Your Complete Guide to Index Investing with Dan Bortolotti

Podcast 14: Make Millions in Bitcoin (Not Really)

2018-06-21T08:51:14+00:00January 16th, 2018|Categories: Podcast|Tags: , |15 Comments

My first podcast of 2018 is now live:

This episode’s interview features Shannon Lee Simmons, a refreshing young voice in financial planning. At the age of just 25, Shannon quit her job with a large investment firm so she could work with Canadians who are underserved by the financial industry. Today, at age 32, she runs a successful fee-only planning business called the New School of Finance, where she works with clients in all income brackets and life stages, including recent grads, small business owners, and those who need a mid-life check up.

Shannon has also just authored a new book, Worry-Free Money (published by HarperCollins Canada), which  focuses on our attitudes and approach to money. It offers a lot of valuable insight for people who need to sort out some big-picture issues before they worry about small details such as which ETFs to use.

In our discussion, Shannon says she’s noticed a discouraging trend among younger investors that she calls “fee shaming.” This is when a supposedly enlightened index investor scoffs to a friend or family member, “You’re paying a 2% MER on a mutual fund? Oh my god, I’m paying 0.05% on my ETFs.” The person on the receiving end of the criticism, as you can imagine, feels like they’re being called a fool. It’s a lesson for all of us who want to share what we’ve learned about smart investing: help others in a respectful way without sounding self-righteous.

Why bitcoin doesn’t belong in your portfolio

So far I’ve done my best to avoid commenting on the bitcoin craze, because I don’t think it has any relevance to the Couch Potato strategy: you may as well ask me for my opinion on the housing market or a particular stock. But the volume of email I’ve received about bitcoin made it impossible for me to ignore. The issue isn’t helped by the several bitcoin ETFs in development, which may lead investors to start viewing it as an asset class that has a place in a diversified portfolio.

“I started investing in ETFs a year ago and put as much into them as possible,” one reader wrote, “but I’m intrigued by bitcoin and Ethereum right now as investment options.” Another chimed in: “Choosing a diversified portfolio of ETFs was very satisfying and calming. However, it has been hard to ignore the constant barrage about people who own bitcoin and are making an instant fortune.”

So in this episode’s installment of Bad Investment Advice, I try to add some historical perspective to the discussion. Many people interested in investing in bitcoin argue that cryptocurrencies will become an increasingly important part of our lives. I have little doubt that’s true. It just doesn’t follow that you should buy one of those cryptocurrencies in any meaningful amount.

More than 20 years ago, there was another new technology that was promising to change our lives: it was called the Internet. Investors at the time paid extraordinarily high prices for Internet-based companies that seemed well positioned to profit from this exciting new technology. Of course, the Internet did go on to change our lives profoundly, but the vast majority of those companies went to zero when the dot-com bubble finally burst in 2000.

As a disciplined index investor, you need to come to terms with the fact that you’ll never profit from speculative plays like bitcoin. You won’t have “success stories” that make you the life of the party. But I suspect you’ll have the last laugh, because you’re an investor, not a gambler, and over time you will fare better than the vast majority of people who think the building wealth is about finding the next big thing.

Should you use dollar-cost averaging with a lump sum?

In the Ask the Spud segment of the podcast, I answer a question we frequently hear from our clients: “If I have a large sum of cash to invest, is it better to put it into the market all at once, or invest it gradually to take advantage of dollar-cost averaging?”

I’ll share my answer in a separate blog post in a few days.