maybe older people like me have no clue.
Eric Satz
So it's not our job to tell you what to invest in, right? There's a reason it's called self directed. Yep. You really have to do some homework. And you have to have a view and a perspective. And I don't care, kind of who you talk to and how you get smart, but do the best you can to get smart before you make any investment whether it's crypto or otherwise. The rest reason we have such a broad crypto offering is because Coinbase is our was is one of our largest investors and Coinbase is our exchange partner. They're our liquidity pool. And so for the most part, what they're able to offer were able to offer.
Mike Stohler
And with your partners talked a little bit about, you know, I see that a lot of these partners and all these other different types of farmland real estate venture capital. I'm sure that you've vetted all these people, you know, these are companies that you've worked with. And they're just kind of nope, no,
Eric Satz
no, I was, someone was asking if they could come in and talk to me. And I said, no, no. So they, I think there's an important distinction here, again, we're not telling you, we're not a broker dealer, we're not telling you what to invest in these these partners of ours, you can go and look at the specific offerings on their platforms. Yep. Right. Do we think they're reputable platforms? Absolutely. Otherwise, they wouldn't be at Alta. But again, it's not enough to say, Oh, it's a reputable platform. Therefore, you should invest in one of the deals on the platform, you need to go to the platform, you need to look at the deals, and you need to assess for yourself whether or not this makes sense for you. And you need to understand why it is you like the opportunity.
Mike Stohler
Yeah, and something is really nice everyone is if you go to alter ira.com/and, you look at the investment partners, it actually kind of gives you an idea of all the different types of things that you can do for your self directed idea, or you know, your self directed IRA. So what's nice is it just kind of lists, hey, you know, what, there's a crypto fund, there's a farm fund, there's these accredited private and credit, there's real estate, there's all these different things that you might not have even thought about. But then you can check, go on them and just kind of learn and do some homework about all these different things. Because, you know, it's, I can't imagine probably how much money is just sitting in these IRAs, making just pennies, right? And you can actually become a passive investor, and probably make a lot more money by doing some self directed IRA stuff. So I think it's wonderful what you guys are doing. And so tell us about with with alto, how did you make it easier than some of the ones that I've dealt with? I mean, what do you
Eric Satz
say? So the ones that you've dealt with historically, are all people and paper based, right. And so, let's say your next real estate offering, the first of all, we employ technology, you don't have to talk to someone if you don't want to, okay, the process can work from beginning to end for both you and your investor without having to talk to anyone on our side. We're here to help if you need it, but you don't need us. And so we have two different types of accounts. We have investor accounts and we have deal sponsor issuer accounts, you're a deal sponsor or an issuer. And so what you would do is you would upload your your offering materials, you would invite your investors to the deal. Yep. They review your material, they check a couple of boxes, which says I read it I understand the risks. I'm you know, self directed and investor I'm ready to make the investment here's how much and once you both have checked those boxes and uploaded the documents to your deal library, which only the only the people you invite can see those documents. Then we transmit the funds, right? So you're gonna give us your bank information routing, account number, etc address all the necessary things for us to pass KYC AML and ACH data. But honestly, it can literally take if you're prepared with your materials and you know, your bank account information and all that stuff. It can take you no more than 15 minutes in your investor no more than 15 minutes and you can work in parallel.
Mike Stohler What do you think is a good minimum? If people sit there people just started out in their career and people that are, you know, have millions can someone in a couple 1000 or 500 What is kind of like a base that you could tell our investors or our listeners that, hey, you know, once you have this amount in your IRA, this is when you should maybe you could start investing into self directed?
Eric Satz
Well, I think about it slightly differently. It's not it's not $1 amount so much is it is a percentage for portfolio allocation. Right. So we're talking about portfolio diversification means that you're invested in various asset classes, public stocks, maybe 20%. public bonds may be some percentage, usually less than stocks, unless you're close to retirement, real estate may be a percentage, crypto may be a percentage, early stage companies may be a percentage, right? And so you and potentially, in conversation with a financial advisor, should be deciding on what's appropriate for you, you know, to me, I think you should have somewhere between 10 and 20% of your assets, invested in alternatives, right? So, and then within that 10, to 20%, you can say, You know what, I'll put 10% in real estate, I'll put 10%. And the thing that's changed. The big game changer for alternative assets, is technology and these platform partners of ours, because now you can make $100 $500 $5,000 investments in these alternative assets, where before, you had to be able to write a $250,000 check to you know, buy the property outright, but you no longer have to do that. It's it's the fractionalization of securitization.
Mike Stohler
And, you know, just went back, okay,
Eric Satz
there we go.
Mike Stohler
Now, the thing I wanted to talk about is, you know, a lot of times it because there's caps on your IRA, and it takes people, you know, like, a long time to save up enough money into their IRA, should there be, what's your take on, you know, should there be caps? Or should people just be able to put money in their IRAs?
Eric Satz
So you're just trying to get me man? Sir, so there should be caps, but it should be $50,000 A person. Right? So So what shouldn't be? So right now, if you're lucky enough to be employed by someone who has a 401k program, you can save, basically $20,000 a year. And if you have a super nice employer like alto, which we are, and by the way, all the IT folks, which is what you said at the beginning, all the engineers all the devs. Or maybe you're a hardcore sort of it, individual can work at Alto. So I glad I got that out there. Thank you, Michael. Hopefully, you won't cut it, by the way. But so let's say you yourself can save up to $20,000, give or take, depending on how old you are, whether you're over 50 or not, in your 401k a year, and then you may be lucky enough to even have an employer match, which is great.
All right. But the and this is for all the gig economy, engineers out there all those devs. Like, if you don't have that employer, you can only put $6,000 a year away. Right? Why why why are we discriminating against these? Well, that's it that that's in a traditional IRA, if you do a SEP IRA, by the way, you you can do the the greater of and I'm gonna get this slightly wrong, but it's like 25% of your income or something like $59,000. So the big number, right, but But the person who is not really the self employed person, and it's just sort of putting the jobs together and has a traditional IRA. They're limited to $6,000. What Why are we if we want the country to be in a better place for retirement? What Why are we why why are there caps that are so low? And why are we discriminating between people? If we want to put this country in a in a more solid foundation going forward, let's say doesn't matter who you are, or where you work, if you can save $50,000 tax free in a year, God bless America. Right. Yeah, that's what it should be.
Mike Stohler
Yeah. And I think it all has to do with well, when when can we get your taxes When can we get a percentage of it? Is it differed? Or is it now?
Eric Satz
Well, yeah, like, you can't have your cake and eat it too. You can't want my taxes and then not want to help me because I gotta pay all these taxes right down the road. So the same people who are going to blow up Social Security, you and I are not going to get Social Security, let's fit. Let's be clear, right? And anybody younger than us is not going to get Social Security. The same people who are going to blow up Social Security are telling us that we can't save that money seriously. Like we knew. And in the next breath, it's like, but you need to save more. So you're in a better position for when you retire. Okay, well, why are you limiting me those $6,000 a year? Like I could go on and on I can rant rant.
Mike Stohler
Yeah. And I know there was some talk about wanting to actually tax those gains while they're still in the accounts.
Eric Satz
That's a that's a slight that's a slightly different issue. That's a that's the Peter Thiel. Yes,
phenomena, I think it's so misguided, what they were trying to do there. But all
Mike Stohler
Yeah, that's a whole nother one your face is getting red, you're gonna need to drink after this. You're gonna. But, you know, Listen, everyone, a fantastic way, you know, take it from me who has investors that have self directed IRAs, if you want a much easier way to do it, plus ways, different ways of doing go on the outer ira.com And look at just my God, all the different types of crypto, I had no idea. All the different types, and also some of the partners. Anything else before we go, Eric, that you'd like to push out there? You know, one thing I'm going to ask you is, is how people can get a hold of you. But what else would you like to say about out of that? I might not have covered?
Eric Satz Like we talked a great deal about portfolio diversification, I think it's important to know that there is no shortcut. Right? That don't bet at all on red. Yeah. Unless you're in Vegas, of course. You know, it requires time. And it requires diligence and homework. And you know, it requires some patience. So I would encourage people not to get in patients to stay the course, diversify their portfolio portfolio. But the thing that portfolio diversification is statistically proven to show is that it will reduce the volatility of your returns and it will increase your returns over time. And and that's the thing to remember. Right? It's don't bet at all on crypto, don't bet it on real estate don't get it all on? Well, certainly don't bet it all on Twitter today.
Mike Stohler
Or even the stock market, you know, everyone, people that have 100% mutual funds 100% stock market, they're like, oh my god, can I retire? Right? But if they had 20% real estate, they're like, oh, wow, you know, the real estate's outperforming my stock market by 20 times but then crypto even though it may be down now, you know, it's going to recover, because it does that. So it's just a little bit of stress relief, knowing that when one pocket goes down and other pocket might go up, and you're not betting having everything in the same basket. Right.
Eric Satz
Exactly. That's the key. You sleep better at night.
Mike Stohler
Yes, exactly. Well, Eric, it has been wonderful. How can people get a hold of you?
Eric Satz
Well, I suggest they go to alto, ira.com al to ira.com. I'm actually not the best person to ask how everything works anymore. That's like 150 team members ago. So alto ira.com is the best place to go. You can follow us on Twitter, you can follow us on LinkedIn. Or if you want to follow me on LinkedIn or Twitter. I'm ever everywhere I am. I'm just at Eric sets. So that's that's the way I do it.
Mike Stohler
They're going last name is S A T Z, everybody. Thank you so much, Eric. Thanks for coming on. Thanks for starting alto. I think it'll help a lot of especially in even the general partner side, but I think it'll help
Hey, thanks for tuning in to the richer geek podcast, where we're helping others find creative ways to build wealth and financial freedom. For today's show notes, including all the links and resources from our show, and more information about our guests, visit us at www.therichergeek.com/podcast. And don't forget to jump over to Apple podcasts, Google Play Stitcher, or wherever you get your podcasts and hit the subscribe button. Share with others who can benefit from listening and leave a rating and review to get the podcast in front of your eyes. I appreciate you and thanks for listening
The information, statements, comments, views, and opinions (collectively, “Information”) provided in this podcast are not intended to be and should not be construed as financial, economic, legal, accounting, tax or other advice. For our full disclosure, click here.
ABOUT ERIC SATZ
When it comes to investing, serial entrepreneur and early-stage investor Eric Satz, is a firm believer in personal autonomy. So when Eric discovered tax-advantaged retirement accounts could be used for long-term, potentially high-return investments, he began investigating the process. But after his first investment took months instead of minutes to complete, Eric knew there had to be a better way. He started Alto, a company that helps people invest in alternative assets to take control of their IRA money—and their future.