The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: cgenco on January 28, 2021, 11:29:11 AM
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Hello Mustachians! I'd love your cool-headed objective take on this decision since it can get kinda spooky for me to be thinking about how I'm dealing with a WHOLE BUNCH OF REAL MONEY.
I've been livin' the Mustachian life for about the last five years, so selling, holding, or losing a bunch of crypto value wouldn't substantially change my life. I'm optimistic about crypto but ideally would like to have it be less than 30% of my portfolio.
Selling crypto down from 81% to 40% of my portfolio in 2018 was a fantastic decision, and if anything I wish I would've sold more: I would've felt much more comfortable buying it back when it dropped to 11% of my portfolio in 2019-01 (see graph below).
Downsides of selling:
- 25% capital gains tax
- miss out on the potential upside if bitcoin goes To The Moon™️ in this cycle
- maybe I should just be keeping a Jason-Bourne-style hoard of intractable decentralized currency forever and buy things straight from crypto instead
Upsides of selling:
- Crypto is volatile, and the long term game here is to build up my stock 'stash. It's cool that we have this new digital decentralized money, but money itself doesn't create as much wealth as businesses do with the money.
- modern portfolio theory would say to rebalance right now (...right?) and that's the model I'd like to be following
- with a stronger stock backbone I'd feel much more comfy buying back more crypto the next time it goes on sale
What should I do? What would you do? What investing books should I be reading to improve my strategy here?
(https://res.cloudinary.com/genco/image/upload/v1611857328/c/vvAo.png)
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There is no underlying value to crypto. It is a zero sum game.The money “made” in it is money lost by someone else.
If you can come out a few bucks ahead, I say go for it. And then don’t look back.
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This seems right. One investment approach uses crypto to diversify, in which case it's role in your portfolio is to be sold when it gains to much, and bought when it falls too far.
Selling crypto down from 81% to 40% of my portfolio in 2018 was a fantastic decision, and if anything I wish I would've sold more: I would've felt much more comfortable buying it back when it dropped to 11% of my portfolio in 2019-01
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To me it depends on whether we're talking about a $20,000 portfolio or a $2,000,000 portfolio. With a larger portfolio, one has to be more careful about AA. Losing the value of a nice house in the next correction is a lot different than losing a used dirt bike. It takes a lot longer to earn back the big losses through work. In terms of time-at-risk, the person with the $2M portfolio is at risk of having to work several extra years in the event of a 40% correction, but the person with the $20k portfolio might earn the correction back next month. Because time is the only underlying asset with value, time is what you hedge.
If your portfolio is fat and you are close to retirement, I would rotate into investments that can be efficiently hedged. Maybe I'm not up to date on current events, but my understanding is that crypto cannot be efficiently hedged.
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Cool, thank you celerystalks, MustacheAndaHalf, and ChpBstrd—those were clarifying responses.
To ChpBstrd's point, I'm working with an amount of money much closer to a nice house than a user dirt bike. Though I'm still pretty early in my career I've found myself much more comfortable with taking bigger career risks knowing I've got a nice fat 'stash protecting me from failure. I'm not sure I understand what "hedging" means here—could you explain that another way?
I like MustacheAndaHalf's tactic of using crypto as a diversification asset. I could see that strategy making sense with any volatile asset.
I don't know that I'm convinced of celerystalks's point that crypto has no underlying value: I see it akin to something like gold that happens to be going through a weird establishment period where nobody's sure how much it's worth yet and some people think it's worth 100x whatever it's currently worth.
I just put my sell orders in and should be rebalanced back to a 25% crypto allocation by the end of the week.
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You should write out an investment policy statement. Something like,
25% goes into "alternative" investments [to be decreased as you get closer to RE]
-- If it rises to 30%, rebalance until it hits 25%.
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Rebalance for sure
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I just logged into my own account, and I was surprised to see that there was another 20% jump overnight for Bitcoin.
I would not want 45% of my NW to be in any one asset class; it sounds like in your gut you are like this as well. Honestly, if you're heavily into crypto in the non-stock part of your investments, you probably need to be more bonds relative to stocks in the rest. Think about how drastically Bitcoin declined in early March 2020 at same time as stocks were falling 35%.
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What are you guys using to buy crypto? I have a coinbase account but couldn't buy DOGE as they don't allow it. I suppose webull is a better option for that?
I honestly hate investing in crypto but the money seems there right now.
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There is no underlying value to crypto. It is a zero sum game.The money “made” in it is money lost by someone else.
This is absolutely false.