Advice for Finding Financial Advice (Not Financial Advice)

Modern Portfolio Theory (MPT) is the most commonly deployed investment theory for personal wealth. Fairly simple in concept, MPT is an investment theory allows investors to assemble an asset portfolio to maximize expected return for a given level of risk. Importantly, this the theory assumes that investors are risk-averse.

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MPT proposes that 10–20% of portfolio capital is deployed into alternatives assets like real estate, commodities, private market investments, etc. These are assets that have a very long operating history and are well understood by markets. But cryptocurrencies are also considered an “alternative asset”. The challenge is that crypto investing is a very young industry and the assets are a very young asset class that all come with much risk. So where can you get advice on how to invest in cryptocurrencies?

Well, one option is “cryptotwitter”. Twitter is great (fun), but I wouldn’t take advice from a stranger off the street so why would you take advice from an anon on the internet?

Another option is to turn to your neighbors in the Mr. Block community. While our community aspires to create an authentic learning environment and we have a lot of members who actively trade and invest in cryptocurrency, it’s still wise to get advice from a professional.

Here is where a Certified Financial Advisor (CFA) can help you. CFAs have to undergo testing and licensing requirements in order to give financial advice to their clients and are required to operate with a fiduciary responsibility to their clients.

The problem here is that most of you reading this article probably know more about crypto investing than the average CFA! That said, there are a ton of tax, compliance and wealth management considerations that come in to play when investing in the space and there are a lot of good investment professionals out there to get advice from to make sure you properly manage risk that aligns with your goals.

Here are a few key considerations when seeking out financial advice for crypto investing:

1. Make sure they’re certified — Investment management is very complex domain that requires a ton of time and experience to understand well. Be sure you find someone who is a chartered CFA.
2. Ensure they have specific knowledge — Not all, or even many, CFAs are advising crypto as part of their clients’ portfolio just yet. If you’ve made the decision that you want cryptocurrencies to play a role in your investment strategy, be sure your advisor has experience investing in the industry and also understands the value proposition of cryptocurrencies.
3. Someone who understands your preferences and your risk levels — Each one of us has unique behavior, time preferences and risk appetite. Find someone who genuinely cares about you as a person and what you life goals are, not just your investment goals. That way they can use their expertise to advise on investment strategies to help you achieve your objectives.
4. Evaluate their track record — What’s the performance of their own portfolio? How have their clients done? The adage “past performance does not predict future success” is wise, but it’s still important to understand how an investor has previously evaluated the market and addressed investments to generate positive returns. Consider how have those investments decisions have compared to alternatives.
5. Don’t go “all in”! — it might be fun to brag about this at the bar or in crypto circles, but diversification is a key way to mitigate risk. With all your investments in a single asset class or single asset you expose yourself to dramatically more downside risk. Meanwhile, just a small exposure to alternative assets can represent enormous upside for your portfolio! Anyone who is advising you go “all in” to any particular investment should not be giving investment advice.