Bitcoin for Bogleheads? Bogleheads should consider a long-term investment in cryptocurrency

Bogleheads should consider a long-term investment in cryptocurrency

Bogleheads should consider a long-term investment in cryptocurrency

I know that many hardcore Bogleheads will be completely against cryptocurrency investments. After all, why take on the additional risk to your portfolio when you can simply invest in Total Stock Market Indices and keep your costs low?

But, if you look at the actual Bogleheads philosophy, there is no reason that Crypto cannot fit into it:

The Bogleheads philosophy:

  1. Develop a workable plan
  2. Invest early and often
  3. Never bear too much or too little risk
  4. Never try to time the market
  5. Use index funds when possible
  6. Keep costs low
  7. Diversify
  8. Minimize taxes
  9. Keep it simple
  10. Stay the course

The biggest blocker to a Boglehead investing in Crypto would likely be the perceived risk and the loss of the ability to keep it simple.

Modify your allocation plan to include crypto as a small percentage of assets reduces the risk

For me, my personal issue into entering the market more substantially in Crypto has been that I have been trying to time the market. I recently fired my financial advisor, and updated my allocation plan.

This plan includes 1-2% investment in Crypto.

The problem was that by the time I finished my allocation plan, Bitcoin and Ethereum had skyrocket in price. I figured that there would be an inevitable burst to this current bubble and prices would head back down a good 30-40%.

But prices have not. Tesla just bought $1.5 billion of Bitcoin, and now have fueled the current bubble(?) to even higher levels.

If you want to invest in Crypto, but think that the risk is too great, consider that 1-2% of your portfolio hedges that risk greatly.

Bitcoin as a store of value. It is part of my Alternatives allocation. And I firmly believe that decentralized finance is here to stay.

Passive index investments do not yet fully capture the entire crypto market

No one should be investing all of their assets in crypto.

But 1-2% is likely to be the prudent way to capture the full financial market that cannot be currently captured only through Indices.

If you are investing only in the stock market, you are not fully capturing the entire current market.

If you can create a plan for long-term investment, then Bitcoin should be considered in your plan as an Alternative.

Bitcoin is a store of value. It is an Alternative Investment. And I firmly believe that decentralized finance is here to stay.

Timing the market should be off the table

However, if you want to yield to Boglehead philosophy, then timing the market should be off the table.

Sure there is a lot of risk with investing in a volatile cryptocurrency such as Bitcoin. It will have wild swings up and down.

If you invest at the current moment, you may well be looking at a 50% loss on your investment. But you may not. Bitcoin could eventually increase 10x, and maybe it will eventually stabilize as a true store of value like gold.

Bitcoin may will never go back down as decentralized finance gains more of a foothold and more average investors dip their toe in.

There are real financial uses for cryptocurrencies and blockchain technologies that are now coming to fruition.

There are already coins out there that will pay 4% or more interest on any money that you park in the coin via staking rewards. And there are many more future and current uses.

Bogleheads can invest in cryptocurrency

  • Bogleheads should consider investing a small portion 1-2% of their assets into cryptocurrency
  • Bogleheads should NOT be trying to time the market, even if there is a current bubble
  • Bogleheads create a plan and stick to it. Stay the course.

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4 comments

  1. It’s fascinating at how personal finance blogs are actually starting to embrace the technology behind bitcoin, DeFi, and blockchain. First, it was the speculators, then now legitimate personal finance bloggers are supporting it.

    It can only be a matter of time before institutional money and the masses start to adopt it. Meaning, we are literally just at the START.

    1. Yeah I think we are right at the start. We are past the Innovators stage, and now onto Early Adopter stage…perhaps on the brink of Early Majority. The internet will likely end up being retooled using blockchain technology. It’ll be more secure, and even more distributed than it already is. More money will be made here for sure.

  2. You hit the nail on the head. As an investor with Boglehead foundations, I was originally pretty skeptical about crypto. But when I got rid of my assumptions and looked at it objectively, I started to realize that if you invest in crypto responsibly, it can absolutely be in line with Boglehead philosophy. (Aside from the simplicity aspect… setting up a crypto wallet is definitely harder than a simple three fund portfolio!)

    Otherwise most of the principles are similar. Long term holding, diversification, hedge against risk, etc.

    Especially the part about timing. “It’s a new all time high” has always been a bad reason to avoid dollar cost averaging into VTSAX, and I think it’s an equally bad reason to avoid crypto.

    1. Well, at least setting up a crypto wallet is much easier now than it was 3-4 years ago. And if Paypal and other secure banking applications are allowing users to hold Bitcoin and other coins securely, then this is likely to be a non-issue altogether.

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