With these latest SEC regulation changes, you can now buy ETFs for cryptocurrencies. This means that it will be as easy to buy bitcoin as it is to buy a mutual fund or an individual stock. These ETFs will trade on the major exchanges.
If you know me, you won’t be surprised to hear me say that I don’t believe this is a good thing for most investors. This is great news for the speculators and there is a role for speculators in our economy, but speculating is a dangerous game to play for ordinary investors.
Bitcoin and the other cryptocurrencies are highly speculative and highly volatile investments. You get a sense of the volatility in this price chart of bitcoin.
Bitcoin and the other crypto options are new forms of currency that trade on the new blockchain technology. For simplicity, I will focus mainly on bitcoin in this post as it is the biggest cryptocurrency. The blockchain technology is very powerful and includes many new trading innovations that can improve the efficiency of trading anything.
As an investment, It is best to think of bitcoin and the other cryptocurrencies as commodities and not currencies. They behave like commodities whose prices are mainly driven by supply and demand factors. Commodity prices are much more volatile than traditional currencies like the dollar or the euro.
The crypto enthusiasts believe that this is a seismic shift in how we are going to handle money in the future and a bit like the emergence of the internet. I understand their enthusiasm, but I have no idea what the future for cryptocurrencies look like. The introduction of these new ETFs has and will increase the demand for cryptocurrencies which has resulted in a pretty big increase in their prices in the last couple of months.
Bitcoin has also become popular in countries with high inflation and devalued currencies, such as Venezuela. Additionally, it is popular with those who use it to transfer large sums of money for illicit and illegal activities.
The supply side of the cryptocurrency equation gets a little murkier. Bitcoin will have a fixed number of coins minted and the supply will stop increasing in 2140. The number of new bitcoins introduced gets cut in half every four years. Limited supply is one of the main attractions of bitcoin to speculators.
There is a lot of competition in the crypto space now. Bitcoin used to make up over 80% of the market and now it only represents about 50% of the crypto market. There are now hundreds of other tokens vying for investment dollars today.
Let’s compare bitcoin as an investment to my favorite investment, stocks.
When you own one stock or hundreds of stocks in an ETF, you own a share of the profits that those companies produce. On a simplistic level, when the profits of the companies increase, the price of the stock increases and the opposite occurs when the profits decrease. We know that other things influence the price of stocks in the short-term but in the long-term the biggest factor is profits.
If you are like me and you believe the long-term profit growth of the companies in index funds representing the S&P 500 or the Nasdaq, for example, you can be very confident that those stock prices will be higher in the future.
Cryptocurrencies don’t produce any sales or profits on their own. As a currency, they facilitate sales but there are no income statements to evaluate for bitcoin.
Buying bitcoin is gambling and not investing. There is no consistency or predictability of bitcoin as an investment. And nobody understands why bitcoin goes up or down in value. Clearly the price of bitcoin is a function of supply and demand, but what drives the demand side of the equation other than people betting on a future dominated by crypto? Nobody really knows. What if more countries introduce regulations to limit the use of cryptocurrencies? It is believed that China moving away from bitcoin in 2021 led to the big decline in crypto prices.
When you truly understand your investments, you understand the risks associated with those investments. Very few investments come without any risk. Understanding the strengths and weaknesses of any investment is the key. S&P 500 Index funds are great investments but owning one of these funds does subject you to the irrational and dramatic ups and downs of the stock market. Knowing that allows you to be more patient during periods of stock market volatility because the stock market always goes up in the long run.
If you have some “fun” money that you can afford to lose and the idea of speculating on bitcoin appeals to you, go right ahead. But you should not include bitcoin in your retirement investments.
Happy Investing,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
Updated: Jan 2
The stakes associated with fixing your 401K are really high. You and your family have a lot riding on your 401K.
If your investments continue to underperform, you’ll have a seriously underwhelming retirement. You will be destined to a future in which you’re worried about daily bills, affording your healthcare, and possibly even having to go back to work.
On the flip side, the potential for an extraordinary retirement is as enormous as the risk of a hard one. Most people also don’t understand the opportunity that they’re missing by not fully maximizing their investments.
If you invest your 401K funds properly, you should be able to retire with millions of dollars in your retirement account.
But since people are afraid of getting crushed by the stock market, they put too much money in bonds and cash investments. This allows people to sleep better at night, but it ends up costing them millions in retirement.
People also receive lousy advice when it comes to how best to invest the money in their 401K. The financial services industry has failed investors like you. They peddle mediocre solutions and charge high fees.
Assuming that you are funding your 401K properly, the two biggest factors affecting the quality of your retirement are your investment returns and the time your money has to grow. So, you need to make better investment choices for your 401K, and you need to do it now. Time is not on your side.
Fear and a lack of knowledge paralyze people and they stay stuck with a bad investing strategy and poor results. Don’t get stuck in this trap. You can and should have an incredible retirement.
Get educated and get the assistance you need today.
You deserve better. Your family deserves better.
Happy Investing,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
A fairly recent offering from the investment services industry has been an automated service called robo-advisors.
A lot of 401K providers offer robo-advisor services to 401K investors for a fee. The fees typically range between 0.2% to 0.5% of your account 401K account balance. If you have a 401K account balance of $300,000, you will pay about $1,000 per year for your robo-advisor.
The robo-advisor gathers some information from you and makes ongoing investment recommendations for your 401K account.
With the advent of Artificial Intelligence, there seems to be an increase in these offerings. Computers must be pretty good at investing, right?
Wrong.
Let me show you a real-life example. One of our customers was using a robo-advisor before he started working with us. He was paying about $800 per year for his robo-advisor.
Here is the portfolio that the robo-advisor recommended for him.
This looks a lot like most of the investment strategies we see from human advisors. The typical strategy of a financial advisor is to put people in a variety of different investments. This is the asset allocation strategy I have discussed before.
Let’s look at the 10-year, 20-year and 30-year performance of the investments that the robo-advisor recommended to our customer.
Over half (56%) of his money was invested in assets that generate investment returns of less than 5% per year while large cap index funds produce returns that are about twice that amount.
His $800 in annual robo-advisor fees was getting him lower investment returns. And his portfolio lost over 20% in 2022.
This is not an exception. This is what people get from robo-advisors and human advisors. Robo-advisors and human advisors do not put you in the best performing funds and they do not protect your savings from stock market collapses like the one in 2022.
This is not my opinion. These are the facts. This is the real data.
The typical advisor recommendation looks a lot like a target date fund and in most cases not even as good. As I have written previously, target date funds are not your best option for your 401k, but you are better off with a target date fund than you would be with a robo-advisor. You'll get equal or better performance, and you'll save yourself over $500 per year in fees.
With an advisor, you get a bad combination of several weak investing strategies. The core of the robo-advisor approach is asset allocation which is a weak investing strategy. The robo advisor then tries to personalize the asset allocation strategy to some silly risk profile and whatever else it can pick up from the customer.
You end up with a bastardized asset allocation strategy that has not basis in any hard data or historical investment performance. Sounds great, doesn't it.
Save your money and ditch the robo-advisor.
You have better options. First, just put your money in a target-date fund. You’ll get annual returns of between 6.5% and 7.0% per year over your entire working life. Another option is to put all of your money in an S&P 500 Index fund which should generate returns of over 9% per year. Both of these strategies (like the robo-advisor strategies), however, leave you fully exposed to large losses in stock market collapses, but you will be fine in the long term.
An even better option is to use our Market Signals system which uses only large-cap index funds like the S&P 500 and the Nasdaq, and which protects your money from big losses when the stock market crashes. You get the best of both worlds, higher investment returns and protection against losses. Learn more HERE.
Happy Investing,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
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