Agree re:CAPE. Meanwhile, people are ignoring the relatively attractive valuations of small, value, plus developed and emerging ex-US markets. While retail investors pile onto overvalued US stocks, these are now slowly catching back up and starting to get ahead. Funny thing about all of this to me is that people are always fighting the last proverbial war. Ten years ago, US stocks and tech in particular were in the doghouse - no one was buying them then.
TL;DR A lot of investors buy high and sell low. We're seeing that now with crypto as well as US stocks.
The thing I don't get (and I have the same skepticism about gold ETFs) is that if one is trying to hedge extreme scenarios (e.g. high inflation or even monetary collapse) ETFs being 'protected' could easily fall through. I sort of understand holding one's own gold or Bitcoin, but through and ETF just seems like all the speculation with none of the crisis portability.
For those who aren't very dilligent, the risk of losing one's coins due to loss or theft is likely much higher than the risk of hyperinflation or monetary collapse. Being your own bank is a huge pain in the ass it turns out. Also inheritance planning is much more simple with an ETF.
You don’t have to care about the benefits to profit off of it. If enough other people care about those benefits to make the price go up, you can still make profits off the ETF . And you can make those profits in a retirement account.
A good way to get high returns is to simply use a low-cost, tax-efficient combination of stock and bond index funds. After taxes and fees, the results compound in your favor. I have no interest in gambling on even higher returns - those are plenty for me. If you want to maximize your chances of getting rich as well as getting poor, yes, you can put it all on Bitcoin, or Tesla, or 32 at the roulette wheel, but I'm more interested in growing a nest egg than taking those risks.
> If you want to hedge against inflation, I suggest TIPS and maybe a bit of gold.
I need to read up on TIPS, haven't heard about that before. Yes, gold is a decent option as well. However I view Bitcoin as digital gold and it has a few nice properties that gold doesn't have (of course gold has some good properties that Bitcoin doesn't have). One of the aspects of Bitcoin that I appreciate the most, is that it's very easy to carry around with me, for example when travelling on an airplane to another country. The same is not true for gold.
> I would also point out that the market expectation clearly isn't aligned with currencies being 'in trouble' - very low inflation in general right now.
Inflation is actually really high, but its mostly hidden in rising prices for stocks and real estate.
> Inflation is actually really high, but its mostly hidden in rising prices for stocks and real estate.
Sort of. There's inflationary forces (fiscal / stimulatory policy) battling deflationary forces (mainly technological innovation), mainly netting out to a low inflation rate at the moment, as defined by the CPI.
Assets that are not affected by the deflationary forces (such as land, and some types of housing), do tend to increase in value, though some of that is increase is just due to interest rates being so low (since for most consumers the house payment is more important than the absolute price; when interest goes down, prices normally go up).
It would be interesting to do a graph of interest-normalized house/asset prices over time.
You had it with 'we can make infinite coin types' - who cares about what is adopted today? People change platforms every few years. What happened to MySpace? What's happening to Facebook even now? Where did TikTok come from? There is turnover.
A deflationary asset class encourages hording, not spending or using in other ways. There's also no real limit to the number of crytocurrencies that might appear later (see: MySpace replaced by Facebook), unlike gold. As for inflation: safe government bonds have historically kept up with that over the long haul, so no big loss there.
My understanding has always been interest rates. Interest rates on savings accounts are supposed to be slightly lower than interest rates on loans with the bank taking a profit in the middle.
Home loans used to be much higher, in the 10-15% range and you could get 6-7% on your savings account.
With home loans in the 2-3% range, those margins aren't feasible anymore.
But that's probably an old understanding. I'm sure there's a lot more financial wizardry to it now.
I'm not an economist either but what you said makes sense. We instead nowadays have tons of various fees on our bank accounts so the return ends up being negative. And we're supposed to accept that this is fine and normal? Economy is booming? Give me a break.
This is why creative solutions like bitcoin, if not (necessarily) directly solving anything, do give pause for thought, and maybe shine some hope for a non-corrupt (immutable) system of money.
I need to read up on whether a deflationary currency/economy would really be an issue, or if it just wouldn't work with how things are currently set up.
Edit: And yes, it's a complex issue with no outright easy answers. Doesn't hurt to think about it though.
Rates have been declining for years (decades, really), but so has inflation. The spread hasn't actually changed that much.
> Imagine a society not based on consumerism and quarterly report increases. Gasp!
I have literally no idea what that would look like or how Bitcoin would play a role. I guess hodlers who bought early would be rich and normal people poor?
Hmm. Ignore the existing coins for a moment, let's just imagine that starting today everyone gets their salaries paid in bitcoin and that's the only currency you can use.
Assuming the value will slowly (and for the sake of argument steadily) increase, would consumption and innovation stifle to a halt and everyone turn into hodlers?
Saving money would become attractive yes, and loans would become expensive or unrealistic (depending on the rate of deflation).
And companies/businesses would value a steady and solid stream of revenue/profit over hysterically chasing constant growth.
Even if you accepted it as a diversifier, all cryptos combined still have a relatively small market cap, so I don't really see the point in adding them to a stock/fixed-income portfolio. It's a bit like frontier markets: sure, they're possible to invest in, but expensive, small and won't make a big difference at market weights.
It really just comes down to the idea that blockchain networks are cheaper, more secure, more reliable and more scalable than traditional server arrangements. That’s not just my opinion; most of the top tech companies are ploughing huge amounts of money into it. market investors will do what they always do, but all I know is that I would rather have a crypto wallet with some stored value than an old, inefficient server sitting in the corner.
I mean if you're literally talking about the difference between 'buying physical servers' and 'buying Bitcoin' ... well, it seems to me you're missing out on a range of other options, like: investing in companies developing new hardware, for starters. Personally, I just lease what I need at going rates, which get ever cheaper. And by cheaper I mean: in dollar terms - so to keep up with that, I don't see the need to hold highly volatile Bitcoins when I can just hold inflation-adjusted Treasury bonds.
Bitcoin is probably not the best case study for this aspect of the conversation, but I suppose you have a fair enough point. Although to be clear, I am thinking of the assets more like commodities than speculative stocks or equities. I do not mean to suggest that traditional servers are going to go away or become obsolete any time soon, but after you get past the cryptocurrency hype in the headlines there really is a huge amount of potential for the technology. This is definitely what long-term investors are considering and why this is even a topic here.
My main issue is conflating the potential for an approach to technology with something like, say, Bitcoin specifically. Yes, many blockchain applications exist, but that doesn't translate into profits from investing in cryptocurrencies.
I've always liked the saying 'sell pickaxes to the miners' - rather than investing in the virtual gold, why not sell things to those who want to go find it? The real winners will likely be the companies who facilitate things (much like active trading platforms make money while the options traders on them often lose money overall).
Stocks are shares in profitable companies. They have risks, sure, but they also have expected returns based on sound fundamentals and a long history of generating income.
Exactly my point. They add certain value to the economy and have fundamentals. From my understanding, I don't even consider Gold (a limited resource) a long-term investment.
Gold is a good portfolio asset for reducing overall risk in a long term investment strategy. You can beat the market over time with less risk by holding the S&P 500 and gold and weighting each according to respective volatility. This also has a lower beta exposure than just holding stocks.
Gold (and commodities more generally) have fundamentals - just different ones from equities. You can't take advantage of the universe of sound investment opportunities if you restrict your attention to equities.
We have fairly little data on gold as a freely available modern asset class (around 50 years), but yes, in small amounts it can limit volatility and potentially even increase returns (or at least: risk-adjusted returns). That said, over the long haul, independently, it has tended to roughly track inflation. I'm not against it, just see it as something of limited utility to an ordinary investor.
Using minimum variance optimization with gold and spy produces a portfolio that is often 50% or more of gold. This beats the risk adjusted return of spy by a reasonable margin.
So I guess the point I'm making is that often a lot of gold makes sense too.
You could say the same about Ethereum's ETH. It's a capital asset that when staked to validate blocks generates an expected return. You can discount those expected returns to the present like you would with any business.
Investing in profitable companies by itself does not generate above average returns. Only 1 of the original companies of the Dow Jones is still in it today, G.E. and it's performance as investment has been below average the past 20 years.
> Only 1 of the original companies of the Dow Jones is still in it today
Small companies become bigger, driving returns. That's why you don't just buy the DJIA but rather index the whole market. Of course there will be turnover - the point isn't to lock into any one stock - don't look for the needle, buy the haystack (i.e. a broader-market index).
If you want to include crypto in the haystack, sure, fine, whatever, but at market weights, it's going to be a very small portion of the investable market of stocks, bonds, cash and other asset classes. At some point, it's enough to just keep it simple and broad. A fraction of percent of this or that won't make or break a diversified portfolio.
That depends on how good you are at finding needles :)
The thing not many people seem to talk about is that the 20th century had unprecedented growth in terms of population around the world (which has slowed significantly in the last few decades, although the effects usually lag by quite a bit - when the children enter the workforce and such). We're making up for some of it with technological progress, but ultimately what impact that makes is up to everyone to think about individually (look at Japan as a potential leading indicator of what demographic change can do).
Statistically, everyone trading across all different asset classes evens out, so ... sure, if you're consistently good at finding needles, power to you. Most people aren't. Many people however think they are. I prefer not to worry about it either way.
Sure, not always. To clarify: I mean stocks are shares in companies, which generally generate profits. Yes, some companies may not, or may even go under, but none of this is an issue if you hold a diversified set of stock and bond indexes for the long haul (I'm talking about equities as an asset class, not any one stock). Stocks are stakes in companies - bonds pay a risk premium - crypto, gold, etc... don't generate income, which by definition makes them speculative.
I know what it means but have no idea how profitable it is or whether those profits are guaranteed or fleeting. Best I can tell it's like any service (business, not investment): depending on demand and competition, you can make money for a time, then stop at some point. So far that has never been an issue for people investing in the global stock market (i.e. the global stock market persists even as individual stocks, sectors, industries, even whole countries have crashed in the past).
I assume so these days, but TIPS didn't exist when this article was written. And probably not exclusively TIPS in any case (but perhaps combined with equities, etc.).
TL;DR A lot of investors buy high and sell low. We're seeing that now with crypto as well as US stocks.