Bitcoin and Dogecoin: Don’t Make This Rookie Mistake
I’ve recently started focusing on my fitness and started going to the gym three times a week. The other day, I was at the gym and a gentleman came up to me and said, “I’ve been a bus driver for the city of Phoenix for 40 years, and I’m going to retire.”
“Oh, you have a government pension?” I asked.
“No, I have a 401(k),” he said… “Ah, don’t worry,” he added, “I know what you’re going to say. I know the stock market is way up there, so I shifted into bonds.”
I thought to myself, “Oh, he drank the Kool-Aid that US treasuries or bonds are safe”. When I was a kid that was true, but not anymore…
In 1974, the rules changed with the passage of the Employee Retirement Income Security Act. Suddenly, companies were no longer guaranteeing financial security at the end of your working days. Instead, employers began offering defined-contribution retirement plans.
As a result, people suddenly became responsible for their retirement planning, transferring the responsibility from the employer to the employee—without the financial education needed to help the employee plan successfully. Suddenly there were thousands of quickly trained financial planners educating millions of people to “invest for the long term, buy and hold, and diversify.”
Many of these employees still do not realize that their income during retirement will be dependent on their ability to invest wisely.
It’s never been more important to educate yourself about the biggest investor mistakes. Including the one that Bitcoin and Dogecoin investors are making right now.
Gambling vs Investing
Without financial education, the average employee, or a doctor or a lawyer who has an IRA, or a SEPP, or a Roth IRA, or a, they don’t know anything about investing. All they’re doing is sipping on the Kool-Aid.
The stock market is in the biggest bubble in world history, and bonds, once safe and secure, are time bombs. If interest rates start going back up, the bond market may blow up.
If you were going to marry someone, you would probably want to know what was going on beneath the pretty face before deciding to spend a lifetime with that pretty face.
The same should be true when you are deciding where to spend your hard-earned money. Yet when it comes to investing, most investors don’t understand how to manage their portfolio. Most investors invest on emotion rather than education.
The stock market is fueled by many things, one of which is non-investors trying to become investors. Most people think of investing as any situation where you put down money with the expectation of getting a return on your money. Unfortunately, what many people think of as investing is gambling.
Bitcoin and other cryptocurrencies are all over the headlines right now. Earlier this month, it was Dogecoin, now this week it’s back to Bitcoin being the headliner because Elon Musk announced that Tesla will no longer be accepting Bitcoin. This comes only three months after announcing it would accept Bitcoin. All of this hype is causing real “FOMO” (fear of missing out) among the young guys.
Unfortunately, due to a lack of financial education, I estimate that 90% of amateur investors are hoping the price of Bitcoin or Dogecoin will go up. They focus on capital gains, and not cash flow.
As my friend Jeff Wang says:
The main takeaway I’ve learned is, anything can happen in crypto. There are thousands and thousands of coins, and all of them are unpredictable. Once you’ve understood that, then it becomes easier to take a step back, understand the environment, and figure out what the price action and possible outcomes will be. Any coin can get pumped, regulated, a famous person might market the coin like crazy, or a million other things. The only thing you can do is mitigate risk (take profits where you can, rotate pumps into dips, etc.), but never get too attached.
I’m going to let you in on the number one investing rule: When emotions are high, intelligence is low.
Invest for Cash Flow
When the market crashes, whether it be the stock market, real estate market, or the bond market, people who invested for capital gains become the biggest losers.
Capital-gains investors are not really investors. They are traders, buying with the intent of selling for a higher price (or a lower price, in the case of shorting a market). True investors invest for both capital gains and cash flow. True investors also invest for the tax breaks, using as much OPM (other people’s money) as possible.
Today millions of people are perishing financially due to a lack of financial education. Millions would not have lost if they simply knew the difference between cash flow and capital gains.
Editor, Rich Dad Poor Dad Daily