Today’s compliment: you are the best niche.
I’ll start with how I’m continuing to experiment I’m writing – and ask for your input. If you want to skip ahead to this week’s money topics, scroll down to read: The 50/50 Bitcoin Ethereum Strategy, Buying in chunks, Inflation, and a Credit boost hack.
💰 The 50/50 Bitcoin Ethereum strategy
When a prescient figure like him makes recommendations, I listen. Here’s his bullish take on Bitcoin and Ethereum on the Tim Ferriss podcast:
“If I was given $100,000…how do I maximize returns? The most obvious thing to do is put half into Bitcoin and half into Ethereum. [That is] the simplest thing that I think is guaranteed to produce really exceptional returns.”
This is also the strategy I follow. I set a weekly recurring buy in equal amounts BTC and ETH. I started from BlockFi, which is what most people should start with (good UX), but now I use Voyager to manage these weekly buys. The good news: both platforms earn you 1) interest on your crypto and 2) a bonus for joining with my friend link :)
Okay, but you might be asking what’s the overall investment thesis behind crypto, and specifically this 50/50 strategy?
1. High level crypto perspective from Balaji
“[Crypto] is the financial Internet. …what did the Internet do? It digitized books, movies, songs, all forms of media, right?
Crypto goes and digitizes everything scarce: stocks, bonds, commodities and of course, gold and other things. The internet was the way to copy things from point A to point B. Blockchain is the way to transfer things, scarce things, in a proven way. So every financial asset becomes natively crypto, just like every media thing became natively digital.”
^ I’ve long thought that crypto represents an alternative financial system, but I’ve never thought of crypto as the new “financial internet.” Fascinating comparison.
2. Balaji’s reasoning on the 50/50 strategy
“There [are] likely…growth stage tech investments or other coins that outperform the 50% BTC/ETH strategy. But for the level of simplicity and scale this offers, it’s a pretty solid bet to multiply large amounts of money over ten years.”
The simplicity of this strategy also implies not buying other smaller cryptos. Just like the common advice to buy the S&P 500 over picking individual penny stocks, the 50/50 BTC ETH strategy is a mental one: you don’t have to bother the relative volatility of smaller cryptos.
BTC and ETH are about 50% off their all time highs: BTC touched $60k and it’s now $30k, ETH touched $4k and now $2k. I’m convinced that we will not only reach those highs again, but cross into new realms.
🐢 Buy small chunks over time
When people say “don’t put all your eggs in one basket,” it usually refers to spreading your money across different assets.
Diversification doesn’t only apply across investments, but it also applies to diversifying in 1 investment across time.
For example, let’s say you have a $10k budget to invest in crypto (staying on theme here). Then you put your entire $10k investment into Ethereum at the current price. This isn’t necessarily a bad move. But…
What happens if ETH drops 20% the next day? You’re out of funds to buy the dip. Worse, you might feel like shit.
Buying smaller amounts over time = insurance against buyer’s remorse.
This style of purchasing investments is known as “DCA,” or dollar cost averaging. Underpinning DCA is also the assumption that you can’t time the market.
DCA is even more powerful when it runs on autopilot. A recurring investment enables investors to avoid the stress of making the right trade every time. Instead, the mindset is of “I’m automatically buying into something I believe in, over time.”
Other way to think about it: investments are constantly changing. The company you invest in today may not be the same company next year. So buying the same asset over time also means you’re investing in the evolving story (e.g. growth and development) of that asset.
Hindsight is 20/20 and we all had thoughts like: “If only I put my entire savings in Bitcoin!” Or Gamestop, or Doge! But the reality is that this creates a huge financial risk, as well as mental burden.
I’m not against doing buy 1 time buys, but I consider making concentrated, high conviction bets an expert move that’s to be used with great caution and care.
I’ve personally felt the psychological benefits of dollar cost averaging. I feel less stress trying to time the market now, and feel like my dollars are flowing to meaningful investments without my active management.
📈 A fun illustration of inflation
Over the last 12 months, U.S. annual inflation rate has popped to 5.4%. Most of that increase is driven by energy prices, according to the BLS. This checks in anecdotally, I’ve noticed gas prices are up.
- Inflation is a hidden tax on time. The same dollars are worth less now than they are before.
- How dollars are distributed matter. If the gov gives everyone money (which they have in 2020), the rich already have their needs covered, so they’ll park more $ in financial assets like stocks. Hence why the economy can be in the shit and have the market hit all time highs. Everyone else will use that $ to buy normal goods, pushing up prices on everyday consumer items like gas and groceries.
- Inflation data is a guess, not 100% accurate. The consumer price index has gone over many revisions, and doesn’t take into account how technological innovation drives down costs (no one buys encyclopedias anymore thanks to the smartphone)
How are you hedging against inflation?
🍳 Credit score boost hack: Authorized users
For those with a short or nonexistent credit history, there’s a quick, free way to boost credit scores: ask family or friends if they can add you as an authorized user onto their existing credit card(s).
Many credit cards have the ability to issue another credit card for an additional authorized user. (Imagine issuing one for your spouse or child). When requesting to add an authorized user, they ask for info like name, date of birth, and social.
For safety, the account holder can just have the extra card sent to them to make sure the person they’re helping isn’t just spending willy nilly. The account holder can then use that second card as they normally would, because everything gets reported back to their name.
Obviously this works best with a responsible friend who pays off their debts on time.
But this strategy can really help someone with no credit build up “credit age” and credit history.
Check out this Nerdwallet article for more info.
🤔 If I were to write a series of essays on 1 topic…what would you want to read?
Quick plug again: vote on one of these topics—
- Explaining financial things (what is “market cap?”) in a fun way
- Lessons from investing & finance books and gurus
- Alternative investments like investing in farmland, crypto, art, etc.
Hit “reply” and respond with your vote on 1, 2, 3.
Alternatively, you can add a vote for an option that’s not here.
You opinion has weight. I may very well turn this into the next 30 day Twitter challenge and curate the best things I end up writing.
Just for fun: Late opera singer Luciano Pavoriti singing Apple bottom jeans (yes, the one from Flo Rida).