Podcast #38 Show Notes: Bitcoin, Prenups, and Investing vs. Paying off Debt
This episode I'm going to talk about exactly what every one else is talking about. You know what I mean- Bitcoin! Watch the video or listen to the podcast here or it is still available via the traditional podcast outlets, ITunes, Overcast, Stitcher, Google Play. Enjoy!
Podcast # 38 Sponsor
Quote of the Day
[00:01:01] “All decisions you make should help move you from being a laborer to being a capitalist.” -Charles Farrell
Main Topic
[00:01:16] BITCOIN
[00:02:03] Is it in a bubble? Here is Bill Bernstein's article about whether or not it was back in October.
- Not yet the subject of conversation at social gatherings
- People aren't quitting jobs to speculate in it
- Skeptics aren't yet met with anger
- No extreme price projections
It certainly meets the criteria for a bubble today.
[00:04:36] A previous article I wrote about Bitcoin 4 years ago, essentially warning readers not to jump in to a speculative instrument after a recent run-up. Over the next year, it dropped in value by over 75%. It took two more years to recover to that previous high. However, since that time a year ago, it has gone up 1000%. I can't help but feel that I've seen this movie before and I know how it ends. I don't know WHEN it ends, but I do know HOW it ends.
[00:06:16] The question I ask when people ask me about what they should do about bitcoin is, “what does your written financial plan say you should do about something like bitcoin?”
[00:09:11] Should you invest in Bitcoin? If you want to invest in Bitcoin don't do it right after it's had this huge spike in price and don't do it with any significant portion of your portfolio. Wait until it's price has not been skyrocketing lately. And then if you think it's a good long term play for your portfolio go ahead and invest a few percent in it. But I'm not going to.
Q&A from Readers and Listeners
[00:10:59] #1 “We plan to get married in late spring in 2018, and are currently working on drafting a prenuptial agreement. I plan to save and invest more than half of my income for at least 10-15 years after I become an attending. Currently I max my Roth IRA and started a taxable account. What do you think would be a wise approach to drafting the prenup? I want to be able to accumulate wealth by saving/investing aggressively, to support my parents, but also provide for my fiance, and possibly children later on. My plan is to keep all our premarital assets, and investments and related growth acquired during marriage separate. Most of other things we will have as joint marital property. I have no desire to undergo a divorce, but know that it's a real possibility given the statistics out there, so might as well be prepared.”
[00:17:05] # 2 “I have an additional ten thousand dollars a year and I have a choice to put it toward the mortgage or to use it to fund Backdoor Roth IRAs. What should I do?” This is a doc that basically has no debt besides a mortgage and is already maxing out their retirement account at work. This is a question I get all the time. And in fact the first post I wrote in 2018 on the blog is pay off debt or invest. And it's not black and white.
Ending
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Full Transcription
[00:00:00] This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host Dr. Jim.
[00:00:21] Welcome to podcast number 38 where we're going to talk about bitcoin, prenups and investing versus paying off debt. First a word from our sponsor. Did you know that PracticeLink, the number one online physician job board helps you find the right opportunity and the right community and it's 100 percent free. Join PracticeLink today to browse physician and advance practitioner opportunities across town or across the country. Create a profile and make yourself visible to physician recruiters looking for you. Visit Info dot practice link dot com slash WCI to learn about all the free career resources available. That's INFO dot practice link dot com slash WCI.
[00:01:01] Our quote of the day today comes from Charles Farrell who said all decisions you make should help you move from being a laborer to being a capitalist. And being a capitalist, all that means is financial independence where your money is working just as hard as you are.
[00:01:16] All right. Our subject today comes from a quick e-mail that was sent in by a podcast listener Jeremiah, a hospitalist in Minnesota. He said any possibility you could do a podcast on Bitcoin. And I thought wow more bitcoin. Seems like everybody wants to talk about bitcoin these days. I actually did a newsletter, special tip about bitcoin back the first of December. But apparently there are a lot of podcast listeners and blog readers who don't get the newsletter or don't read them. So I encourage you to sign up for that is totally free and it's basically free super secret blog post that I publish every month to those who are willing to give me their email address. And so I covered bitcoin in that but will talk a little bit about it today.
[00:02:03] Bitcoin is pretty interesting thing to watch. It's actually been fascinating this is the first real frenzy that I've had an opportunity to see as an investor during my lifetime and in fact it might be one of the greatest ones in the last century. And so I think it's absolutely interesting to watch. However I prefer watching from the sidelines because it really is not something that I'm interested in investing in. And I think it's interesting to look at something Bill Bernstein said a couple of months ago where he said I don't think bitcoins in a bubble yet for four reasons. And he said there are four key components to a bubble he said it's not yet the subject of conversation at social gatherings. People aren't quitting their jobs to speculate on it. The skeptics aren't yet met with anger about it and there are no extreme price project projections. Well in the meantime all four of those things have come to pass over the last couple of months. And so if you don't think this is in some kind of a frenzy or a bubble I think you're just fooling yourself. You know is it tulip mania from back in Holland in the 1600s when people were paying thousands of dollars for tulips essentially? Well maybe not yet but it's awfully similar.
[00:03:16] There are all kinds of Bitcoin millionaires out there now. And you can feel this palpable sense that people have that I call FOMO, the fear of missing out. And so sitting on the sidelines you feel like man why didn't I buy Bitcoin when it was a buck fifty now that it's fifteen or eighteen thousand dollars. I mean I can't even tell you what the price of it is because by the time this runs it will be thousands of dollars different it changes so much every day. Seems like it's up and down 20 percent every day but it's gone from in the last few years from something that only true aficionados know about to something as regularly discussed on financial forums and is in the newspaper every day and is getting discussed in social situations. In fact it turns out that more people are searching for how to buy bitcoin or how to invest in bitcoin than how to invest in gold these days. They're searching for bitcoin quotes more than they're looking for quotes of the Dow or the S&P 500. And so it certainly has a pretty massive frenzy. It reminds me of that quote from Joe Kennedy before the Great Depression back in 1928 when he said you know it's time to sell when shoeshine boys give you stock tips. And I tell you what I am seeing nurses talking about Bitcoin. I'm seeing housekeepers talking about bitcoin. Everybody's talking about Bitcoin that cannot be a good sign for a good time to buy something like this.
[00:04:36] About four years ago I wrote an article warning people not to jump into bitcoin. It was selling at about a thousand dollars at that point. Obviously if you borrowed a thousand and held until today you've done very very well. But over the next year after I wrote that article it dropped by 75 percent and took two more years to recover. Back to that high.
[00:04:58] Since that time obviously it's gone up a thousand percent. But when I watch this it makes me think that this is a movie I've seen before and I know how it ends. I don't necessarily know when it ends but I do know how it ends and it ends with a lot of money lost and a lot of tears shed.
[00:05:16] I mean a classic bubble has several different stages. The first is a stealth phase where nobody really knows about it. Maybe the smart money buys into it. And then there's an awareness phase where people start finding out about it a little bit more. This is where institutions tend to get in on it and tend to buy some of whatever that investment may be. The next phase is really what is called the mania phase and this is when the public finds out about it when you and me and the nurses and the housekeepers at the hospital find out about it. And as a rapid rise in price as more people pile in and pile in and then the fourth phase of a bubble is the blow off phase. And that's basically when the price comes back to whatever is a long term trend of that particular investment is going to be. With bitcoin I have no idea where that long term trend is whether it's going to settle into a hundred dollars a bitcoin or a thousand dollars bitcoin or ten thousand dollars a bitcoin or a hundred thousand dollars a bitcoin. It's really hard to say. My crystal balls always so cloudy.
[00:06:16] But the question I ask when people ask me about what they should do about bitcoin is what is your written financial plan say you should do about something like bitcoin? And chances are chances are you don't have a written financial plan. But if you do I'll bet it doesn't mention bitcoin whatsoever and this is a fun thing about investing. As Warren Buffett says there are no called strikes in investing. You don't have to swing at everything. In fact you don't have to swing at anything. You don't strike out. There's no called strikes. You don't have to invest in bitcoin to be financially successful especially as a high income professional. In fact all you've got to do is a high income professional, honestly you take 20 percent of every paycheck you make and you invest it in some boring investment like a target retirement fund in tax protected accounts as much as possible and you do that throughout your career, you'll retire to a luxurious retirement. That's really all you have to do, everything else above and beyond that is just bonus.
[00:07:18] But investing does not have to be complicated for you and you certainly don't need bitcoin in your portfolio to be successful. You can afford to just sit there and watch. You can invest in stuff that's boring you know might only go up 25 percent in a really good year and might only fall 25 percent in a really bad year rather than twenty five percent a day like we've been seeing with bitcoin the last couple of months.
[00:07:41] I also prefer to invest in profitable businesses. I want something that actually has profits and employees and makes money. That's what I'm interested in owning the kind that even if the value of a company's stock drops a bit they're still making money. They're still making iPhone's and they're still selling stuff at Wal-Mart. Are you still selling oil that sort of things that people really want and need. So I don't really invest in things that are pure speculation. Now every investment has a certain aspect of speculation in it but when the primary aspect of the investment is speculation I try to avoid it. I also don't invest in currencies. I don't invest in yen or euro or any other Australian dollar or Canadian dollar. I don't invest in any currencies so I don't know why I would want to invest in a crypto currency if I don't invest in a regular currency. I don't invest in precious metals like gold or silver or anything like that. And so I view all those as speculative instruments and I don't invest in them I invest in things that make money. Remind me a lot of what Thoreau said about it. He said a man is rich in proportion to the number of things which he can afford to let alone. I can afford to let bitcoin alone. So I'm leaving it alone. It's fun to watch but I don't need it and so I don't touch it.
[00:08:58] Now this has nothing to do with block chain technology. Now block chain technology may very well be the coolest thing since sliced bread. It may change the world in the same way as the Internet did. I have no idea.
[00:09:11] I also have no idea whether Bitcoin is the next Google. Or whether it's the next Netscape or Ask Jeeves. As you'll recall just because those companies were involved in the internet doesn't mean that they became good investments. And I think it's also important to realize a little bit about investing 101. Buying anything after it went up 1800 percent the year before is probably not a good idea. That is very unlikely to end well. The chances of it going up another 1800 percent the next year seem very unlikely to me. And so if you want to invest in Bitcoin don't do it right after it's had this huge spike in price and don't do any significant portion of your portfolio. Wait until its price has not been skyrocketing lately. And then if you think it's a good long term play for your portfolio go ahead and invest a few percent in it. But I'm not going to.
[00:10:07] So like four years ago I'm giving you a warning if you're going to invest in Bitcoin do it with a limited portion of your portfolio and if you make a killing on it you can rub it in my face. I don't mind. I will congratulate you on your success. But at least when it has a massive drop in value like it will eventually and most of those currently speculating in it are flushed out of the market. It's not gonna affect your career and your life plans. Do I think bitcoin is going to go 0. Probably not. Definitely not anytime soon. But when something is so volatile that its value changes by a thousand percent in a year. It is also highly likely to suffer 75 to 90 percent downturns. Volatility works both ways. Trees don't grow to the sky and this one seems awfully similar to tulip mania and the South Seas Bubble and the dozens and dozens of other speculative bubbles that we read about in the history books.
[00:10:59] All right enough about bitcoin. Let's talk for a few minutes about a prenup and this one comes from a question I got by email. I've changed enough details and obscured enough that nobody is going to identify this person but this is basically a resident who is married to a low or engaged to a lower earning partner and thinking about getting a prenup in order to protect himself in the event of divorce.
[00:11:26] And so this is a doc who's got a great financial plan. The plan is to save and invest more than half of income for 10 to 15 years after attendinghood. With all these plans to max out retirement accounts and you know relatively low student loan burden. And you know doing all these great things right. And so the doc is asking will be a wise approach to drafting the prenup. I want to be able to save and invest aggressively and be able to support my parents and provide for my fiance and possibly children later on. My plan is to keep all her premarital assets and investments and related growth acquired during marriage separate. Most of other things we will have as joint marital property. I have no desire to undergo a divorce but know that is a real possibility given the statistics out there so might as well be prepared. However I'm a bit lost on how to draft a prenup that's fair, will stand up in court and allow me to accumulate wealth in the event of a divorce. With things like a joint account what do you think would be a fair amount for me and/or my partner to contribute annually and still achieve those goals? After becoming an attendee my salary will go up markedly. And we're both fairly frugal people and think that we can live like a resident for quite some time. So what about in the event of a divorce? What do you think would be a fair way to divide up that joint account, House, and other marital properties? Would you recommend paying alimony for a number of years until my partner remarries or are there other options out there that allow me to waive alimony? This will be our first marriage. Neither of us have children or any estate or inheritance and of course we'll talk to family law experts when drafting the prenup but wanted your opinion first.
[00:13:04] Well I thought this one was pretty interesting. I'm no attorney. Let's just say that right off. And each of these two partners definitely need one of their own attorneys going into this negotiation and a lot of ways it wouldn't be crazy for these two not to get a prenup. There's no previous marriage for either of them. There are no prior children from other relationships. There is no inheritance or expected inheritance. And honestly there's no significant wealth accumulation yet.
[00:13:31] Basically all the wealth they will have in the event of a future divorce they acquired together and so in those sorts of situations I don't know that a prenup is actually required and so I think it be totally reasonable not to get one at all. This is basically the situation my wife and I were in. We didn't get a prenup and I don't necessarily feel like that's a mistake.
[00:13:53] So let's talk a little bit about divorce. So when you get divorced which is not as bad as a lot of people think when they look at the societal statistics, for doctors it's about 24 percent whereas in general society at large is around 50 percent. And so you have about half that chance of getting divorced that most other people do. It's not quite as bad as you might think. But what you typically do is you just split what you accumulated together during your marriage and then the higher earner generally ends up paying alimony for either a few years or until retirement age.
[00:14:27] So if that outcome is not acceptable to you then you may need a prenup. But here's the deal the prenup gots to be agreed to by your partner and so a lot of ways it's what you can talk your partner into, if you want some crazy prenup that's going to eliminate alimony or something like that. And of course it's got a hold up in court as well which you'd one opinion on an attorney as to whether that's the case but I would argue in this situation that it wouldn't be fair to your partner to not give the partner anything you earned during the marriage. I mean when you're working together as a partner you split up your duties. Some of you spend a little bit more of your time and effort earning money. Some of you spend your time and effort doing other things such as you know things done around the house, things to do with the children, those sorts of issues. And so just because it comes in on a paycheck with one person's name on it doesn't mean it necessarily only applies to that person.
[00:15:29] So I think you know if this is really important to you that your partner never gets anything you earned. I think you really ought to be questioning whether you should be getting married at this point at all. You may not be ready to be married. I mean if some of them came to me and said hey you know I earned more than you and in the event we get divorced I don't want you to have anything that I earned or anything that's grown from the investments made by the money I earned. And I want to keep all my money separate during marriage. Boy I would have some real second thoughts about marrying you. I'm not going to lie.
[00:16:01] I mean if I were the lesser earning partner in this situation I'd demanded in that prenup that I get half of the assets and I'd demand at least a few years of alimony which is basically how this usually works out anyway and if someone wasn't willing to give me at least that I'm not sure that someone would be willing to make the sacrifices necessary for a marriage to succeed long term anyway.
[00:16:24] In addition I don't think separate finances when you're married is really a great idea anyway. I think you're much better off once you get married to combine your finances. Makes things a lot simpler. Number one and number two it puts you on the same page which is critical absolutely critical for financial success. And so I know some couples out there do do the separate finances thing but I think in general that's a bad idea and you should combine finances whenever possible. It's not a bad idea to have a little bit of money you you're not accountable to your spouse for you know an allowance if you will. Something you can spend without having to get it approved by your partner. But I think as a general rule you ought to combine your finances once you are married.
[00:17:05] All right let's talk about a doc who has a question about investing versus debt pay off and this doc writes in saying I have an additional ten thousand dollars a year and I have a choice to put it toward the mortgage or to use it to fund Backdoor Roth IRAs. What should I do? And this is a doc that basically has no debt besides a mortgage is already maxing out their retirement account at work. This is a question I get all the time. And in fact the first post I wrote in 2018 on the blog is pay off debt or invest. And it's not black and white.
[00:17:40] I mean sometimes it's black and white. For example if you decide to pay off debt instead of getting your match from your employer that's basically leaving part of your salary on the table. That's stupid. It's black and white in that situation. You know get the match from your employer before you do anything. Likewise if you have some credit card with a 29 percent interest rate. Paying that off should be a major priority in your life. That's pretty black and white too. You shouldn't be trying to invest in being a return like 29 percent. I mean even a 10 percent guaranteed return from paying off debt is a very attractive investment. And so when it comes to high interest rate it's kind of black and white as well.
[00:18:17] But once you get beyond there it's just many many shades of gray. In this particular situation, I find the opportunity to invest in a Roth IRA where the money is tax protected and where the money is probably asset protected in your state and you'll probably get returns of 5, 8, 10 percent on that money to be way more attractive and paying off a mortgage where you know the after tax the interest rate on that mortgage may only be one and a half to two and a half percent. I mean I think that's kind of a no brainer to max out the Roth IRA before paying off the mortgage. But if you've maxed out all of your retirement accounts, and your Roth IRA and maybe you are investing some money in taxable is a bad idea to put some money toward your mortgage and get paid off early. I like being debt free as much as the next person.
[00:19:03] But you don't need to be so crazy about it that you're passing up obvious excellent investment opportunities in order to pay off low interest rate debt.
[00:19:13] All right a special thank you to PracticeLink, the number one online position job board. PracticeLink helps you find the right opportunity and the right community and it's 100 percent FREE. Join PracticeLink today to browse physician and advanced practitioner opportunities across town or across the country. Create a profile make yourself visible to physician recruiters looking for you. Visit Info dot practice link dot com slash WCI to learn about all the free career resources available. That is INFO dot practice link dot com slash WCI.
[00:19:44] If you haven't yet purchased the online course, Fire Your Financial Adviser it is still available. Come on over to the website and sign up for it today.
[00:19:52] Head up, shoulders back, you got this. I'll see you at the next podcast.
As an attorney whose divorced, in regards to the prenup issue, one thing I would keep in mind is everyone who marries in the US has a prenup. It’s written into the laws of the state in which they might ultimately file for divorce, usually “equitable division of the assets.” And the WCI is correct in that assets are normally divided with some form of alimony if one spouse stays at home.
But, it can be really expensive to hash out that division of assets. And really expensive to work out alimony payments. So it can make sense, while everyone is happy and in love, to fine tune and put into writing a fair way to divide assets in the unlikely event of divorce.
This is especially true if you have a family property that you want to protect. Let’s say you inherit Grandma’s house. You get married. Your wife spends a lot of time remodeling and fixing up Grandma’s house; i.e. adding value. Ten years later you get divorced. In many states, there’s a risk that your wife will have a claim on Grandma’s house. This can be really difficult if this is a house you planned to live in and eventually give to your grandchildren. Having a prenup in place can ensure that Grandma’s house stays in your family.
One other thing to note given the above facts – prenups that are patently unfair to one party are easily challenged at a later date. So you can write a prenup in which your future wife gets nothing in event of a divorce, but it won’t be worth the paper it’s written on in most courts.
On Bitcoin, there is perhaps one other point relative to the profitable business comment WCI made. Whether or not this is in your written investment plan, it is just common sense NOT to invest in anything you don’t understand. It is a threshold requirement for any investment, as opposed to a wager or speculation. In the case of Bitcoin, it is not just whether or not you can explain block chain technology. (Well beyond the extent that you can explain how your iPhone works.) That probably isn’t required to make a good investment decision. It is necessary though that you can explain how Bitcoin works as a business. (Hint: it nominally isn’t a business, it is a store of value. Like gold or another commodity.) Do you need some of that when Bitcoin has no intrinsic value? I don’t.
I have a lot of respect for white coat investor and the community that he has helped create, but I’m a bit perplexed by this attitude towards cryptoassets. It is true that it is in a bubble and there is a fair chance any investment into the sector could turn to zero, but the attitude around here is that investing in this space is a violation of some holy financial Bible.
Personally I have learned and studied this space and invested about 2% of my overall assets which has since turned into 10% of my assets. I’m in the process of locking on profits and rebalancing because who knows when this bubble will pop. Obviously I don’t advocate making large investments that you can’t afford to lose, or worse investing on margin, but I think it’s worth learning and investing about this revolutionary technology. Perhaps I’m biased because I have a genuine interest in how this tech will change the way we do things rather than simply as a speculative vehicle, but this dismissive attitude I see around here turns people off to even learning about this market. Most of the people who visit this website are not the irresponsible speculators that I’m sure are rampant in this market, but there is definitely an opportunity here if you invest smartly.
So you’re selling now that it’s down 50%? If you believe it is a good long-term asset to hold, it seems now is a time to buy, not a time to sell, no? I’m also interested to see how the tech changes the world, but that doesn’t require me to buy any of it.
Nevertheless, it’s 2%. You can do whatever you want with 2% of your portfolio and it isn’t going to have much of an effect on your portfolio. And if you bought before November, you’re still up on your investment. I don’t worry about folks like you. I worry about the folks putting 20%+ of their portfolio into it just because it went up really fast and they have Fear Of Missing Out.
It’s Investing 101 to not speculate, but if you do, at least only do it with an amount you can truly afford to lose.
You’re right, if I had rebalanced around new years I’d have locked even more profit in, but I want to be disciplined and not chase the bubble over the peak and back down again. I’m selling enough to take out my principal investment and plan to take out periodic profits along the way up (or down I guess) the next few months. I’ve been invested for about 5 months so I’m sitting on roughly 350% gains at the moment despite the recent correction. For the record I own very little bitcoin but instead a diversified portfolio of other assets which have real world use cases. My portfolio actually is not down 50% like bitcoin has been, more like 20% or so from the peak.
Anyway, I think overall we’re in agreement. If my 2% investment went to zero it wouldn’t change my life one bit. If it does make significant gains it’ll accelerate my path to financial independence a little bit, but again probably won’t change my life significantly. I’m sure my post won’t change the minds of either camp much, but I encourage you and the other readers to learn about this market even if you decide not to invest. Some of the startups in this space have truly world changing ideas if they can make it work. You’re right that you don’t need to be invested and still pay attention, but I wanted to catch a small financial piece of the revolution!
And as always keep up the great work with the site!
I find it interesting that I often get accused of “not knowing about” or “not learning about” Bitcoin, cryptocurrency, or the technology. As though if I just learned about it I would want to own it like they do. They don’t realize I learned about it years ago and decided it wasn’t something I wanted to invest in. Just like I don’t invest/speculate in other currencies or precious metals, I don’t invest/speculate in cryptocurrencies.
Nobody ever accuses me of “not knowing about” or “not learning about” options, or Yen, or head-and-shoulders charting techniques, or Frontier Market assets or anything else I don’t invest in.
There are no called strikes in investing. You can just let pitches go by all day and wait until you see one you like before swinging. You don’t have to invest in everything to be successful.
Going to assume that you knew about bit coin as a cryptocurrency but not the nuance/details of blockchain “years ago”. If so kudos but it was a very niche computer science cryptographic problem solving.
Rest of what you said totally agreed.
At least 4 1/2 years ago when it started being discussed on investing forums during its first run-up and crash:
https://www.whitecoatinvestor.com/5-reasons-i-dont-invest-in-bitcoins/
Wow! I’ve been following your blog for years and I’m surprised I missed that one! Kudos for discussing the topic even before the Mt. Gox crash.
With regards to not swinging at every pitch, I agree with you. I have been pitched various insurances, oil field investments etc, but cryptoassets is one pitch that I was willing to swing at. I guess it comes down to if you think the time and effort to learn and speculate in this market is worth it. 98% of my portfolio is in rock solid boring, low expense funds. I have no problem swinging at a high fastball with 2% as a ultra high risk high reward speculative investment. But I get what you’re saying and it’s something which I repeat over and over when people ask me about cryptos…. Never invest any money into it that you can’t completely lose and just shrug off.
With regards to bitcoin and not chasing it after its already run up 1800%, I completely agree. That’s why I barely own any bitcoin. However there are many assets in development which have far greater potential than bitcoin as more than just a “currency.”
Anyway I appreciate all of your work and agree that the message probably should be don’t invest in cryptos for the casually curious. If you’re just looking to load up on bitcoin with a significant portion of your portfolio and not research and keep up to date you’ll definitely get burned. The people who want to speculate will learn and take that risk anyway, but the important message is only use that small fraction of your total portfolio to do it.
Doing research and keeping up to date won’t keep someone from getting burned. Maybe you get burned and maybe you don’t, but the smart money and the dumb money all gets burned together (or succeeds together.) Unless you think you can somehow predict the future of Bitcoin, and if so, please post it here so we can all check your prediction in a few months or years.
Here’s my prediction: I don’t know. The majority of my portfolio is in equities but I’m not predicting what the DJIA or S&P 500 will be at the end of the year either. I believe that overall trajectory will be up despite the looming correction, or I’d be dumb to invest in the stock market. Nothing is guaranteed in investing as evidenced by the Nikkei still not even approaching its 1989 bubble peak.
The crypto market is sitting at 600 billion. I never expected that a few months ago when it was sitting at 150 billion it would grow this fast. The dotcom bubble popped at 7 trillion I believe. I think the crypto market has some more room to run before it pops whether that’s in 2 months, 6 months or 6 years. I’m just taking profits along the way and have stop losses in place if it crashes tomorrow. I do not plan on investing more fiat as I hit the limit of how much of my portfolio I’d like to invest. In fact I will soon only have profits in the game since I’m cashing out my principal.
To answer your question, Bitcoin’s price may or may not go up, but I believe the overall crypto marketcap will go up. The growth will be in other assets. Ethereum has already replaced bitcoin as the most important cryptocurrency for now. I could see the marketcap doubling in 6 months to 1 year. If it doesn’t and goes back down to 50 billion you can say I told you so!
On Bitcoin, there is perhaps one other point relative to the profitable business comment WCI made. Whether or not this is in your written investment plan, it is just common sense NOT to invest in anything you don’t understand. It is a threshold requirement for any investment, as opposed to a wager or speculation. In the case of Bitcoin, it is not just whether or not you can explain block chain technology. (Well, beyond the extent that you can explain how your iPhone works.) That probably isn’t required to make a good investment decision. It is necessary though that you can explain how Bitcoin works as a business. (Hint: it nominally isn’t a business, it is a store of value. Like gold or another commodity.) Do you need some of that when Bitcoin has no intrinsic value? I don’t.
Or operate a mouse, apparently! Sorry about the double post but I wanted to correct the “well beyond” to Well, beyond…” I did not mean to imply you need to know more; rather, that you need to be able to explain what it does.
Exactly. Investing 101- Don’t buy stuff you don’t understand. Don’t buy something after it goes up 1800% in the previous year.
I can’t imagine having to re-balance on something that volatile. Even if it’s 5% of the portfolio, going up 1800% and then down, then up and down would mean a lot of buying and selling just to keep it at that 5% plus or minus some with the 5/25 rule. But, if you did it religiously you would probably have locked in quite a few of those gains since is seems to shoot way up and then crash back down.
Yes, but I haven’t met anyone yet who decided before its meteoric rise that “I’m going to dedicate 5% of my portfolio to cryptocurrencies. I’m going to put 3% in Bitcoin, 1% in Ethereum and 1% in Litcoin and rebalance using the 5/25 rule.” Every one I’ve met bought it as a gamble/play money with a tiny part of their portfolio kind of thing because they thought it was interesting. I suspect some of those “collect investments” like this all the time and just tell us about the winners. Then there are all the people buying in the last 3 or 4 months due to Fear of Missing Out. Maybe there are a few who were able to accurately predict the future, at least in this instance, but I can’t imagine those rational few didn’t cash out a large part of their investment over the last month or two. What better sign to sell can you have than your nurses are talking about Bitcoin?
One of my favorite Buffett essays is when he describes why he does not like gold. The reason is the same as you give in the video. Gold does not produce any money (nor does Bitcoin). You are “betting” that the next guy is going to pay more for it than you paid. With a cash flowing stock or rental property, the security produces money. The essay is in one of his annual letters. This is the “greater fool theory.” There is a fool greater than you to pay more for the item. To my understanding George Soros can do this type of thing, but I have never been able to follow any of his books as to how he can do it.
There are many cryptos that produce money and many, including myself, already understand that Bitcoin isn’t the future. It was the first to hit it big with the masses, but like all technology plays, which is a better description for this space, refinement and improvement comes with time.
Hi,
Great summary on a topic everyone’s buzzing about.
I knew of Bitcoin when it was about $1,000 – $1,300. I didn’t buy it and I don’t regret it.
My investment research is based on several reliable sources. My favorites are Investor’s Business Daily, Crazy Cramer on Mad Money, and the 100 Best Stocks To Buy series. This combination helps me stick to a mix of fundamentals and common sense.
I’ve done well based on my own decisions.
My feeling is that the Bitcoin investors have probably speculated in a variety of nouveau investments and Bitcoin paid off. The others, maybe not.
Dora
Well said, all so could think while reading the bitcoin section is what would Buffett say. I learned early on when my mother bought gold in 1982 once everyone hears about it you are already too late. I convinced her to sell during the last peak and her after inflation return was probrably around 2%. She should have stuck with boring S&P 500.
Here is a link to the gold article. It is really good. Substitute “bitcoin” where you see “gold.”
http://fortune.com/2012/02/09/warren-buffett-why-stocks-beat-gold-and-bonds/
thanks so much for sharing it.
Thanks, I inherited half of what was left of that early 1980 purchase. When to move it to pile B? Who would do it now?
WCI:
I am a huge fan of your site, and have learned immensely from your wealth of knowledge. But that take on prenup and divorce is way far off from reality.
Truth is, we all get a prenup when we marry-written into the existing laws, and EVERYONE, literally everyone should have one drafted because I am sure the one written for you is not to your liking, nor is it FAIR.
As a matter of fact, I believe a prenup should be a legal requirement for people to marry; certainly lawyers will make sure this is not the case.
Divorces are really really expensive, alimony is really really unfair, and no prenup will ever say that one spouse should get nothing- as you suggest- and the other one take everything-again as you suggest-
This is actually why prenups get a bad reputation, it is not true, no competent lawyer will ever draft a prenup in such a way because it has no standing in court.
Second, the assets distribution is UNFAIR in this country, laws were written-for the most part-prior to the sexual revolution when women tended to stay home and men bread winners. That is not necessarily the case anymore, yet this laws continue to be applied as such.
Men are treated unfairly in family court, and high income professionals get literally robbed of all their assets when involved in this scam.
Please, I beg you, write this young man another email and tell him to get a good lawyer and a prenup! It will be a FAIR document that protects them both if drafted by a competent attorney.
Lots of controversy on this topic, but you seem to be misunderstanding what is going on. The listener was asking whether he should draft a pre-nup that wouldn’t allow his wife to get anything he earned in the future. I told him that probably wasn’t going to work and that if he wanted to do a pre-nup, he needed to make sure it was a fair one, which is pretty much what you also recommend. I think we’re on the same page except for you feel EVERYONE should have a pre-nup, including those who marry young with nothing to either of their names. How do you think that pre-nup will differ from what the state/courts will do without a pre-nup? What would you argue would be fair? Imagine a medical student and his wife. She’s working as a tech or something at the hospital making $25K a year and he’s making nothing. They have nothing. What should their prenup say to be fair in your eyes?
Sure..and lets say for the sake of argument that this couple marries when they are both 25 yo, they remain married for the next 20 years ( which would make this a long term marriage), during this time, he becomes a succesful NeuroSurgeon, and after 4 years of medical school and 7 years of residency, at 36 he starts making 500k a year.
Lets also hypothetically say that they had one kid during these years, now decide to have another child, buy a house, and he joins a lucrative medical practice with the aim to one day become a partner.
During the time that he was becoming a highly regarded surgeon, she quit her job as a tech, stayed home with the first kid, and is now doing the same raising the second one.
She, due to the fact that they had two kids, and a busy husband, decides to mainly occupy herself with the activities of the home, finding little time to get ahead academically, professionally or otherwise. Rarely worked outside the home, and has limited employability skills because now they use apple products to shoot X-rays, and she has no training on it!
Fast forward some years , now they have hit 45 , and find themselves with a thriving practice, a nice beautiful home, a nice Jaguar, a super Audi hatchback, two healthy kids, and a playful Havanese they bought during their last trip to Zanzibar, Tanzania.
However, during these 20 years, this man has slowly-due to his hectic life- realized that this beautiful tech who one day he married was not really the person he wanted to end his life with. She wasn’t ‘the one’, he’s not in love anymore, he’s emotionally charged all the time, they bicker and rarely if ever have sex. The kids are suffering, the home is not really a shelter but a battleground, and after 20 years he is ready to call it quits!
———————- BIG DIVORCE HAPPENS —————————–
So now you have have two 45 yo who are entering their lives as divorcees, he has a lucrative career, she has nothing. And based on current data, they are both likely to live well into their 70s possibly even 80.
I will tell you what I think is FAIR, but first let me ask you this….
Do you think this man should pay this woman alimony for the rest of her life? That is some 30+ years. (And while its becoming more rare, lifetime alimony is still in the books in many states)
Shall she be entitled to the same standard of living established during the marriage? Really?? Now with TWO households since they are separating??
Do you think this lady-at 45yo- is entitled to $20k+ forever, and not have an incentive to work, study, or do something positive for herself?
How about if this man meets now a woman he really loves, she is single and wants a family.
Shall we subject this new family to the burden of lifetime servitude-which is basically what alimony is- for the rest of this new family’s lives?
What if he wants to quit and become a fisherman, shall he be chained to a busy Neurosurgery life forever just because selling salmons is not that lucrative and he can’t pay alimony?
What about the partners in his practice, shall she be entitled to a piece of the practice just because she was married to the neurosurgeon? What if he marries 4 times? Should all the 4 ex-wives get a piece of the pie??
While you may think that states are fair and divide everything equally, reality is much different. Family court is a revolving door, and people get caught up on it, helped by unscrupulous attorneys.
Divorce is big business, and people separate not because they love each other but because they can’t stand one another. Unfortunately this period of emotional instability is exploited by many, and many divorces are dragged for years on, becoming costly- something that can easily be solved with a prenup during the time when they both love each other and want the best for each, not when they are thinking about themselves as a separate entity.
Why should anyone risk what a judge, who is likely to be bias in many ways, may decide for your life ? Why not take it upon yourself to write what YOU want it to be. ? I see prenup just the same way I see a will, a power of attorney, or any other legal document that guides how you want your life to be, and as romantic as health insurance, I bet nobody buys health insurance thinking they will use it to pay for Cancer therapy, but it is part of life.
As for what I think is fair, I may be a little bit of an extremist in that sense mainly because I grew up in a society where no-one had literally anything. But FAIR to me would be:
Whatever you have accumulated up to the point of separation is divided in half, house, 401k, investments, cars, dogs, you name it, cut it in half. Regardless of who worked outside the home for it.
I STROGLY DISAGREE with lifetime alimony, but agree with Rehabilitative Alimony, and that can be placed on a prenup.
I do not think she should benefit FOREVER from his career and thriving practice, she knew quite well she was marrying somebody with a bright future and, while it lasted, she enjoyed the perks significantly-they bought their dog in Tanzania- had she married a “______” she may not have enjoyed any of this. Just like anything in life, once it is over, IT IS OVER. She has to pack up, take what she helped build and go on living a separate life, just like he does.
There are many factors that a competent family attorney can foresee while drafting a prenup- you will be surprised what they can think of and make it a binding legal agreement that can stand in court.
That is why I advocate for everyone to have one drafted, DO NOT trust your life to the founding fathers- which basically were the ones that wrote the Prenup you have in place when you got married. Because we ALL have one, even though 90% of us do not know what it says.
Thats my take, sorry for the long rant I actually have strong feelings about this, I have seen first hand how people suffer due to not having this document.
Want to confirm??, just poll whoever has gotten divorced in this site, and see how many will tell you they wish they had a prenup in place.
….on that note, Im going to go kiss my girlfriend gm now!
It’s salmon, not salmons, just like moose, not mooses. Sorry, Alaskan thing.
I don’t know the answers to your questions. But I suppose if you’re both worried enough that the state/court method is not going to be fair to one or both of you, you can decide what is fair a priori and get a pre-nup even if you’re starting with nothing.
I just asked my wife what she thought was fair alimony in the event of divorce after 20 years of marriage if I were grossing $20K a month. She didn’t have any idea either, but her first guess was definitely higher than mine (by a factor of 2 in amount and length of time), so you probably make a fair point.
Hi there! Recently joined the financial independence community and discovered your site; great info here and I tend to agree with your stance on bitcoin/crypto. Many of my colleagues are placing their residency salaries into bitcoin and the like. The reasoning is that we’re relatively young and bitcoin could double, triple or go up by 10x; many are not married without kids and feel they can risk a small amount (in the grand scheme of things) on this speculative type of investment.
What’s your opinion on whether residents/fellows (myself included) should speculate on these vehicles while we’re relatively young.
I really don’t think it matters your age a well disciplined financial plan starts early. Now is your chance to let the power of compounding work to your advantage. If you have the means you should max out your Roth IRA, and if you residency offers a 403b I would use the roth 403b while you are still in lower brackets.
Prior to medical school (graduated 03) I started to contribute to a traditional IRA (vanguard S&P 500, Roth IRA didn’t start until 97) during my time working as a grad student and research associate. During residency I maxed out Roth IR contributions then came along the 08 crash just as I was starting to moonlight and my wife started working as an attending. It melted away all my traditional IRA earnings. I converted my traditional IRA to a Roth with minimal tax implications. My wife and I maxed out our retirement accounts including 529 plan once we got married in 08 and that is when I started her Roth. When I started to moonlight, I utilized a SEP IRA to add to my back door Roth. Currently our Roth accounts have a balance of $333k we are 45 and 42. So, I could have thrown that early money into tech in late 90’s most likely would have lost it all. But now my boring Roth S&P 500 index fund assuming 8% return maxing out contributions using current limits will be worth about 1.6 million when I am 62 and my wife is 59. I have no plans to work until 59 more like 55 max and I plan to cut down to 75% effort soon. The Roth will give us the flexibility to maximize our tax efficiency during retirement. You can always witdraw contributions tax and penalty free anytime. I will most likely never really have to touch principle on the Roth. I will just use interest to optimize my tax brackets in retirement. It is also a great way to pass money on to your kids.
Speculative investments are just that. Yes at a young age you can be more invested in equities and take more risk as you have more time to ride out downturns. At your age I would hope for another epic bear market, maximize your Roth and take advantage of compounding. If you like to go to the casinos take the money your would have spent at the tables and invest in bitcoin. I think the risks are similar.
I think speculation is a bad idea in general no matter what your age and recommend you and your colleagues get a financial plan in place ASAP. I’ll bet when you really think about it, Bitcoin probably won’t be part of that plan. But if it is, at least you’ll have a plan for it.
At least you’ll be better off buying bitcoin at $10,000 than the $19,000 it was a month ago.
As someone arguing about the merits of cryptocurrency, I completely agree with LG and white coat investor. I don’t want to give the wrong idea about “investing” in this market. My investment in this space is basically casino money and not a serious amount of money. Residents investing whole paychecks is crazy and while it may or may not work out short term, it sets up a really bad precedent in their investing habits.
As white coat investor said having a well written financial plan is the first step. During residency I then secured proper disability coverage, maxed out my roth ira each year and contributed a fair amount into our hospital 403b. All of this while doing residency in a HCOL city (Manhattan)! I would say that’s what you and your colleagues should be doing at this stage.
good material!