If you have some money laying around waiting to be invested, where should you put it? We’re apparently at the beginning of a long economic growth cycle if the stock market is to be believed. The S&P 500 is at an all-time historic high and so are other stock indexes. Investors have gone full bull on the markets. That’s no B.S.
I wish I could say I had a lot of money to invest but not every investment has worked out for me. As I write this I am coming off a significant loss in a Bitcoin investment. I was trying to ride the momentum wave, as they say in the business. This article explains how you are supposed to ride momentum waves when investing. I stayed invested in the Bitcoin too long, took a few days away from the computer, and I am down 10% on my initial stake. Ouch!
I never thought I would say this, but now is looking like a good time to pick airline stocks. So says the man who just lost $1000 on Bitcoin. I may sit out the airline industry for a while but you have to admit that Southwest Airlines is looking pretty good these days. If any airline is going to make a profit, it should be Southwest given how cheap they are on just about everything. I don’t like flying Southwest. I really don’t. Says the guy who just lost $1000 on Bitcoin.
Let’s get real here. Investing takes a lot of work. Or you could just invest in an index fund. It’s not like it takes a lot of brain power to figure out why index funds do so well. Index funds just make more and more sense. I kind of wish there was an index fund for digital currencies, but they haven’t yet figured out how to do that. The Winkelvoss Twins were just rejected by the Securities and Exchange Commission for creating some kind of Bitcoin index fund.
The difference to me between a stock index fund and some sort of digital currency index fund is that the stocks represent real value. When you buy stock you own a piece of a corporation that sells something. That is how it makes money. When you buy Bitcoin you’re waiting for someone to offer you more money for your digital value than you paid for it. That is literally the only way you can make money in Bitcoin.
Okay, not exactly. You could buy stuff with Bitcoin and then turn around and sell that stuff. I don’t know what you can buy with Bitcoin. I have never met a merchant who offered to let me pay for anything with a digital currency. There is a list of companies that accept Bitcoin but I don’t know how current the list is. And it’s not like I can walk into my local grocery store and pay with Bitcoin. So even though I sank $5000 into Bitcoin this month and lost $1000 on it, I’m not convinced it’s a worthwhile investment. I want to put my remaining $4000 into something that has a chance of growing in value and maybe paying me a dividend.
That crazy little voice in the back of my head says I should just buy some shares in an index fund. A lot of people like Vanguard, right? I should have waited for the government to sign off on Bitcoin and maybe some other digital currencies. This guy makes some pretty good points about why we need government regulation of Bitcoin. This is not a real investor’s marketplace. It’s a crazy way to make money.
So let’s consider three things you need to pick a good investment:
- There must be a potential for revenue
- There must be a potential for growth in value of the asset
- There must be demand for the asset
If you only have 2 out of 3 of those things you’re playing a very short game. That is what happened to me with the Bitcoin investment. There is very little potential for revenue in Bitcoin. That should change over time as more companies accept Bitcoin in payment. You can convert Bitcoin to goods and sell the goods later. That is how dollars generate revenue. You buy low and sell high with dollars.
Right now there is no real potential for revenue with Bitcoin. What I had thought would happen is someone would stake a full business on Bitcoin and people would buy pieces of that business. That is what the Bitcoin Exchange Traded Fund is all about. It’s a business built on buying and selling Bitcoin. If people buy into the ETF with dollars and Euros then the ETF will buy into the Bitcoin marketplace, increasing demand for Bitcoin.
That, in turn, should help retailers who accept Bitcoin because they’ll see more sales where people pay for Bitcoin. But with the rejection of the ETF proposal the Bitcoin market kind of floundered and then collapsed.
Now it’s true that there is discussion of a major fork event. This “hard fork” could cause problems for a lot of Bitcoin investors so maybe it’s a good thing that the ETF is not going to happen just yet. I don’t understand the technical stuff very well but I think there are two Bitcoin blockchains and one uses larger block sizes, meaning each new block added to the chain can record more transactions than a block in the old chain. If enough Bitcoin miners change over to the new block size they’ll leave the old one behind. But I guess what experts are afraid of is that only about half the miners will make the change, meaning the Bitcoin market becomes divided.
Well, I am done investing in digital currencies for now. I’m not switching over to pork bellies but I’m not ready to dump all my cash in an S&P 500 ETF and walk away. That is boring. I hope I can double my money by the end of the year.