There has been a big change in our written financial plan recently that I feel out is necessary to share with all of you. Selenid and I have allocated a significant portion of our investment portfolio to crypto ETFs, which we are convinced are the wave of the financial future.
How and why did this change come about?
Let’s see!
What are crypto ETFs?
Crypto ETFs track the price of one or more cryptocurrencies by investing in a portfolio of them. They trade on regular stock exchanges. And investors can hold them in their standard brokerage accounts.
In that way, they are a lot like regular ETFs…
There are two different types of crypto ETFs: Spot ETFs and synthetic ETFs.
Spot ETFs hold the crypto directly and thus their value rises and falls with the cryptocurrency value. Meanwhile, synthetic ETFs are a derivative based on futures of various cryptocurrencies. All very straightforward and not nebulous at all…
Why are crypto ETFs even a thing?
Well, because they offer the advantage that you can invest in cryptocurrency without having to hold and store and deal with the actually digital assets themselves.
So you can invest in cryptocurrency without all of the annoying side stuff. Finally!
And yes…finally. While crypto ETFs have been available in Canada and Europe for some time, the first spot ETFs were just approved by the SEC in January 2024. However a synthetic futures ETF has been running since October 2021 in the US.
Our new asset allocation and financial plan
You may recall that our original written financial plan called for investing in an asset allocation that looked like this:
- 40% US Stocks
- 35% International Stocks
- 5% REITs
- 10% US Bonds
- 10% TIPS (Inflation indexed bonds)
More recently we amended this to:
Maintain an 90/10 stock/bond allocation, decreasing progressively to at least 60/40 by retirement
This change happened as our risk tolerance grew and we became fans of the two fund for life portfolio.
But this was all well before any crypto ETFs were available. Had they even been as option in the past, oh boy would things be different!
As a result, our new asset allocation looks like this:
- 75% Cryptocurrency ETFs
- 10% US Stocks
- 10% International Stocks
- 5% US Bonds
Now that’s a portfolio that can really get you to financial freedom!
Just look at this chart documenting the all time price of Bitcoin…
With those wild swings in price valuation and immense risk, the return just has to be incredible! Plus, five-ish years of data to look back on is plenty for an analysis of trends.
Yup, I feel reallllllly good pinning our financial freedom to this equity!
But what happens if the value of these crypto ETFs wildly swings?
Big deal.
As long as it doesn’t happen as I reach retirement, then we should be fine. Unless it takes a big prolonged dip right as we reach the years of sailing down risk to maintain assets as we near retirement.
But what are the chances of that, right?
YOLO.
So, what will you do?!
I really hope by now it’s become apparent that this is all a big “gotcha” for April Fool’s Day!
No, we didn’t lose our minds. Our written financial plan didn’t change. Our asset allocation remains the same. And crypto is coming no where close to our portfolio.
But there has been a ton of attention by media and investors on the topic of crypto ETFs lately. Mainly because they are new. At least in the US as the first spot ETF was approved just a few months ago.
Honestly, I just don’t see the big deal. A bad (my opinion) investment that has been wrapped inside of a new investment package remains the same. That is, bad.
Don’t get FOMO
Remember, the beauty of having your written financial plan is that all you have to do to reach financial freedom is keep following the plan. And again, if you don’t have a written financial plan, use mine here as a template.
Once you have your plan, it means you’ve already designed it to get you to your goals. Really, the only way to put your path to financial well-being and freedom at risk is to change the plan.
That’s why Selenid and I even have a clause in our plan that any changes (of which there have been a couple) cannot be implemented until after a 3 month wait period. That way we have adequate time to chew it over. A good investment now will still be a good investment 3 months later.
I understand that investments like this can be tempting. I even include it in my list of the top 3 most tempting investments to avoid.
But stay strong. Remember your plan. And stick to it.
Reaching financial freedom as a doctor is simple
- Save 20% of your gross income
- Invest in index funds in an asset allocation of your choosing
- Rebalance to your chosen asset allocation yearly
- Focus on your family, friends, and patients
Sure, there are minor variations. Real estate investing can be a great addition to accelerate wealth building. Some doctors will use side gigs to augment or replace their income.
But just those 4 steps above are all that is really needed.
You don’t need to overcomplicate things. You don’t need to take on excessive risk.
And you definitely don’t need crypto ETFs!
And for Pete’s sake, if you are going to invest in crypto ETFs, use only “for fun” money that you don’t mind losing. I can get behind that kind of “satellite investing” with these if you must.
But honestly, you’re probably better off avoiding altogether – April Fool’s Day or not!
Here are some great resources to start or optimize your path to financial freedom:
- 7 Small Things Doctors Can Do to Get Their Finances on Track
- 9 Step Financial Checklist for the New Year
- Creating My Universal FIRE Equation
What do you think? Have you been tempted by crypto ETFs? What do you think about them? Any room in your portfolio for them? Let me know in the comments below!
While intended to be an April Fool’s post the real thing it highlighted was a lack of due diligence and understanding of a new digital asset. Posts like this were also common when the internet first arrived as well. Be curious. Be humble. Understanding Bitcoin takes time.
I’m certainly open to your rebuttal and any research driven data. But I think the biggest point is just that taking on additional risk with an asset like this is just not necessary…
Here are 2 good places to start for quantitative research:
Casebitcoin.com
Strategy.com
What is your allocation to bitcoin?
It started as a small allocation. As it ballooned in value, it naturally became a very substantial percentage of my portfolio. But when you start to understand bitcoin more, over a period of many years, your conviction grows to a point where no other asset is worth owning at this point in history. It is a unique time to be alive, observing in real time the monetization of a novel money for the first time in several millennia. To answer your question, instead of rebalancing my portfolio, I liquidated many other assets including equities and real estate and have allocated those into bitcoin. It has been the best decision I have ever made. I am over 90% allocated to bitcoin. And yes, I am a sensible, family oriented, conservative physician. Not some dumb GME pump and dump chaser. Graduated AOA from a well known school, well into my practice, can retire now but practicing for my own enjoyment.
I do commend your commitment
The thing I wish you could understand is that you have underperformed my portfolio by 50-90% over the past 8 years, likely close to 90%. In that time, all I have had to do was buy bitcoin and spend time playing with my kids and exercising and traveling. You had to spend countless hours researching, accounting, property managing, dealing with tenants, etc. countless hours of you scarce time and life devoted to making some extra yield rather than just spending time with your loved ones. One would think this suboptimal allocation of time to underperform would generate some intellectual curiousity rather than smug dismissal. Ultimately , bitcoin is NOT a get rich quick scheme. It is a don’t get poor slowly scheme, the only scarce asset that represents your scarce time, uninflatable, and bound by the laws of mathematics and thermodynamics. Come back after 1000 hours of research.
Sounds like an uninformed view. Why invest in Netflix? Everybody uses the Blockbuster on the corner. Why invest in Amazon? Walmart is ubiquitous. Why invest in Google? My library has all the information I’ll ever need. Why invest in vehicles? My horse has never failed me.
How much of your portfolio is in crypto?
“Crypto” is a scam. If someone says that word, I immediately stop listening. There is bitcoin, and 1000 cheap knockoffs of it. Bitcoin is the first thing in human history with absolute scarcity. Absolute scarcity can only be invented once. Anything that comes afterwards is a phony facsimile that by definition is not scarce. If you truly want to understand why bitcoin and fiat money are like Netflix and blockbuster, read this reasoned and well researched primer: https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdecc1
It’s easy to cherry pick examples obstructive technology that worked out. But there was plenty that didn’t, and there is no guarantee. The increased risk is fortunately just not necessary for time from earning investors like physicians to be successful.
You truly don’t understand bitcoin if you think you are in a position of no risk. A zero allocation to bitcoin is the riskiest portfolio of all. If you studied history with the same passion as medicine or real estate, you would see many parallels between Weimar Germany and post-1971 USA. Study the M2 chart. Gradually then suddenly your assets will become worthless in bitcoin terms. They already have over the past 14 years. Instead of blowing it off, ask yourself why.
Give me an example of one of these technologies that ended up not working out, that:
-started out worth nothing, as an open source project on an obscure cryptography mailing list
– over a period of 14 years became a 1 trillion dollar asset
– became adopted by nation states as legal tender
– became adopted by multiple publicly traded companies as a reserve asset
– became a Blackrock and Fidelity managed ETF
– despite over 1000 obituaries and calls of tulip bubbles continued to make higher highs and higher lows with each cycle
– that then went on to fail as a nascent technology, especially when it was several orders of magnitude better at the all of the features of the incumbent technology
I totally respect your decision to invest as you see fit. I think you got in at the right time. However that validity bias does not necessarily skew my recommendations for the large majority of doctors to invest instead in broadly diversified index funds. With you already having reached financial freedom, one could also argue that an allocation of 90% stocks, let alone, 90% bitcoin would be fairly aggressive
Your way of thinking is deeply programmed in your frontal cortex into automatic thinking, and I can sympathize. Throughout your entire academic life you were rewarded for rote memorization and deincentivized from thinking creatively or exploring heterodox views. Just as you were rewarded for parroting your pathology textbook on USMLE exams, you are parroting the prevailing Boglehead slogans. This lack of neuroplasticity is what prevents you from understanding the true nature of bitcoin. Do you “diversify” your money between USD and Nigerian Nairas, Turkish Lira, and Argentine Pesos, “because it is best to maintain a diversified basket to be safe?” Do you diversify between real estate in the USA and in places like Gaza, Russia, and Antarctica? No, because you do not sell superior assets to diversify into inferior assets. Bitcoin is not just safe, bitcoin is DEEP safety. It is safer than any government bond, Vanguard ETF, or deed. All of these have counterparty risks which bitcoin is not exposed to. Bitcoin is a superior asset to all of these and is in the process of taking the monetary premium away from many of these assets. One day, you will understand this because you will be forced to understand this. Everyone will own bitcoin, not to get rich, but to protect their wealth. The fact is, everyone will buy bitcoin at the price they deserve.
We are speaking past each other because we are using different goalposts to measure financial safety and success. You are making a base assumption that the USD should be the unit of account. However, unlike metric units such as meters, grams, or degrees of celsius, the USD is a constantly shifting unit of value. It is impossible to know with certainty how many USD one needs for retirement because it is dependent on an unknowable variable: inflation. The difference between 2% inflation compounded over 30 years, versus 5%, 10%, or 15% results in several orders of magnitude of error.
Thus, if you are measuring your net worth in USD terms, you will feel good seeing this number go up, but the true purchasing power of your portfolio is unknowable. Of course your net worth will appreciate, because the USD is continually weakening in purchasing power.
The REAL ah-ha moment is when you understand that bitcoin is the ultimate measure of value and wealth. Just as a metric unit is unchangeable and universal, a cm is the same distance anywhere in the world, anytime in history, 1 btc will always be worth 1 btc. That is to say, no matter where you are in the world, or if it is 100 years from now, there will still only be 21 million bitcoin in existence. So you will always know what percentage of the total monetary supply you own and control.
Once you make this mental leap, you will measure your net worth in bitcoin terms. You will realize with terrifying speed that your net worth is plummeting at a rapid rate. Your house, once worth 10,000 btc, is now worth 20 bitcoin. Your net worth, once 7 figures in bitcoin terms, is now 2 figures in bitcoin terms, and rapidly approaching zero.
What you fail to realize is that by passively allocating ZERO percent to bitcoin, you are ACTIVELY short bitcoin. You are ACTIVELY betting that bitcoin will fail. Because if bitcoin succeeds (and I would argue that it already has), the worth of all of your assets will approach zero in bitcoin terms. You have had 14 years to examine the empirical evidence, and yet you still choose to believe it is all a fluke.
How many years of your life do you have left to invest? Will you wait another 14 years to watch what bitcoin continues to do, before deciding it is now prudent? 28 years of you 30 years of life that you are actively allocating capital?
Think deeply