Seeking financial advice on investing in bitcoin directly vs other options.
Ric Edelman: Thanks for being with me here this weekend on The Truth About Your Future. Let's go to an Ask Ric. Yeah, David, from Sacramento, recorded his question on a smartphone, and sent it to Ask Ric at TheTruthAYF.com. Here's his question.
ASK RIC: David from Sac, CA: Hi, Ric, my name is David and I'm from Sacramento, California. I have a question in regard to crypto. You've always talked, Ric, about the importance of diversifying your portfolio, spreading risk across many companies, asset classes, et cetera, and through the many decades of listening to your show and reading your books. I wonder if this philosophy still applies when it is applied to investing in crypto. Specifically, I'm wondering, because all of the news I hear is about bitcoin. Seems like they are the clear winner in the early crypto stages, but I wonder if it's wise to invest directly in bitcoin, or if it's better for me to invest in one of the groups like BITW or some of the other options. I would appreciate your advice on this and appreciate all you do and looking forward to reading your book when it comes out. Thanks so much. Take care.
Ric Edelman: David, thanks so much for your question. Yeah, you should approach crypto the same way you approach every other asset class. In other words, you know more about how to do this than you realize. You know that the best approach for investing is to have a long-term focus, to use extensive diversification, to rebalance the portfolio and to keep costs low. I mean, there's nothing new or different or unusual. That advice is applicable to the stock market, the bond market, the real estate market, gold oil commodities, you name it, and it's equally applicable to crypto. So your observations are correct. Crypto being a new asset class, the first new one in over 150 years. It was oil, was the last time we discovered or invented a new asset class. The best way to approach anything is through diversification. But here's the interesting element there aren't all that many options for effectively diversifying in crypto. Why? Because it's so new. Bitcoin, as you mentioned, has a huge head start. It was the first digital asset and today has a commanding lead. 50% or so of the entire marketplace is held by Bitcoin. Ethereum comes in at number two with another 30% or so of market share. So just those two coins alone will give you 70 or 80% of the entire marketplace. It's kind of like Coke and Pepsi. Oh sure, there are lots of other soft drink manufacturers out there, but if you buy Coke and Pepsi, you pretty much have the whole market. Same thing in crypto with Bitcoin and Ethereum. So, you could buy just bitcoin or just Ethereum or a combination of the two. Call it a day. But there are other coins out there, and the smaller coins might be the faster growing ones.
Ric Edelman: That's where something like BITW comes along. The Bitwise Top 10 Crypto Index Fund This is a fund that buys the 10 largest coins. And of course, Bitcoin and Ethereum are the two biggest in that fund, comprising about 70 or 80 % of its size. The other eight coins comprise the rest, so it's entirely up to you. You can buy just bitcoin, or you can buy bitcoin and Ethereum, or you can buy something like the BITW, the Bitcoin Top 10 Crypto Index Fund, and you'll have a more diversified approach. I'm a big fan of diversification, so I believe in investing in this asset class in a wide variety of ways because diversification helps us reduce our risks. And I also like to engage in dollar cost averaging, investing slowly over time so that I help smooth out the volatility that this asset class is very infamous for. And then finally, I like to rebalance the portfolio to help make sure that we don't get over weighted in one area inadvertently or accidentally. So just do what you normally do with investing - adding crypto to your diversified portfolio. To me, that's the best approach.
Ric Edelman: And if you've got a question, do what David did. Record your voice on your smartphone. Send it to me, to askric@TheTruthAYF.com. And if you like this Q&A, you'll want to subscribe to my newsletter. The Truth About Your future because we have pages of Q&A with our audience in every issue. You can subscribe now, just go to TheTruthAYF.com.
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