“Are you going to talk about bitcoin in your book? »
It was a year ago. I was finishing the manuscript for my most recent book, which was about best practices in stock market investing. In the conversations around me, the subject of bitcoin came up repeatedly. Bitcoin had just tripled in value in a few months. We heard about it every day.
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I’m the worst person to comment on the usefulness of bitcoin. To me, cryptocurrencies are, in the words of comedian John Oliver, “everything I don’t understand about computers, combined with everything I don’t understand about currencies”.
What interests me, however, is the psychology of investing. And I have not been disappointed with cryptocurrencies.
After seducing millions of investors with its dramatic rises, bitcoin, the most popular cryptocurrency, has dropped 73% of its value in the past year. A $10,000 investment a year ago is worth $2700 as of this writing.
If you or someone you know has lost money in the digital currency meltdown this year, don’t be discouraged. No investor has a perfect background. Everyone has screwed up one day or another, and sometimes royally – me first. The important thing is to get up, learn, and do better next time.
The diehards shrug their shoulders. ” And then after ? Bitcoin has crashed before, and it will come back up for sure! This is the price to pay to get rich. »
Part of me admires people who think that way. This is the right attitude to have when investing for the long term.
Yet, to adopt good financial investment practices, the percentage of our portfolio allocated to cryptocurrencies should approach zero — and that’s why I didn’t mention bitcoin in my book.
Putting the odds on your side in investing starts with having a diversified and balanced portfolio. The idea is to have our balls in multiple asset classes, spread across multiple sectors, spread across multiple countries.
In this way, we can take advantage of the growth offered by the markets, while ensuring that we do not suffer catastrophic losses if a company (say Meta, parent company of Facebook) were to lose almost 70% of its value in less than a year, as it happened this year.
For 50 years, a balanced portfolio of 60% diversified index exchange-traded funds (ETFs) and 40% bonds has returned 8.59% per year on average.
That’s what we know. This is the basis.
Many cryptocurrency proponents decided that “the basics” did not apply to them. They argue that cryptocurrencies are the future, so it makes sense to get on board as soon as possible.
Let’s give them reason, and let’s be generous: let’s imagine for a moment that cryptos will cause social and economic changes as important as the arrival of the Internet.
If we could go back 25 years knowing that the internet was going to change everything in our lives, how would we invest? Among the stars of the time were the companies AOL, Yahoo!, Excite, Lycos, Compaq Computer, WorldCom, Nortel…
If you are under 40, these names probably mean nothing to you. None of these companies exist in their original form today, and investors who rushed to buy them have collectively lost billions of dollars.
The internet is no exception: historically, investing in the new and exciting has caused far more tears than cries of joy, as it has with electricity, automobiles and aviation, among others.
It’s possible that cryptocurrencies will be everywhere in a few decades, and people investing in cryptocurrencies today may not be taking advantage of the windfall.
It’s just as possible that bitcoin’s price will take off for the moon again tomorrow morning.
I don’t know the future of cryptocurrencies. No one knows the future of cryptocurrencies.
I asked you last week if you had got into the habit of saving and investing since your youth. Here are some of the responses received:
Valérie writes: “When I worked during my high school studies and in CEGEP, I saved for the short term: car, trips… Then at university, I saved for a down payment for my first duplex. Now I am saving for my retirement and for financial independence. At 31, I have $100,000 and two rental properties. We never go fast enough for our taste, but I am constant in my savings. »
Sébastien writes: “I haven’t been investing since I was young, but I’ve been doing it for eight, nine years. Today, at 45, I save more than 60% of my income despite the fact that we have four children and that we travel as often as we can, our expenses are really at a minimum. But our needs are also minimal, so it helps to be able to save. »
Michel writes: “My wife and I are 74 years old today. We started on the labor market around the age of 18. We always made a budget and the most important item was saving and investing. It allowed us to retire in our mid-50s with the freedom to do whatever we want. [voyages, sports, restos, etc.] without experiencing stress about money. »