Bitcoin Is Not the Best Way to Start Investing

“I don’t trust investing,” a friend once said. I asked her why. “ Doesn’t this sound like playing the lottery? she asked. Investing already scares people. Add something as unpredictable as cryptocurrency and people will give it up completely. It reinforces the notion that investing is like buying a bunch of scratch-offs.

Whatever you think of cryptocurrency is the Ponzi scheme , this is the next big thing – one thing’s for sure: Bitcoin is pretty damn sure it’s not a retirement plan.

“I would never recommend Bitcoin,” said Norm Mindel, a certified financial planner, co-managing partner of Forum Financial Management and author of Wealth Management in the New Economy. “When something weird happens like this, if a customer comes in and says, ‘I want to buy this,’ I would say, ‘Okay, if you want to do this, take a small piece of your portfolio and go buy.’ But leave me aside. “

Difference Between Bitcoin and Long Term Investing

There is a big difference between passive long-term investing, which is required to create a nest so you can retire someday, and investing in something like cryptocurrency, which is generally cryptic. Mindel says the problem with crypto is that we don’t understand it. While there is a risk associated with any type of investment, the risk is much higher when there is no data from which a lot of data can be extracted.

Another problem is that unlike investing in a profitable company or renting a profitable property or anything else that makes a profit, commodities like cryptocurrency have no intrinsic value .

“I describe investments like this: when you invest in the stock market, what are you actually buying? You buy the present value of the capital gains dividend, ”Mindel explained. “So when people say, ‘I don’t understand the stock market, the stock market is a gamble.’ Well, there is a risk associated with it, but there is something to measure. “

On the other hand, cryptocurrency is more of a game because there is no benefit other than that someone else is willing to pay for it.

“When you are dealing with commodities, perhaps cryptocurrencies, you are relying on someone else to pay you a higher price. The product itself has no value. There is no intrinsic value if someone is not willing to pay you more, ”Mindel said. Yes, maybe someone wants to pay you much, much more, but the problem is that we just don’t know. And this is dangerous.

How bubbles are created

Of course, someone will inevitably show up and say, “But hey, it worked for me,” which continues to inflate the bubble. Guessing games and get-rich-quick schemes sometimes work, but more often than not they are just a good way to lose all of your money. As boring as it sounds, you usually can’t go wrong with diversifying your investments in the broader stock market with the right mix of stocks and bonds. For most people, in the long run, this has worked much better than placing a bet and getting lucky.

“You need something with data points and guidance,” Mindel explains. “This is what happens when you own a company. If you own all bitcoin, there is no cash flow, there is only money based on what you do to create a new currency, which is beyond my understanding. “

Passive investing may not be mysterious or attractive (well, not at all), but it’s enough for Warren Buffett, the world’s greatest investor. However, beyond the mystery of cryptocurrency, it is especially dangerous to bet on what is becoming a trend. This trend starts to inflate like a bubble and bubbles tend to burst (look what happened with the Dotcom bubble ). And for whatever the cost, Buffett warned that Bitcoin is also a bubble .

But what is a bubble?

“A bubble is when values ​​take on what might be called irrational,” says Mindel. “The problem is, you don’t know it’s irrational, so prices go down. Most people remember the housing bubble lately, prices kept going up and everyone told you that a home is a great investment, you will never lose money by owning our home, you can no longer get this deal if everyone is buying for a fever. … At the moment, and this is only in retrospect, then we would say: these houses never cost that kind of money, ”explained Mindel.

The quieter you go, the further you’ll get

While some people are already calling cryptocurrency a bubble , people are shying away from the get-rich-quick temptation warnings. I asked Mindel if it makes sense to put it on the bubble right before it bursts.

“I’m a terrible market timer. If you make a decision because of time, you are either very smart or very lucky, ”he said. “There are very few of them.”

This is something like a dispute between a tortoise and a hare. Like any get-rich-quick plan, you might get lucky, but it was that simple, we’ll all be rich. When it comes to amassing wealth, the slow and stubborn almost always wins the race. So if you’ve hired a professional in charge of managing your wealth and they’ve put your portfolio in bitcoin, you should probably find a new professional.

Trends like Bitcoin often deter people from investing. Many people already believe that investing is like playing the lottery and therefore they never save more than in a traditional 1% savings account. By the time they retire, they are already in short supply. Bubbles like cryptocurrency confirm their concerns.

“Look, if I had a client who said, ‘I’m either going to take my money to Vegas or invest in bitcoin,’ I would say I would use cryptocurrency because you will probably have better odds than in Vegas, ”Mindel said. “But you have to approach it with that kind of mentality.”


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