The Michael James on Money blog was skeptical about Bitcoin and Cryptocurrencies as long ago as 2018, as this post demonstrates. He hasn’t changed his opinion since then.
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By Michael J. Wiener
Special to Financial Independence Hub
As noted above, Jon Chevreau asked if it was okay to republish this post that I wrote way back in 2018. As little has changed since then, here it is, without further changes or commentary.
The technology used to create Bitcoin comes from the field I used to work in professionally. I’ve followed Bitcoin from its obscure beginnings to its recent bubble-like rise. After fielding so many questions about cryptocurrencies, it’s about time I organized my thoughts about Bitcoin as an investment and as a currency.
To understand Bitcoin, you don’t have to understand the technology behind it. The big problem anyone can see with digital money is that after you spend it you still have a copy of it, so you can spend it again. Much of the effort in creating digital money centers on preventing this double-spending. Bitcoin does this with some clever cryptography and computer protocols called blockchain.
Another feature of Bitcoin is that more money gets created over time. Those who do enough calculation with their computers get more Bitcoins. This is called mining, and is intended to roughly mimic mining for gold. Bitcoin as an investment
Before Bitcoin’s meteoric rise, the few people who’d heard of Bitcoin understood that it is a currency, and is intended to be used like money. Now most people have heard of Bitcoin, and they tend to think of it as an investment. Some in the financial world suggest that cryptocurrencies should be considered an asset class. This is nuts.
It makes no more sense to invest in Bitcoins than it does to invest in Somali shillings, Indian rupees, or British pounds. The typical person should think of these things as currencies, not investments. The fact that the Bitcoin exchange rate is so volatile should make us stay away, not dive in.
Bitcoin as a currency
The digital and cryptographic nature of Bitcoin sets it apart from more familiar currencies like dollars. But this doesn’t really capture the important difference. After all, most transfers of dollars are digital and use cryptography.
Bitcoin isn’t backed by any particular government. No such backing is necessary. The U.S. government backs U.S. dollars, and it can impose rules about how dollars are used. If a bank doesn’t play by the rules, the U.S. government could cut that bank out of the dollar system. There is no easy way for the U.S. government or any government to regulate Bitcoin.
One thing governments do with their currencies is demand that electronic transfers not be anonymous. A certain amount of anonymous transfer is possible with physical cash, but this is limited. For the most part, if governments want to trace large money flows, they can do so. Continue Reading…
Welcome to another Then and Now post, a continuation of my series where I revisit some older blog posts and either rip them to shreds (because my thinking has totally changed on such subjects) or I’ll confirm my position on some subjects including some specific stock or ETF investments.
Instead, I’ll share my investing history with a low-cost tech ETF: QQQ.
You can read about my previous Then and Now posts on certain stocks (good and bad!) at the end of this post.
Then – QQQ
Passionate readers and subscribers of this site will know, I’m a HUGE fan of not just dividend-paying stocks but low-cost ETFs as well.
The reason for owning some ETFs beyond some dividend growth stocks is simple: I cannot predict which stocks will truly succeed long-term.
So, owning low-cost ETFs is a hedge against how I’ve largely unbundled my Canadian ETF for income, beyond holding a few U.S. stocks for mostly portfolio defence.
I mentioned in my reply that was like splitting hairs given both low-cost U.S. ETFs have and will likely continue to deliver very similar, strong returns.
“Whether you invest in U.S.-listed VTI, ITOT, SPY, IVV or another low-cost U.S. fund that tracks the U.S. S&P 500 or the U.S. total market, I think you’re picking a winning long-term equity product for your portfolio.”
I’ve been right, at least historically speaking.
Source: Portfolio Visualizer.
But even before that post, I invested in a small amount low-cost tech ETF QQQ – not because I didn’t think VTI, ITOT or other S&P 500 ETFs were bad choices, not at all, just that I believed at the time Invesco’s QQQ could perform better.
“Invesco QQQ ETF gives you access to a diverse group of cutting-edge Nasdaq-100 companies — all in one fund.” – Invesco
Since launch in 1999 (gosh, I wish I owned it then!) QQQ has demonstrated a history of outperformance, typically beating the S&P 500 Index. Continue Reading…
Fixed-income securities are financial instruments that have defined terms between a borrower, or issuer, and a lender, or investor. Bonds are typically issued by a government, corporation, federal agency, or other organization. These financial instruments are released so that the issuing institution can raise capital. The borrower agrees to pay interest on the debt security in exchange for the capital that is raised.
The maturity refers to the date when a bond’s principal is paid with interest to the investor. In the modern era, interest rates tend to fluctuate over long periods of time. Because of this, shorter-duration bonds have predictable rates. The longer investors go down the maturity spectrum, the more volatility they will have to contend with in the realm of interest rates.
On January 16, 2024, Harvest ETFs unveiled its full fixed income suite. That means investors will have access to ETFs on the full maturity spectrum: short, intermediate, and long-duration bonds.
The two types of short-term bonds for investors chasing security
Short-term fixed income tends to refer to maturities that are less than three years. In the realm of short-term fixed income, we should talk about the relationship between money market and short-term bonds.
Money market securities are issued by governments, financial institutions, and large corporations as promises to repay debts, generally, in one year or less. These fixed-income vehicles are considered very secure because of their short maturities and extremely secure when issued by trusted issuers, like the U.S. and Canadian. federal governments. They are often targeted during periods of high volatility. Predictably, money market securities offer lower returns when compared to their higher-duration counterparts due to the liquidity of the money market.
Short-term bonds do have a lot in common with money market securities. A bond is issued by a government or corporate entity as a promise to pay back the principal and interest to the investor. When you purchase a bond, you provide the issuer a loan for a set duration. Like money market securities, short-term bonds typically offer predictable, low-risk income.
The Harvest Canadian T-Bill ETF (TBIL:TSX) , a money market fund, was launched on January 16, 2024. This ETF is designed as a low-risk cash vehicle that pays competitive interest income that comes from investing in Treasury Billds (“T-Bills”) issued by the Government of Canada. It provides a simple and straightforward solution for investors who want to hold a percentage of their portfolio in a cash proxy.
Medium-term bonds and their influence on the broader market
When we are talking about intermediate-term bonds, we are typically talking about fixed income vehicles in the 4-10 year maturity range. Indeed, the yield on a 10-year Treasury is often used by analysts as a benchmark that guides other interest rate measures, like mortgage rates. Moreover, as yields increase on intermediate-term bonds so too will the interest rates on longer duration bonds.
Recently, Harvest ETFs portfolio manager, Mike Dragosits, sat down to explore the maturity spectrum and our two new ETFs. You can watch his expert commentary here.
US Treasuries avoided an annual loss in 2023 as bonds rallied in the fourth quarter. These gains were powered by expectations that the US Federal Reserve (the “Fed”) was done with its interest rate tightening cycle. The prevailing wisdom in the investing community is that the Fed will look to pursue at least a handful of rate cuts in 2024. Continue Reading…
You might assume, the more experienced a financial professional is, the more accurate they can be with their year-end forecasts. Personally, I’ve never tried to predict which hot or cold stocks, bonds, sectors, or market sentiments to chase or flee each year. Instead, the more experience I’ve gained, the more firmly I believe in the Timeless Financial Tips I shared throughout 2023. For me, they serve as the best guide for “predicting” what investors should expect in 2024.
So, considering everything I’ve learned in 2023 (plus the quarter-century prior), I predict …
We cannot possibly predict how 2024 markets will perform.
That’s my expert forecast, and I’m sticking to it. I will, however, add one more prediction, about which I am nearly as certain …
Over time (think multiple years), capital markets WILL deliver positive returns to those who consistently participate in their expected growth.
As you may recall, we were still licking our 2022 wounds in January 2023, after experiencing an unusually perfect storm of negative annual returns from stocks AND bonds, along with continued high inflation. How unusual was 2022? I looked for the last time investors had experienced across-the-board negative annual returns, plus steep inflation and couldn’t find an example of this, at least in my career. 1994 was the last time both stock and bond returns were negative, however Canadian Inflation (CPI) was a scant 0.25% that year.
Given the 2022 backdrop, no wonder many investors were drawn to GICs and their alluring 5% interest rates in 2023.
It is true, GICs can be helpful for your rainy day funds and similar cash reserves that are awaiting their spending fate. But in 2023, I also saw people using (or, more accurately, abusing) this vehicle to sideline investable cash indefinitely, waiting for seemingly better days to jump into the market. Worse, some investors might have sold off portions of their existing investment portfolio to chase after GIC rates.
Safe Harbors can be a Risky Bet
Unfortunately, waiting for “better” markets before investing or reinvesting according to plan is still market-timing by any other name. And as I’ve covered before, market-timing ignores myriad investment fundamentals.
Among the most important insights to take to heart is how rapidly market tides can turn, leaving the unprepared out of luck. As one of my financial planning colleagues recently described:
“Small hinges swing big doors. [Market] Prices are brutish, irreverent, and unsympathetic to investors putzing about on the sidelines.” – Rubin Miller, Fortunes & Frictions
This message was on clear display in 2023. Talking about swinging markets! I’m willing to bet few, if any of us were expecting such strong annual returns for 2023, especially since most of the reward hinged on a year-end pop.
You might have read some of these articles also, you know, the ones that say Americans have not saved enough to retire.
Many of these pieces proclaim that you must save enough in your investments to throw off 80% of your current annual salary so that you can afford a comfortable life away from a job. Lots of them will say that you need US$2 million in investments (or more) and woe to the person who thinks they can do it on less.
Approximately 10% of the households in the U.S. have a net worth of one million dollars or more. What are the other 90% supposed to do? Not retire? What kind of common sense does this make? Expecting the regular “Joe”to meet this $2 million dollar mark is not realistic.
As you know, we have over three decades of financial independence behind us. And while everyone’s idea of a perfect lifestyle sans paycheck is different, we can tell you that for these 33-years, we have kept our annual spending around $30,000.
The secret: Living within your means
In all of our years of retirement and travel we cannot recall one retiree who regrets their decision to retire. In fact, most have told us that they wished they had done it sooner.
The Society of Actuaries (SOA) recently conducted 62 in-depth interviews of retired individuals across both the U.S. and Canada. These people were not wealthy and had done little to no financial planning. But the vast majority of them shared that they had adapted to their situation and live within their means. Translation: they have adjusted their spending to the amount of money they have coming in every month.
So basically, it’s really that simple and this is why we say if you want to know about retirement, Go to the Source.
It doesn’t have to be complicated
In our books and in our articles about finance, we say over and over that there are four categories of highest spending in any household. We personally have made adjustments in all four of these categories, and have therefore reaped the benefits of having done so. We discuss these four categories in more depth below.
The financial guys and gals will have you tap dance all over the place with investment products, and a certain financial goal you must achieve. They will press upon you the seriousness of the decision to leave your job for a couple of decades of jobless living. We say it doesn’t really have to be that complicated, but it’s very important to pay attention to these four categories.
Listen up
Housing is THE most expensive category for you to manage. It’s not just the house itself, it’s the maintenance, the property taxes, the insurance, and any updating you might want to do to a place where you are going to be living for years down the road.
If you want to rebuild that boat dock to the lake where your boat is parked during the summer, that takes money. If you are tired of the style of faucets, sinks, tile and tub areas of your bathroom and want to upgrade, that is a large expense. Now that you are retired and want a more modern kitchen, more counter space, better lighting, prettier cabinet covers – Ka-Ching! You are hearing the cash register tallying up the cost.
If you have a hot tub, an extensive garden, or if you want to build a deck to connect the house to the garden, or put in a Koi pond … Well, you get the idea.
I understand that for some people, their home is their castle, and those homes are gorgeous and a comfortable place to stay. All we are suggesting is that homes will never say no to having money poured into them.
If you want to travel or to snow bird part time, then you will find yourself paying twice for housing – the one you have left in your first location, and the hotel or the vacation home in which you will spend part of the year.
If you are not vigilant, this one category will suck the life out of your retirement. We just want you to know that you have a choice.
Downsizing in retirement is not a bad thing. Relocating to a state or country with less taxation is a smart move. You could move to an Active Adult Community where you could choose to own the land or lease it. Here a variety of social activities are offered and the maintenance of your front yard is taken care of in your lifestyle fees.
When you travel, you could choose to house sit. Or take advantage of better pricing for apartments or hotels that rent for the month and include utilities, WiFi, and a maid. You could try AirBnB for less than a hotel room, and live like a local instead of a tourist.
Do you know how much your home (including the taxes, insurance and utilities) costs you per day? It is a figure that might startle you.
Transportation is the second highest category of expense. Now we realize that especially in the States, it is a bit more challenging to wrap your mind around the idea of not owning a car, or just having one for your household instead of three.
According to the latest AAA’s report on car ownership in 2023, it costs an average of $12,182 every year — $1,015.17 every month — to drive for five years at 15,000 miles per year.
So then, in the category of transportation, if you decide you want to fly to an island for a vacation, you must add in the cost of the flight… and any boat trips you might take, and any taxis from the airport to your hotel, and the price of a car rental for the week or two that you will be vacationing.
It all adds up and it’s all a part of this category. Continue Reading…
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