Bogleheads should consider a long-term investment in cryptocurrency
Updated: August 29th, 2021
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? I get it.
BUT, if you look at the full Bogleheads philosophy, there is no reason that cryptocurrency cannot fit into it:
- Develop a workable plan
- Invest early and often
- Never bear too much or too little risk
- Never try to time the market
- Use index funds when possible
- Keep costs low
- Minimize taxes
- Keep it simple
- Stay the course
Now let’s look at this again and see how cryptocurrency investments can if into this philosophy:
- Develop a workable plan – Yes, we can do this with crypto.
- Invest early and often – Yes, we can do this.
- Never bear too much or too little risk – Yes, we can do this.
- Never try to time the market – Yes, we can do this.
- Use index funds when possible – None with low fees (yet).
- Keep costs low – Yes, we can do this.
- Diversify – Yes, crypto will further diversify our portfolio.
- Minimize taxes – Yes, because we aren’t selling.
- Keep it simple – Yes, we can do this.
- Stay the course – Yes, always do this.
So you can see that the biggest blocker to a Boglehead investing in crypto right now is going to be the lack of an inexpensive index fund.
Passive index investments do not yet fully capture the entire crypto market
Bitwise offers the first OTC Index Fund with its Bitwise 10 Crypto Index Fund (BITW), but the fees are 2.5%! That is just not going to cut it.
That means taking on any crypto investment is going to require that you actively manage your portfolio.
I don’t love this, but it’s also not a deal breaker for me. As a Boglehead, I want to buy and hold. So while I do have to actively manage my crypto in this case, I am only really buying once and holding. That is not very active.
No one should be investing all of their assets in crypto. But as Boglehead, I want to be exposed to everything that the markets have to offer. This includes cryptocurrency that cannot be currently captured only through Indices.
Many Bogleheads want to only invest in a 3 or 5 fund portfolio. I am all about the simplification, BUT I also want to capture cryptocurrency and blockchain investments in my portfolio. I firmly believe that decentralized finance is here to stay, and I want it in my portfolio!
So how much is too much when it comes to cryptocurrency? Updating your Allocation Strategy.
Bitcoin is a store of value. It is an Alternative Investment.
So my thesis is this: Cryptocurrency (or at the very least Bitcoin and Ethereum) should be considered in your Alternative investment strategy.
So when I built out my allocation plan, I earmarked 10% for Alternatives with 1-2% of that being an investment in Crypto.
For me, 1-2% is enough to gain an entry point into the market, but not enough that it puts anything else at the risk.
Whatever risk you think you can tolerate, make sure that it is not enough to put your financial future at risk.
On the wild volatility: don’t try to time the market
Cryptocurrency is volatile as hell, with wild swings up and down.
If you invest at the current moment, you may well be looking at a 50% loss on your investment tomorrow. But you also may double your investment. Bitcoin and Ethereum could each increase 10x. We just don’t know.
Timing the market is off the table.
Yet by the time I finished my allocation plan, Bitcoin and Ethereum had skyrocketed 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%.
If I wanted to start investing in crypto, I just had to start dollar-cost averaging.
No matter where the cryptocurrency market is, do not try to time the market. Just don’t.
Stay the course: create a plan and stick to it
Keep it simple. Create your plan and stick to it.
Buy only what you know. For me, this is Bitcoin and Ethereum. That is all for now.
As I learn about new emerging uses that show real-life promise, I will consider investing in those cryptocurrencies as well.
But otherwise, I am buy, hold, and stake.
Why I am invested in cryptocurrency and blockchain technology
There are real financial uses for cryptocurrencies and blockchain technologies that are now coming to fruition:
- Peer-to-peer Transactions and Payments
- Digital Identity
- Digital Marketplaces
- Borrowing and Lending
There are already cryptocurrencies out there that will pay 5% APY or more interest when you hold and stake your coins via staking rewards. In fact, I recently staked my Ethereum 2.0 on Coinbase and am now earning 5% APY.
BlockFi also has an interesting strategy where their BlockFi is acting like a modern bank and lending your money, so with a BlockFi Interest Account (BIA), you can earn up to 7.5% APY.
So not only are there real benefits for investing and capturing the entire market, but there are short-term lending/staking benefits as well.
And this is just the tip of the iceberg. There will be many more financial and non-financial uses for cryptocurrency. Blockchain technology is here to stay.
Bogleheads can invest in cryptocurrency
- Investing in cryptocurrency fits within the Boglehead philosophy
- 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.
Coinbase for easy entry into cryptocurrency
I recommend Coinbase for easy entry into cryptocurrency investing. I personally use them to manage my crypto investments.
You can easily send/receive cryptocurrency within the Coinbase app, as well as instant transfers via bank, credit card, wire, or paypal.
And if you are worried about security, you can also pair Coinbase with the Coinbase Wallet app to securely store your crypto yourself.
P.S. Accidentally Retired is for informational purposes only. We are not experts. We are providing our personal opinion and it should not be taken as legal, financial, or tax advice. Accidentally Retired may receive commissions for links included in articles to Amazon and other affiliate partners.