Hi guys, welcome to the Fintech Coffee Break, I’m your host Isabelle Castro. This week I shared my coffee break with Eric Satz, CEO and founder of Alto.
Alto is an investment Fintech focused primarily on individual retirement accounts, so IRAs. The platform offers investors the opportunity to invest retirement money in alternative assets, moving away from traditional strategies.
Eric and I spoke about why the traditional 60:40 approach is no longer the best way, what alternative assets bring to the mix, and why crypto, despite being volatile, is a suitable asset to add to an IRA portfolio.
Isabelle Castro
Hi, Eric, how are you today?
Eric Satz 0:46
I am just fantastic. Isabelle, you,
Isabelle Castro 0:49
I’m good. I like this positivity.
Eric Satz 0:51
Well, what else is there?
Isabelle Castro 0:55
Exactly. So thank you for coming on the podcast, I’m really looking forward to talking to you. But to begin with, I just want to ask you what gets you up in the morning.
Eric Satz 1:06
My dogs actually. So I have three big poodles and then I also have a cat, and one of the dogs Isa, at about 5:20-ish, usually sticks her nose in my face. So that’s what gets me up in the morning. But that’s literally figuratively, it’s how do we create access to alternative assets for all? And really, that’s what we’re trying to do with Alto, and there are both regulatory hurdles. But then also, I just think educational hurdles, and and we’re making progress on both of those fronts, we still have a long way to go. But I think the good news is from a macro perspective. Things are things are swinging our way so to speak. And so I kind of like where we’re sitting right now.
Isabelle Castro 2:04
Okay, that’s good. That’s positive. Tell me about your career journey to Alto. And what led you to founding Alto, eventually.
Eric Satz 2:13
It’s just a crazy personality disorder called entrepreneurship. I guess I was a venture capitalists for many years, actually, I’m, I’m a still recovering investment banker. And then I was a venture capitalist. And while I was investing alongside the fund, I had this lightbulb moment of using my retirement money to make my co-investments. And I thought this was a really unique and brilliant idea. Don’t frequently use the word brilliant with most of my own thinking. And the only problem was, I didn’t know if that was a legal thing. So that so this goes back, actually 10 years now it goes back to 2013. Holy smokes, I’m getting old. And the long story short here is that I learned that this is, in fact, a legal way to invest. ERISA when it was created in the early 1970s, allowed for individuals to use their retirement savings to invest in almost any asset, quite frankly, with a limited set of restrictions. The problem was figuring out how to do it. And you know, at that time, I certainly didn’t think I was going to start a company to serve as custodian for individuals who want to use their retirement savings to invest in private companies. But that’s where we ended. Because after after doing this a few times on my own and being incredibly frustrated by the time commitment required to do it, as well as the expense. I sort of picked my head up and I looked around, I did some homework into the retirement industry, I saw that today, we now have 30 plus trillion dollars sitting in retirement accounts. It represents 90 plus percent of all savings for 99% of Americans. And an incredibly small percentage of that was being used to invest in these high performing at least potential for high performing alternative assets. And I kind of having had my own experience trying to do this. I kind of knew why. The first was most people don’t know you can do it. I didn’t I had been investing for a long time. I didn’t know you could do this. The second was it just takes too long. is too complex. If you’ve never done anything like this before, you’re probably going to give up. And then the third piece was, it’s just too expensive for most people, if you weren’t writing a, let’s just call it a six figure check, it was hard to justify the cost of carrying this account with the custodians that existed that would allow you to do this. And so for me, the Northstar really was TurboTax. And doing for self filers, I should let me flip that doing for alternative asset investors what TurboTax had done for self filers, and that is in trying to use your retirement money, rip the people and paper out of the process, such that with an appropriate technology platform, we can enable millions of people to invest this way, not just the privileged view. And so that’s what we’ve been doing since 2018.
Isabelle Castro 6:05
Okay, amazing. Yeah, I had a look on your website. And it’s really, really impressive the things that you’ve got available, it was definitely a learning curve. For me, I had no idea you could do this kind of stuff as well. So you’re definitely working towards jumping those kind of education hurdles that you mentioned, I just want to go back to the kind of regulatory hurdles that you mentioned, what are these.
Eric Satz 6:33
So depending upon the type of investment opportunity, you have to be either an accredited investor, which means that you either have a million dollars of liquid net worth not including your house, or you have made and expect to continue to make at least $250,000, a year in annual income or together with a joint if you’re part of a joint filer status, that would be $300,000. So at a minimum, you have to be an accredited investor to invest in many of these opportunities. As you get into different types of fund opportunities, you’d then either have to be a qualified client, which means you have a liquid net worth of what is now $2.2 million, or a qualified purchaser, which is $5 million. And so, you know, at the very basic level of accredited investor and then go into qualified client, and then go into qualified purchaser, sort of the, the, the oxygen in the room, if you will gets to be a little bit rare at at each stage, right. And so the goal really is to lower the floor, if you will, to enable more people to participate in these opportunities. And that that really started with the Jobs Act, and Title Three, and regulation crowdfunding, where we made it possible for anyone to invest in a private company, so long as the private company was raising money on one of these SEC approved regulation, crowdfunding platforms. And that’s, that’s a huge, positive step in the right direction. But really, what we want to do is we want to expose more of the public investor, public retail investor, to these asset managers who are building diversified portfolios on behalf of all of their limited partners, and so I think it it’s a more prudent way to invest, which is with an experienced manager and, and oftentimes people will look at the fees associated with call out a private equity fund or venture capital fund, and they say, Oh, you’re eating up all the returns, you know, with fees. And I think that could be true with performers that are in the lower half. But it’s not true for the performers that are in the upper half. So that’s that’s sort of one point. But the other point is that if we could actually open the door to millions of Americans instead of just again, leaving it for the privileged view, well, that that can push fees down, because we’ll we’ll be bringing a whole lot more money to the table to play with. And, and so I’d think, to look at where fees are today and say, Oh, it’s too expensive for people misses the larger point, which is the more supply. You know, the lower the price.
Isabelle Castro 10:13
Yeah. I read a study that you did recently that found Millennials were finding it difficult to invest in retirement. So why is this the case that I mean, it said that it was more difficult to invest in retirement, why is this changed? And how can we deal with this? I think it mentioned that alternative assets and is the way maybe take us through that.
Eric Satz 10:44
Sure. So if you believe in a return towards the mean, and if you think about where public market returns have have been over the last kind of 10 to 20 years, they’ve actually been quite strong, which is great, until very recent. So if you believe that you’re going to get back to a historical mean, return, that means the next 10 to 20 years is actually going to hover around zero, unfortunately. And so if you’re trying to retire in the next one to years, and your public market investments are essentially returning zero, and we have inflation, forget, forget today’s inflation, but just regular levels of inflation, then you’re actually going to be behind the curve. And you’re not going to be positioning yourself in in a strong light for retirement 20 years from now. And that’s not to say, by the way that public markets are bad, I believe in public markets, but I believe in them as a percentage of a portfolio not as a dominant force in a portfolio.
So instead of his historical conventional wisdom was 60:40, which meant 60% public market stocks and 40% bonds. I actually think in terms of what’s achievable for most people; it should probably be more like 20 20 20 20 20, meaning 20% of your assets invested in five different asset classes. And portfolio diversification is this free tool that’s available to all of us, that can reduce portfolio volatility and increase portfolio returns. And so maybe you should have, and the fact of the matter is only 400 companies give or take, like 3% of public companies matter in terms of generating positive returns. So maybe you have two or three ETFs, or mutual funds instead of you know, 10, right. Because most ETFs, and mutual funds are comprised of similar sub segments of those 400 companies that matter. And the fact of the matter is, you’re not going to outperform the market. So maybe 20% In public company stocks, maybe some percentage and in bonds, but then maybe you have exposure to private equity, and venture capital and real estate and crypto and artwork. Pick the asset classes that you’re most interested in, that you want to do homework on that you want to get smarter about, and that you want to be supportive of them believe that there is a long term upside in specific places. And, um, I would argue that you should invest in those areas that you’re going to pay the most attention to, and keep, you know, your finger on the pulse of because that’s ultimately how we each do better.
Isabelle Castro 14:13
No, I agree. I agree. I was actually really interested that you guys do a crypto IRA. This seems crypto seems very risky to put kind of retirement investment in how do you work with it? And how does that whole thing work in general?
Eric Satz 14:39
So this could be a really long conversation. But most things that seem crazy early on, and in hindsight, seem obvious, or I shouldn’t say most things, most things that seem obvious and how I’d side over a long period of time may seem crazy early on. And I tend to believe that crypto still falls into that category for most people today. I am a long-term believer in what crypto and blockchain can both do for global society. And so to me, does it this is a 20-year play, it’s not a two-year play. And yes, there are going to be lots of ups and downs, and there’s going to be a bunch of volatility and noise. But if you have a thesis that says, you know, what, the global monetary system is going to look different 20 years from now than it does today. And I believe that crypto assets and blockchain will play a part of that, then what do I care? What happens over the next two years? And the answer is I don’t? And do I know which crypto assets are going to be the winners? I don’t. But I think there’s a pretty good chance that either or both of Bitcoin and Aetherium will be in that mix somewhere. And so as a custodian, we are an administrator, we’re not, we’re not a fiduciary, we don’t tell you what to invest in. We don’t, we don’t serve as judge or jury, we just serve as facilitator. And so if you believe in crypto, we’re gonna make that asset class available to you the same way some people believe in art. Some people believe in real estate. And, you know, again, it’s our job to facilitate those investments, not promote them.
Isabelle Castro 17:06
Okay, so you don’t specifically engage in one or the other, it’s really open to whatever anyone wants to invest in. What happens if, like, they’ve invested in something and the value has really crashed? You know, I don’t know if something happens like last year with terror. It really crushed it, can they take the money out? Or is that?
Eric Satz 17:32
So? So? Yes, I mean, if you want to sell you can, you can sell I think the thing about crypto as opposed to other alternative asset categories is that it is liquid. And actually, it’s, it’s a 24/7 marketplace. And Coinbase is our partner. And there are liquidity provider. And so if you want to come on and sell and take your cash out, you can do that. The thing about us as human beings is that we’re actually terrible, long term investors. Okay, everybody knows what the rule is, which is to buy low and sell high. And yet everyone does by everyone. I mean, 99% of us do just the opposite. Like we get excited when prices are rising, and we buy on the way up, and we sell as it’s tanking and going down, we’ve got to start over again. And, you know, that’s not just that’s, that’s not specific to crypto, it happens in the public markets too. And I think this conventional wisdom that you should be conservative with your retirement funds, is actually just the opposite of what it should be. And that’s because if you’re investing with your retirement money, it is by definition long term money. And you should be investing in illiquid assets that have the potential for greater returns, because you shouldn’t need the liquidity.
So there there is an expected premium of return that’s associated when one is investing in an illiquid asset. Like real estate, for example. The flip side is that if you’re investing with after tax funds, out of your bank account checking or savings, whatever it is, you know, if something happens in life you got a flat tire. You have a medical emergency you’re A sink or toilet blows up and you gotta call the plumber. You want liquidity. And in exchange for that liquidity, when most people don’t recognise is that the bargain is a discount of return in exchange for liquidity, right, so you’re actually paying a premium, or you’re receiving a return, in exchange for that ability to wake up and say, sell, send me the cash, I gotta pay the plumber. You shouldn’t be doing that with your retirement money. You should be putting it to work and you shouldn’t be leaving it in investments for longer periods of time. And theoretically, in exchange for that commitment, longer term commitment, you expect to be paid a premium return. And and that’s what we’re trying to promote and educate, which is, you don’t need liquidity. This is long term money, go ahead and put it to work and long term assets.
Isabelle Castro 21:10
Okay, so it’s kind of like shifting, shifting the whole kind of mentality towards retirement money. That’s right. It sounds good. It sounds great. You’ve definitely shifted my mentality. What are the kind of how do you approach tax with all this? It seems you don’t.
Eric Satz 21:32
So retirement money is tax advantaged. That’s that’s the other part of this, which is, if you achieve these outsized returns, you just get to reinvest them. You don’t have to pay taxes.
Isabelle Castro 21:45
Okay, perfect. Perfect. It sounds like a win win. All of this sounds great,
Eric Satz 21:49
is why we started the company, it is a win win.
Isabelle Castro 21:52
Great. Okay. And you mentioned that you partnered with coin base. But I’ve heard that you’ve got quite a lot of partners. How is this working? And kind of what areas are you partnering into?
Eric Satz 22:09
So we partner with other investment platforms that enable people to achieve investment exposure in other asset classes. So with crypto, it’s coin base with artwork, its master works with farmland or agriculture, it’s acre trader or farm together. And so we partner with these other platforms who have expertise in various verticals. So that you don’t necessarily have to go find the deal yourself, you can go to one of these partners, and find that investment opportunity in a given asset sector or segment that you have interest in. And so yes, I think we have a long list on our, on our website of all those that that we work with, but we tried to make it easy for people to find experts in given verticals and and to achieve that portfolio diversification.
Isabelle Castro 23:13
Okay, cool. What is a piece of advice that you would give to people looking to open retirement accounts in the current economic environment?
Eric Satz 23:25
Well, I don’t really think economic environment plays a role in my answer, okay, I think earlier is better. You want to benefit from what Einstein referred to as the eighth wonder of the world, which is compounding interest or compounding returns, which you get to do when your money is tax advantaged, or tax adverse tax deferred, which retirement accounts are. And I would just say do your homework. The problem with buying something based on somebody else’s recommendation is that you also kind of need them to tell you when to sell. And so you should do your own homework for purposes of understanding when to enter and when to exit. And so, you know, especially from our retirement perspective, get started today, not tomorrow. Okay,
Isabelle Castro 24:36
cool. That that’s a really good piece of advice. I’m going to take it on. I’m going to start mine tomorrow. So I’m coming to the ending questions which get a bit more personal. What’s your favourite quote?
Eric Satz 24:56
What’s my favourite quote? I probably say He, and the I don’t know, Mike Tyson gets gets credit for this. Do you know who Mike Tyson is? Yeah, so he gets credit for this. And I don’t know if he came up with it on his own or, or if he if he kind of changed the words to match his profession, but it’s basically everyone has a plan until they get hit in the face. Okay. Nice. And, you know, so for, for me that speaks to resilience and grit and adaptability
and ability to make it up on the fly.
Isabelle Castro 25:50
Okay, I think that’s a really good quote, especially in the past few years with the pandemic and everything. It’s definitely applicable to a lot of different situations that we’ve seen.
Eric Satz 26:04
Now, I have another quote, by the way, which is mine, which I like quite a bit, okay, which is you got to be on the field to make plays.
Isabelle Castro 26:13
Okay, cool. Nice. I like that.
Eric Satz 26:17
And, and, and it really does kind of tie to the Mike Tyson quote, although it’s a little bit different, which is, you know, you think a game is gonna go a certain way. But you got to be able to read the field. And understand the conditions. And I had a soccer coach growing up, who used to say that you can’t, there are three, three things you can’t control, you can’t control the field, the weather, or the referees, which really meant all you can do is control your yourself in your own effort and your own skills and be prepared as best as possible. But there the rest and make bad calls. There are going to be, you know, the until you get to the Premier League, the field is going to be bumpy. Okay. And you never know what the weather is going to be. So, you know, to you can only control what you can control. And so this is a bit, I guess there’s a theme here between all of these things in terms of this ability to adapt and maintain focus. Yeah, I don’t know.
Isabelle Castro 27:42
Yeah, no, they definitely do seem to both kind of play to that adaptability and focusing on what you can, you know, like, and not worrying, not sweating the small stuff.
Eric Satz 27:58
And don’t sweat the small stuff. Like,
Isabelle Castro 28:01
yeah, nice. Your curveball question. So the last one, and then I’ll let you go. What was the last book you’ve read, and would recommend to others?
Eric Satz 28:15
The last book I read and would recommend to others Oh, my God. I’ve, I’ve listened to it. And the thing is, I’m terrible with both authors and remembering titles. But I can tell you that whatever it was, my wife told me I had to read it, which is basically my book list is whatever my wife says, all enjoy. And then I read it and I’m trying to think of I listened to it. I don’t actually consider that to be reading by the way, although you get some the same benefits. What was it? I don’t know. But I liked it.
Isabelle Castro 29:03
Well, I’m glad that you enjoyed it. And good on your wife. How can people get a hold of you?
Eric Satz 29:18
ericsatz@Alto.ira.com.
Isabelle Castro 29:21
Okay, cool. All right. Well, thank you for coming on. I really enjoyed our chat.
Eric Satz 29:27
It’s jealous. You’re in Paris and I’m not
Isabelle Castro 29:32
Yeah, well, New York is pretty nice. It looks pretty sunny there
Eric Satz 29:35
it is sunny today. It’s it’s very nice. I’m not usually in New York. By the way. I live in work in Nashville, Tennessee.
Isabelle Castro 29:42
Oh, lovely. Okay, cool. Nice. I need to visit that still haven’t gotten that yet. Go. Well, have a good rest of your day. And yeah, thanks.
Eric Satz 29:53
Thanks as well.
Isabelle Castro 29:55
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Until next time, enjoy your downtime.
