Ok so I guess I need to address the whole Bitcoin revolution. I am a little bit of a traditionalist when it comes to investing and kinda subscribe to the whole Warren Buffet thing, like maybe you should understand something and it should have value before you throw good money at it. But call me crazy! I can barely turn my computer on. The technology has been so rapidly advancing that even I feel confused at times. But since my clients and all my friends are investing in Bitcoin and the crypto currencies I needed to do a little research on the subject and then offer my opinion for whatever it is worth, since it is up over 300% in less than a year.
So to be clear its not actually an investment it’s a currency. A cryptocurrency or digital currency and it has 0 regulation. It is also something that most people don’t even understand.
I am going to be frank it should definitely not be apart of your retirement portfolio! Or should it?
I am going to guess that Warren Buffet would not own Bitcoin. Perhaps the greatest investor of all time has a few easy guidelines to follow.
1. Don’t lose money,
2. Don’t break rule number 1.
3. Don’t invest in things you do not understand.
So can you lose money in Bitcoin. Well yes you can, absolutely. It is super volatile, it literally fluctuates up and down in double and sometimes triple digits or percents. So rule number 1 is broken. The other day a friend of mine who is a landscaper by trade told me I just had to get into Bitcoin and at that time it was trading at like 16,000 a coin. By the time I got around to researching the idea it had dropped to 11,000 and some change. That was like a 32% drop. So I sent him a text and he said “oh don’t worry it goes up and down like that all them time. So there is your answer to Buffets rule 1 and 2.
So do you understand bitcoin? Buffets third rule is to understand the investment. So if you understand digital currency and blockchain technology which some of you reading this may indeed understand then maybe it makes sense. I am not a computer nerd or tech guy so it is French to me and I am thinking to the majority of America it is as well. So practically speaking do you know what it does? And why is a currency tied to it?
If you are scratching your head right now like me then bam! It does not pass Buffets 3rd rule.
Look Bitcoin is truly a revolutionary idea and a promising technology I am sure? In fact I like the fact that it cuts out the banks, which are the evil empire in my opinion anyway. But its up over 800% over the last year and chances are you missed out on that and that is ok, maybe you didn’t but I am going to guess that you didn’t suffer any by not being in it.
I just got back from Vegas and I was at a conference not gambling by the way! But if you want to invest in Bitcoin right now and you have some money just laying around that your not concerned about then go ahead because it is not much different right now than just a big gamble. That is going to be why I say Bitcoin is probably not for your retirement savings. What you really need is quite simple and kinda boring and its not cutting edge.
Here is what I think you need after spending 20 years in the financial planning and retirement planning industry and I am sorry its boring but its tried and true and I can help you achieve it.
Solid Financial Plan
1. One that analyzes the probability of different financial strategies being able to sustain your long-term goals. I know, it’s pathetically boring, but it works.
Being Tax Smart
2. A customized, tax-smart, low-cost investment strategy. This is only slightly more exciting than a financial plan, but so, so very important. Many people choose investments based on what they see in the rear view mirror (like buying Bitcoin because it already went up). Or they pay through the nose in fees, many times without knowing about it.
3. Someone they can trust when they have questions. Sadly, many financial “experts” are really just well-trained salespeople. But when you have concerns and need some objective advice, it’s not usually a salesperson you’d prefer to turn to.
These are pretty simple ideas… not nearly as exciting as chasing the 300% return of Bitcoin this year. They do, however, easily pass Warren Buffet’s 3 simple rules of investing.
Erick@erickarnett.com / 352.340.2942