First-Generation Wealth Building and the Truth About Stablecoin Yields

21:28Elizabeth Ayoola:So lots of investing and reinvesting happening. Yeah, you invest for your money to grow and for you to reinvest it. That's our strategy and that's what we do. We're really, really good about identifying great stocks to invest in for the long term. We do like ETFs as well. I really believe if we never sell a business, right, I really believe that our best opportunity for more wealth is through the stock market. I'm definitely on the slow and steady route to building wealth. So consistently investing is usually a good strategy. Now, one of the last questions I have for you all is, you know, a big part of generational wealth is ensuring that you have strategies in place so that it continues throughout future generations.

22:18Elizabeth Ayoola:And a lot of the time, effective estate planning is a big part of that. Do you guys have any trust or any strategies that you're putting in place? You both have children to ensure that that wealth is transferred down. Yeah, he doesn't play about that. So if I can give you just a small peek into high level. Yeah, just a peek into the background of his life. We were both formerly married and his wife, his then wife, passed away from a medical condition, a heart transplant, and it was totally unexpected. And I think since then, he has not played around with life insurance and just all of the things, having all of the things in place and wills and things of that nature.

23:06So when it comes to retirement and what happens when we're no longer here, I think that has been such a priority for him just because what he has had to endure and experience as a single dad, being left with his baby girl and her also having a medical condition. So he does not play when it comes to all of the ducks being in a row.

23:32Elizabeth Ayoola:That's amazing. And Courtney, do you use a tax professional or estate planning attorney? What have you used to kind of make sure you have those things in place? All of the above. So we have an estate attorney. We have a business attorney. We have CPAs. Yeah. A whole team. We have a team and you have to have a team to make sure things are done the right way. I know we live in a very like DIY society now and there are all of the sites and things that you can utilize. And some of that is really, really helpful for sure. But having somebody that you can actually ask a question or having an expert that can actually show you a better way to do something is invaluable.

24:22We take advantage of it because you don't want to mess these things up. I know better than anybody that tomorrow is not promised, no matter how you feel today, no matter what you look like, what you have, you can have it all going on and nothing bad ever happens and it can change. And so you have to prepare because your family suffers if you don't do it the right way.

24:44Elizabeth Ayoola:And on that note, I have one more question. I'm going to shoot it to you, Ronnie, which is we're going to daydream a little bit. How will you know when you have achieved generational wealth? What will that look like for you? So we're at the finish line of achieving generational wealth. What does that look like? So I am sitting on my beach front property. Let me visualize this for you. I am drinking a cup and the cup has lemon and strawberry and watermelons floating around. I look to my left and I see all my fruit trees growing and my garden is there. There's me and my kids and my mom and they are just coming to visit because none of them live with me anymore.

25:32And I look down at my phone and something tells me to just go on social media. And then I look down and I realize that I cannot even find the app anymore because I'm not even on it. I've deleted myself from it. I've completely just disappeared and I'm just being present in the moment and life is good. I'm checking my, my portfolio and the stock market is making me over six figures every single year. And I'm just being present in the moment.

26:10Elizabeth Ayoola:That sounds like freedom, Ronnie. And I think that's the perfect note to end on. Beautiful. Thank you, Courtney and Ronnie, for sharing your stories, your journey, and we wish you all the best, please. I'm going to check in in another, I don't know, 10 or 15 years to see if everyone moved out your house. Check in in five. Check in in five years. Love that. Love that. Love that. Thank you guys so much for coming on. All right. Thank you. Thank you. If you're thinking about how to build generational wealth or the best strategies to use to increase your income, we nerds are here to help. Leave us a voicemail or you can send us a text on the nerd hotline at 901-730-6373.

26:55Elizabeth Ayoola:That's 901-730-NERD. Alrighty, next up, we're going to talk through the difference between Bitcoins and stablecoins, and also whether you should be investing in crypto at all. Stay with us.

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30:28Sean Pyles:Is this correct? Again, this comes from George, Cody's father-in-law.

30:32Elizabeth Ayoola:To help us answer Cody's father-in-law, George's question, we are joined by NerdWallet investing writer, Sam Taub. Welcome back to Smart Money, Sam.

30:41Sean Pyles:Great to be back.

30:42Elizabeth Ayoola:Now let's start with some definitions, since that's the core to George's question. Sam, can you explain what a stablecoin is? I'm guessing it has nothing to do with horses. and also what a cryptocurrency is since Bitcoin is just one type of cryptocurrency.

30:59Sean Pyles:Let's start with cryptocurrency. Cryptocurrency is a type of decentralized digital money. Ordinary money, which crypto people sometimes call fiat money, is issued by governments and they control the supply of money and enforce anti-counterfeiting laws. That's why it has value. Cryptocurrency, on the other hand, is created and counterfeit-proofed by cryptographic computer algorithms without the need for a central authority like a bank or a government. Now, Bitcoin and stablecoins are both types of cryptocurrency. Most cryptocurrencies, including Bitcoin, have a market price in dollars that varies over time, and sometimes it swings pretty wildly.

31:49Sean Pyles:Stablecoins, on the other hand, are cryptocurrencies whose value is pegged to a conventional currency, typically the U.S. dollar. Stablecoins like Circle and Tether, to name a couple of the biggest ones, generally maintain a market price of$1 per coin, sometimes plus or minus a cent or two.

32:09Elizabeth Ayoola:That's definitely a lot cheaper than Bitcoin. I mean, a dollar.

32:13Sean Pyles:Yes, it is.

32:14Elizabeth Ayoola:So is one better or safer than the other?

32:16Sean Pyles:So stablecoins, in theory, are a better stand-in for conventional money than older cryptocurrencies like Bitcoin. People generally want money to have a stable value. If it swings wildly between highs and lows, as Bitcoin so often does, that can actually create a disincentive to spend it. Stablecoins solve this problem by fixing their price to the dollar or another fiat currency. Variable price cryptocurrencies like Bitcoin, on the other hand, are more popular as speculative investments. Those wild price swings make them kind of impractical as payment methods, but you can make a lot of money or lose a lot of money trading those price swings.

33:02Sean Pyles:We should note that even though stablecoins purport to be stable, this has not always been the case. And is it currently the case, though? That's a good note. In the past, certain dollar stablecoins have had scandals that have caused their prices to diverge pretty sharply from one dollar. These scandals often involve the stablecoin issuer doing something sketchy with their cash reserves that back the stablecoin. Well, there has been some regulatory news in the world of crypto and stablecoins. Over the summer, the president signed the Genius Act, which creates a licensing and regulatory framework for stablecoins, among other things.

33:41Sean Pyles:So can you outline how this act changes the crypto landscape and what it means for regular folks who might be interested in dabbling in stablecoins? An important provision of the Genius Act for consumers is that it requires stablecoins to be backed one-to-one by dollars or certain cash-equivalent assets like treasury bills. In other words, stablecoin issuers have to have exactly the same amount of money in the bank as they have stablecoins in circulation. This is an important peace of mind thing because, as we talked about in the past, some stablecoin issuers have gotten in trouble with regulators and with investors for using the funds that they claim are backing their coins and investing them in risky ways to try to make a profit on the side.

34:29Sean Pyles:If you're going to buy these coins that are supposed to be crypto equivalents to the dollar, you kind of want them to be fully backed by dollars. You don't want them to be just sketchy IOUs. And this new law also imposes new licensing requirements and auditing requirements on stablecoin issuers to make sure that they're reputable financial institutions in good standing and that they're fully compliant with laws against money laundering and sanctions evasion and things like that. This, too, has been an issue for stablecoins in the past. Tether, once again, has gotten in trouble before for being implicated in people using their cryptocurrency to do illegal stuff.

35:15Sean Pyles:Now, it's worth mentioning, George asked about the yields that some stablecoins pay. Not all stablecoins pay yields, but some of them do. One potential downside of these new regulations is that they could lower some of the yields that you can earn by investing in stablecoins.

35:34Elizabeth Ayoola:Well, Cody's father-in-law, George, is interested in earning interest on these stablecoins. And NGL, also known as Not Gonna Lie, I wasn't familiar with this before doing research for this episode. But hey, I learned while doing research that you can, in fact, earn interest on some stablecoins. And these are called yield-bearing stablecoins. Now, Sam, how exactly does this work? And what kind of yield are we talking about here? I mean, a lot of high-yield savings accounts can get folks a rate of maybe 3.5 % or even 4%. So is a yield-bearing stablecoin getting people a much better yield on their money?

36:11Sean Pyles:I'm glad you brought up high-yield savings accounts because the way that these yield-bearing stablecoins work is conceptually kind of similar. When you put money in a savings account, the bank isn't actually keeping those exact dollars in your account. It lends them out to other customers, and it earns interest on those loans, and it shares that interest with you. Yield-bearing stablecoins do a similar thing. When you deposit money on them, they use it to issue crypto-based loans, or they put it in crypto staking programs, or they invest in yield-bearing securities like bonds and they share those returns with you.

36:52Sean Pyles:As of today, the yields on some stablecoins are currently a little bit higher than what you can get in a savings account. I don't know about double, but it's a little bit higher. Two of the biggest yield-bearing stablecoins, SUSDE and USDS, currently pay APYs of 5 % and 4.75 % respectively. For comparison, the highest yielding savings accounts in NerdWallet's Best High Yield Savings Accounts Roundup, which you can find a link to in today's episode description, currently pay 4.51%. However, both of the stablecoins named above generate yields by investing in somewhat risky things like crypto-based loans or by investing in other yield-bearing stablecoins, and that might not be permissible under the new Genius Act rules.

37:47Sean Pyles:Once those are fully implemented, the yields on these things may drift down to the 3.5 % to 4 % range because that's what treasury bills pay. And under the new rules, treasury bills may be just about the highest yielding thing that stablecoin issuers will be allowed to invest in. Well, speaking of risk, there are going to be some risks to having your money in a stablecoin like this. One that comes to mind is liquidity. People might not be able to get out their money as easily as the money they would have in a high-level savings account, for example. Can you think of any other risks that folks should be aware of here, Sam?

38:23Sean Pyles:Liquidity is definitely a concern, especially if there's some kind of crisis in whatever the stablecoin is invested in and if a lot of people try to pull their money out at the same time. In a scenario like that, there could also be a risk of not getting the promised yield or even of not getting your money out at all. We talked earlier about how there are some conceptual similarities between yield-bearing stablecoins and high-yield savings accounts, but one important difference is that stablecoins have a lot less guardrails. the Federal Deposit Insurance Corporation does not cover cryptocurrency, and there's less regulation on cryptocurrency in general than there is on the traditional financial system.

39:08Sean Pyles:Now, the new regulatory requirements of the Genius Act could reduce these risks somewhat, but yield-bearing stablecoins are still not going to be as safe as a conventional bank account. There's still going to be no insurance, for example. Got it. So we tend to be a pretty risk-averse bunch here on the Smart Money Podcast, and I'm not about to put my money into one of these cryptocurrencies. But there has to be some use case where putting your money into yield-bearing stablecoins could be a good idea. What do you think, Sam? Well, more than 5 million U.S. households do not have bank accounts, according to the latest FDIC data, which is from 2023.

39:49Sean Pyles:NerdWallet's chief economist, Elizabeth Renter, wrote a really great article a couple years back about some of the costs of being unbanked. One thing that actually isn't mentioned in that article is that it's really hard to grow your money if you don't have a bank account. Crypto, for better or worse, is much less paperwork heavy than the conventional financial system is. So there's a possibility that yield-bearing stablecoins, especially with the new protections introduced by the Genius Act, could be a viable alternative to savings accounts for people who can't open a bank account for one reason or another.

40:28Elizabeth Ayoola:Do you have any other thoughts you'd like to leave our listeners with if they are considering trying to get a yield from their crypto?

40:35Sean Pyles:Stablecoins bill themselves as crypto equivalents to regular currencies like the dollar. Yield-bearing stablecoins bill themselves as higher-yielding crypto alternatives to savings accounts. But they get those higher yields by sometimes doing risky stuff with their reserves that savings accounts are not allowed to do. The Genius Act may crack down on that risky stuff, but in the process, it may drive down stablecoin returns to about the same level as what online high-yield savings accounts pay. Now, if you're interested in earning passive income from your crypto investments and you're okay with some price volatility, that is, you don't care about your crypto staying level to the dollar, crypto staking may also be worth looking into.

41:26Sean Pyles:Staking is a feature of certain cryptocurrencies like Ethereum and Solana, where new coins are created and paid out to holders who lock up their crypto for a certain period of time. I'm not going to get into the details of how crypto staking works here, but if listeners are curious, they can check out our crypto staking article, which I actually just updated with a calculator that shows you how much you can earn with staking and how much you might owe in taxes. You can find a link to that article as well in the description of today's episode. So if stable coins are like the high-eld savings account, staking almost sounds like a certificate of deposit.

42:04Sean Pyles:Isn't that a good analogy? Kind of, sort of. You could also maybe compare it to dividends in that there's a little bit more uncertainty as to how much you might make on staking. But there's also the potential to earn more than you would in a traditional kind of interest-bearing savings vehicle. Yeah. And I think it's good to underline that whenever you are, quote-unquote, investing or hoping to get a yield from crypto, there's going to be more uncertainty than if you're going with traditional banking products. Definitely.

42:32Elizabeth Ayoola:It's not for the risk averse, it sounds like. Yes.

42:35Sean Pyles:Well, Sam, thank you so much for coming on and explaining all this for us today.

42:38Elizabeth Ayoola:Of course.

42:39Sean Pyles:Always happy to be here. That's all we have for this episode. Remember, listener, that we are here to answer your money questions. So turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-N-E-R-D. You can also email us at podcast at nerdwallet.com. Join us next time to hear about how to balance Roth versus traditional contributions and rollovers. Follow Smart Money on your favorite podcast app, including Spotify, Apple Podcasts, and iHeart Radio to automatically download new episodes.

43:10Elizabeth Ayoola:And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy information is provided for general educational and entertainment purposes, and it might not apply to your specific circumstances.

43:22Sean Pyles:This episode was produced by Tess Vigland, Clary Georgie helped with editing, Nick Karisimi mixed our audio, and a big thank you to NerdWallet's editors for all their help. And with that said, until next time, turn to the nerds.

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