I’m fairly consistent in my advice that you shouldn’t invest in Bitcoin.
We’ve talked about Bitcoin before and you can read previous articles or listen to past podcasts. You’ll see that I’m fairly consistent in my advice that you shouldn’t invest in Bitcoin. This isn’t because Bitcoin is bad.
It went grew to over 11,000 this week, which means one Bitcoin is work $11,000 American Dollars. It dropped soon after but is still hovering over $10,000. Overall this year the Bitcoin has grown by over 900%. That’s great, and when you see those numbers alone it’s tempting to want to buy in. However, investing in Bitcoin is what I like to call Powerball Investing.
Think of when you’re driving down the highway and see that Powerball billboard showing that the jackpot is over 100 million dollars. So you call your brother, your coworkers and your friend and you all buy tickets. The potential of that big win is too exciting for you to pass up, but you forget that the more people who buy tickets the less likely you are to win. It’s a similar problem with any kind of cryptocurrency like Bitcoin. You see that the value is over $11,000 and want to buy in, but that’s when everyone else wants to buy in as well. The system is then flooded with new money and it loses value again.
You see that the value is over $11,000 and want to buy in, but that’s when everyone else wants to buy in as well.
Here’s why it’s really dangerous: it’s not a diverse investment. I believe in wide, massive diversification. For example, I have the option in investing in the Coca-Cola company or I can invest in 500 companies like Coke. Why should I chose the 500? The upside of both of these are similar. You won’t usually see a massive difference in the growth. The difference is in the downside.
Coke could have a scandal so no one is buying Coke. That could cause the stock to tank. Now I’ve lost all my investment. That’s a big risk. If one of the companies similar to Coke tank, I only lose part of my investment. Investing is all about risk management and you shouldn’t take unnecessary risks. Putting large amounts of money in Bitcoin is taking an unnecessary risk.
Investing is all about risk management and you shouldn’t take unnecessary risks.
Now, there is a practical strategy for investing in Bitcoin for those who want to. You can use an amount of money that is not part of your retirement. In that case, your investment in Bitcoin is a hobby instead of a source of income. It must be an amount of money you’re okay with losing, like a money you take on your trip to Las Vegas. Your retirement fund, though, needs to be diversified. Your future is not a risk you want to take.