Original publication on Unchained.com.
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The idea of owning or investing in bitcoins can cause a range of reactions, from disbelief to skepticism, for newcomers. You may find that there’s more to this story than what you first think if you go beyond popular narratives. Six reasons why you should consider buying bitcoins during your retirement.
1. Bitcoin helps broaden your asset allocation base
Investors have traditionally used a strategy known as asset allocation Over time, it is important to protect and distribute funds against investment risks. The antidote for putting your eggs all in one basket is a sound asset allocation plan. You can choose from several different types of assets. “classes” Or categories to spread risk over. Advisors usually aim to achieve a dynamic balance between real estate, commodities, cash, and debt instruments.
You can balance your risks by using more asset categories and less-correlated categories. Due to the unintended consequences of the rapid expansion in societal debt, and in the money supply, many assets, which were once less correlated, are now more closely correlated. tend to behave more in kind with one another. When one area is affected today, other areas are often also affected.
Asset allocation is a sound strategy to moderate risk, regardless of the current conditions. Although bitcoin is still relatively young, it represents a new class of asset. Due to this, it is important that you own at least some Bitcoin, due in part to its increasing value. distinct properties when compared to other “cryptocurrenciesThis is a great way to spread your risk and broaden your portfolio.
2. Bitcoin is a good hedge against currency devaluation and inflation
In order to maintain your buying power in retirement, it is important that you protect yourself from inflation. We mentioned the aggressive and recent expansion of the money supply in the discussion about asset allocation. Everybody who has reached retirement age is aware that a dollar does not buy as much anymore. If the government prints large amounts of currency, then it will have a negative impact on prices. debases The value of dollars in circulation. The price of the goods and service increases as new dollars are created to compete with limited supplies.
The following are some of the ways to improve your own ability. own Parker Lewis touched on this extensively in his Gradually then Suddenly series:
Summary: To understand bitcoin, you should start by understanding gold, the US dollar, the Fed and quantitative easing. Also, why the bitcoin supply is set. Money isn’t just a collective belief, or hallucination. There is rhyme and logic. Bitcoin is a way to solve the global money crisis caused by quantitative easing. If you think that the devaluation of currencies like those in Turkey, Argentina, or Venezuela will never affect the U.S. Dollar or a developed country, then we’re just at another point along the curve.
Bitcoin’s price cannot be reduced arbitrarily by anyone, unlike fiat money. The monetary policies are not controlled by any central authority. There are no centralized authorities that govern its monetary policy. arguments to the contrary, bitcoin is similar to gold—but not exactly, because gold miners continue to inflate the supply of gold each year at a rate of 1-2%.
Bitcoin’s inflation rate will decrease and eventually stop as it is introduced slowly into the circulation supply. Due to this, bitcoin is the most scarce of all global currencies. This scarcity and bitcoin’s other financial properties should protect the purchasing power of this currency. In this way, bitcoin ownership during retirement can be a good hedge against inflation.
3. Bitcoin provides an opportunity to achieve asymmetrical gains
Bitcoin’s ability mitigates many of these challenges depends on its ability achieve asymmetrical return. The supply of bitcoin is set (there will never be more than 21,000,000), but the demand is increasing steadily. Bitcoin’s potential is boosted by the limited supply and the increased adoption of the asset as a store of value from institutions, individuals, and government.
Long-term bitcoin holders tend to get better returns. Modern retirements can last for decades. Bitcoin’s upside potential can be realized even with a modest allocation over long periods of time. It is not difficult to endure the volatility of short-term trading, contrary to what many people believe. not evidence of it being a poor store of value.
Conventional wisdom suggests that a retirement fund should not be allocated solely to appreciation. In modern retirement planning, the goal is to liquidate portfolios in order to generate income. However, setting aside a small amount of bitcoin—kept steadfastly gated from funds earmarked for income—opens the door to benefit from the monetization of bitcoin’s limited supply.
4. Bitcoin protects you from long-term bond risks
Conventionally, high-grade bonds—held directly or as fund shares—make up a significant part of most retirement portfolios Due to the low level of risk and their tendency towards capital preservation. But things are different now.
Monetary expansion and increases in societal debt have forced bond yields—or the amount of interest paid (i.e., coupon)—to historically low levels. Today, the yields of most bonds are below the inflation rate. The yields on most bonds today are well below the rate of inflation. “negative real yield” Owning bonds can be expensive. It doesn’t just stop there.
As retirees are required to sell their portfolios at market value to earn income, this is a common practice. This can cause problems in the current market for bonds. Take a look at the following equations.
- It takes how much to get $20 from a bond with a yield of 2%? Answer: $1,000. (1,000 x 2%) = $20
- What is the amount of money required to make a 4% bond yield $20? Answer: $500. (500 x 4%) = $20
This two equations show that the value of an underlying bond will change if the rate of interest promised is the same as the return on $20.
- The market value of bonds drops when interest rates increase.
- The market value of bonds increases when interest rates drop.
Bond market values are directly inversely proportional to the interest rate. Take into account that rates of interest are at historic lows. Take into consideration that rates are near historical lows. next What will the value of retirees’ bonds be in twenty-to thirty-years, if rates rise substantially? Answer: The market value of the bonds they hold will plummet.
It could make bonds far less secure than they are usually perceived to be. Bitcoin belongs to a different asset class than bonds. As a bearer, it’s not as exposed to risks of the money markets. Owning bitcoins may allow you to offset some of the risks associated with owning bonds during retirement.
5. Bitcoin could be a viable solution to the long-term risk of healthcare.
The cost of health care is another area that retirees are concerned about. In this case, I’m not talking about the cost of medical care but instead about potential long-term costs in old age. Long-term care insurance is possible, but there are some challenges that make it difficult to obtain.
Price inflation in healthcare is a double-edged sword. In addition to the devaluation of currency, healthcare is also affected by increased demand. growth in the aging population.
States regulate long-term care insurance. In order to protect policyholders, insurers are scrutinized over how and where they invest premiums. In order to preserve the capital needed for future claims and protect it, insurance companies rely on intermediate- or long-term, low-risk bonds. As we have seen in our previous discussion on bonds, the low returns and potential rate increases complicates this practice. The immediate impact is the substantial increase in premiums on long-term insurance policies.
Bitcoin’s potential to appreciate in price over time was discussed earlier. It may be a good idea to put some bitcoin aside to cover the rapidly rising costs of healthcare.
6. Bitcoin gives you personal sovereignty
Bitcoin offers greater personal sovereignty, which is the final reason to consider owning it in retirement. Bitcoin allows you to achieve a degree of ownership not possible with any other asset. You can carry it easily across border with a hardware wallet or seed phraseFor example, you can transfer files from peer to peer anywhere on the planet at a low price.
No central bank will be able to steal your bitcoin value if you keep it in a secure wallet that you own. The CEO cannot dilute the value of bitcoin by printing more. “shares.” A bank cannot arbitrarily confiscate or block your money. Centralized banking is not available. financial When keys are properly kept, Bitcoin is immune to such overreach.
For retirement, it is possible to hold onto your shares. own The keys to bitcoins in a retirement account The products like Unchained IRA They are an effective way to save and build wealth while minimizing taxes. Holding your bitcoin keys as a collaborative multisig custody vault will allow you to avoid any single point of failure.
Sound financial Owning Bitcoin: Principles and Guidelines
To benefit from Bitcoin, you don’t have to engage in wild speculations and abandon sound principles. financial principles. As a result, the more bitcoin you consider through the lens of sound, it becomes less attractive. financial The more you apply principles to your way of thinking, the better the results. A steadfast financial The principle which is associated with Bitcoin ownership is prudential.
Lyn Aden is a macroeconomic investment strategist who speaks often about the importance of creating a “non-zero position” In bitcoin (that is, by owning some). In my opinion, the risk of losing some portfolio percentage points is worth it. To be clear, every person has a unique situation. It is important to do the right thing. own Research and decide what you think will work best for your situation.
Original published by Unchained.com.
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