Welcome to Fix-It Friday, the podcast segment that simplifies financial strategies to help you make smarter decisions. Hosted by Jonathan Blau, CEO of Fusion Family Wealth, this episode pulls back the curtain on private investments. Jonathan explains how Wall Street firms promote “democratization” of private deals while often shifting risk onto everyday investors. Listeners will learn how behavioral finance biases like affinity bias and FOMO influence investment decisions, and gain insight into how to evaluate private deals responsibly to protect wealth.

What You’ll Learn:

How private investments are marketed and why they appear seductive to everyday investors

The hidden risks behind complex investment structures and lack of transparency

Six pillars of successful investing, including mindset and portfolio strategies

Want to make smarter financial decisions grounded in clarity and confidence? Subscribe and share the Crazy Wealthy Podcast. To learn more about Fusion Family Wealth’s evidence-based investment strategies, visit www.fusionfamilywealth.com and request our current disclosure brochure.

Key Timestamps:

00:00 Introduction and podcast disclaimer

02:30 Why private investments seem appealing: affinity bias and FOMO

05:45 The real agenda behind “democratization” of private deals

10:30 Six pillars of successful investing: faith, patience, discipline, allocation, diversification, rebalancing

15:30 Closing thoughts: stay curious and cautious with private investments

Key Takeaways:

Private investments can appear safe or exclusive, but often shift risk from firms to individual investors

Behavioral biases like FOMO and affinity bias can lead to poor decision-making in private markets

Faith, patience, and discipline in investing guide behavior, while allocation, diversification, and rebalancing manage portfolios effectively

About the Host

Jonathan Blau is the President and CEO of Fusion Family Wealth, a fiduciary wealth management firm he founded in 2013 to help families achieve clarity, confidence, and purpose with their money. With a deep focus on behavioral finance, Jonathan teaches investors how to recognize emotional biases and make evidence-based decisions that support long-term success. A sought-after speaker in wealth management, Jonathan previously held senior roles in tax and estate planning at Arthur Andersen. He holds a BS in Finance, an MS in Taxation, and an MBA in Accounting. Based on Long Island, Jonathan is active in the local business community, supports organizations such as the Middle Market Alliance and Sunrise Day Camp, and enjoys boating with his family.

LinkedIn – Jonathan Blau

Fusion Family Wealth Website

Crazy Wealthy Podcast

A copy of Fusion's current written disclosure brochure discussing our advisory [00:00:15] services and fees is available upon request or at www.fusionfamilywealth.com.

And BlackRock are so eager to put into our portfolios all under the shiny banner of what they call democratization of private [00:00:45] investments. So what does that even mean? So until recently, private investments are just simply investments that don't, uh, trade or, or aren't available on the public exchanges like the New York Stock Exchange, the same way you might buy shares of IBM [00:01:00] or Apple Computer.

Let's open it up. [00:01:30] Let's democratize it so that everybody can participate. I don't think. That's actually what's behind the effort to quote democratize. So let's talk about it. Let's, let's lift the curtain a little bit today. It's just gonna be me and you, no guests, [00:01:45] and there's gonna be some straight talk that nobody on the podcast here will hear at their favorite country club.

And more to share fresh perspectives on making sound decisions that maximize your wealth. And now here's your host.

And what affinity bias is really, um, [00:02:45] based on is our need to feel part of a tribe as a survival instincts over the, um, evolution of, of human uh, nature. And if we think that a certain investment will [00:03:00] reflect. Our status that we wanna reflect, uh, and will make us look like we belong to a certain group we want to belong to, then we're gonna actually wanna make the investment.

There's also something called fomo, which we've all heard of, fear of missing Out, and there there's a huge investment group called TIGER 21, which is the largest or most wealthy investment group in America, if not the world, and [00:03:45] the members of Tiger 21. Always, uh, want to know what everyone else is getting into in their group of billionaires.

The broad [00:04:15] stock market declined on April 3rd and fourth, 5% each of those days for a 10% two day decline. And what was interesting to me during that decline as it relates to private investments, as I received an email from one of these big [00:04:30] private investment, uh, firms. Saying to me, as an advisor, you should consider now adopting private investments if you haven't.

Don't [00:05:00] reflect instant price moves down or up. It usually takes about a quarter for the investments in private, uh, companies to be updated. So the investor basically is saying to me, would be fooled into believing that this private [00:05:15] investment did better. Simply because it didn't reflect the current dislocation in the market and won't do so for another quarter.

That in, in our view, and this is important, [00:05:45] volatility or up and down movements isn't risk any more than a market dip or a temporary decline is a permanent loss. So we need to challenge these narratives in order to succeed as investors. Let's, let's talk [00:06:00] about the real reason now that some of these big, uh, private investment firms are so obsessed with opening up private investments to the mass investor, especially our 4 0 1 Ks.

When we dig deeper, you'll find something else may be at play. BlackRock, Blackstone and their [00:06:45] peers have raised staggering amounts of capital or money for private markets over the many years. And traditionally, their playbook involved investing in private companies, massaging them, nurturing them, making them even more profitable, cutting costs, [00:07:00] and then benefiting by.

And so there simply aren't enough companies going public to absorb [00:07:30] all of that private money. And private capital. When we add to that, the slowdown that's occurred in the traditional fundraising channels, so for example, endowments, foundations, and other institutions that typically would buy private [00:07:45] investments, they have become more selective because also the pie of private investments has not been growing.

It's simple. They need a new exit ramp. Enter our 4 0 1 Ks by democratizing access. What they're really doing is unlocking trillions of dollars. Almost 10 trillion is [00:08:30] the number I recently saw at the value of 401k plans and retirement savings that gives them a fresh pool of buyers for assets that are otherwise stuck in illiquid private funds.

It's not just about growing your wealth, it's about solving their own liquidity problems and potentially at your risk. So if we think about fundraising with traditional sources, drying up direct [00:09:15] access to retirement accounts is like a golden goose because every paycheck deposited into our 401k could be one more stream.

So let's take a quick detour into what are called CMOs or collateralized mortgage obligations. And this is a little bit of a personal story among my 35 plus years of experience in the [00:10:00] business, what these collateralized mortgage obligations were as a fancy term for loans. To people who were underqualified buyers of homes, uh, and, and who wanted to put very little money down to buy these homes.

So now there were all these risky loans and if, if loans, in terms of a risk scale, a [00:10:45] a would be the, the, the, the least risky loan I'm making. So someone who really had a good chance of paying me back and d would be the, the riskiest. Someone who really had very little chance. A lot of these were said to be C type loans on average, but what the industry did is they figured out through [00:11:00] magic alchemy to take these loans.

Goldman Sachs now takes all of these underqualified C rated loans, puts them in a fund, and then they sell it to the public. [00:11:30] And, and when they sell it to the public in the fund, the conspirator back then in oh eight and oh nine was standard. And Poors Standard. And Poors is one of the. Top agencies that rates these types of, of investments or loans.

In, in, uh, 2008 and oh nine. So at Citigroup, where I had been employed at the time, they had a fund called the Falcon Fund, which was a fund that [00:12:15] aggregated all these loans. And they said to advisors like me and the wealthy clients that we served, that we should be telling our wealthy clients that the Falcon Funds offered about a time, I think it was about a 7% yield, which was a very high yield, but [00:12:30] with the same risk as a riskless.

And so who ultimately suffered the losses? There was investors. So the big firms put these, these, uh, collateralized mortgage obligations into a fund, repackaged them, got the risk off their books to the [00:13:00] investors. And eventually, as an example, the Falcon Fund went to zero. Citigroup settled with the, with the clients for about 50 cents on the dollar.

We shouldn't be swept up by the herd mentality or the pressure to follow what sounds like the next big thing. Remember, sometimes the word private just means they're dressing up a problem in a tuxedo. [00:13:45] So if you don't know what you're buying or can't explain it, um, or why you're being sold it, you should always take a step back.

I'll [00:14:15] elaborate on this in a moment. The last three pillars are methods of managing the portfolio itself, and those are asset allocation, which is how we spread our cash among investments in either stocks or bonds. And then [00:14:30] there's diversification, which really relates to, to the extent we have either stocks or bonds, which bonds do we have in the bond portfolio to diversify it, and which stocks do we have in the stock portfolio to diversify it?

We don't wanna let things grow disproportionately larger than their targets. So the first three principles are much more important because [00:15:15] principles dictate the practices in the sense that belief always dictates behavior. So the faith in the future, the patience and the discipline are most important.

If they don't have a faith in the future, they need an advisor or a behavioral investment counselor who can infuse the faith to them every time that it's needed. 'cause without that faith, they, [00:16:00] they won't succeed. The second is patience. So patience is about resisting the temptation to react to whatever is causing us to be afraid at the time, whether it's the pandemic.

Discipline is different. Discipline means sticking with what's right, always. Throughout every challenge. So when the pandemic happened, for example, and the global economy, [00:16:45] uh, shut down for about a year. Discipline means if you were saving $10,000 a month into your portfolio stocks, you should continue to do that.

Which stocks or bonds do you have to diversify against the others? And then rebalancing, stealing from what's gotten expensive. Maybe the US markets [00:17:30] versus the international markets and putting into what's got, uh, relatively inexpensive and, and, and continuing to do that all the time as we wrap up. I want to remind everyone not to take everything at face value.

But it's worth questioning who really benefits from this. Stay curious, stay cautious and keep your eyes open. So with that, I want to thank you for tuning into today's [00:18:15] Fix of Friday. If you found it useful, um, please hit subscribe, share with your friends, and, uh, join me, uh, on the next fix of Friday as we keep tackling the myths and realities of the money world.

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Be suitable for your portfolio or individual situation. Neither fusion's investment advisor registration status, nor any amount of prior experience [00:19:30] or success should be construed that a certain level of results or satisfaction will be achieved if Fusion is engaged or continues to be engaged to provide investment advisory services.

To provide investment advisory services, a copy of Fusion's current written disclosure brochure discussing our advisory services and fees is available upon request or at www.fusionfamilywealth.com.