Originally published on Unrestricted.com.
Unbound It is the official US collaborative incubation partner of Bitcoin Magazine and the primary sponsor of related content published through Bitcoin Magazine. For more information about the services offered, custody products, and the relationship between Unchained and Bitcoin Magazine, please visit our website.
For newcomers, especially those in and around retirement age, the idea of investing in or owning Bitcoin can elicit reactions ranging from skepticism to disbelief. However, if you look beyond the popular narratives, you may find that there is more to the story than first impressions suggest. Here are six reasons to consider owning at least some bitcoin during retirement.
1. Bitcoin helps expand your asset allocation base
Traditionally, investors use a strategy called… Asset distribution To distribute and protect funds from investment risks over time. A sound asset allocation strategy is the antidote to putting all your eggs in one basket. There are several types of asset “classes” or categories over which risk is distributed. Typically, advisors seek to create a dynamic mix between debt (i.e. bonds), equity (i.e. stocks), real estate, cash, and commodities.
The more categories you use to allocate your assets, and the less correlated those categories are, the better your chances of offsetting your risk, at least in theory. Recently, due to the unintended consequences of the significant expansion of social debt and money supply, assets that were previously less correlated are now less correlated. They tend to act more friendly with each other. When one sector is hit hard today, several sectors often suffer together.
Regardless of these current circumstances, asset allocation remains a well-thought-out risk mitigation strategy. Although Bitcoin is still in its relative infancy, it represents an entirely new asset class. For this reason, it is important to own at least some Bitcoin, especially because of its value Distinctive characteristics compared to other “cryptocurrencies”.“, provides an opportunity to expand your asset base and distribute the overall risk more effectively.
2. Bitcoin provides a hedge against inflation and currency depreciation
As a retiree, protecting yourself from inflation is crucial to maintaining your purchasing power over the long term. In the discussion of asset allocation above, we referred to the recent and strong expansion in the money supply. Anyone who has lived long enough to approach retirement age realizes that the dollar no longer buys what it used to buy. When the government issues large amounts of new money, it… He belittles you The value of dollars actually in circulation. This generally pushes prices higher as newly created dollars begin to chase down the existing limited supply of goods and services.
Our very own Parker Lewis I touched on this extensively in Gradually, then suddenly series:
In short, when trying to understand Bitcoin as money, start with gold, the dollar, the Federal Reserve, quantitative easing, and why the supply of Bitcoin is flat. Money is not just a collective hallucination or belief system; There is rhyme and reason. Bitcoin exists as a solution to the money problem of global quantitative easing, and if you think the decline of local currencies in Turkey, Argentina or Venezuela could never happen to the US dollar or a developed economy, then we are just at a different point on the road. Same curve.
Unlike fiat currencies, no one can arbitrarily increase the supply and decrease the value of Bitcoin. There are no central authorities governing its monetary policy. despite of Arguments to the contraryBitcoin is similar to gold, but not quite, because gold miners continue to inflate the supply of gold every year by 1-2%.
As Bitcoin is slowly introduced into circulating supply (i.e. mining), its inflation rate declines and will eventually stop. This fact makes Bitcoin uniquely rare among global monetary assets. Ultimately, this scarcity, along with Bitcoin's other monetary properties, should protect its purchasing power. As such, owning Bitcoin during retirement provides you with a hedge against inflation.
3. Bitcoin offers an opportunity for asymmetric returns
Bitcoin's ability to mitigate many of the challenges we discuss here depends on its ability to generate asymmetric returns. Its supply is fixed (there will only be 21,000,000 Bitcoins), and the demand for the asset is growing steadily. As this limited supply conflicts with increasing adoption of the store of value by individuals, institutions, and governments, Bitcoin has the potential to undercut the returns of almost every competing asset class.
It should be noted that people generally improve their returns with Bitcoin when they hold it for the long term. In modern times, retirements lasting decades or longer have become increasingly common. During these time periods, even a limited allocation to Bitcoin provides a great opportunity to capitalize on its upside potential. All you need is time to survive short-term fluctuations, which is contrary to popular belief Not evidence that it's a bad store of value.
Setting aside a portion of money solely for its value to appreciate during retirement goes somewhat against conventional wisdom. Modern retirement planning generally optimizes the liquidation of portfolio funds to provide income. However, allocating a small amount of Bitcoin – held steady from income funds – opens the door to taking advantage of monetizing the limited supply of Bitcoin.
4. Bitcoin provides protection against long-term bond risks
Traditionally, high-quality bonds – held directly or as shares in the fund – constitute a… A large portion of most retirement portfolios Due to low levels of risk and tendency towards capital preservation. However, things have changed.
Monetary expansion and increases in social debt have forced bond yields – or the amount of interest paid (i.e. the coupon) – to historically low levels. Yields on most bonds today are falling below the inflation rate. This “negative real return” means that owning the bond can cost you money. But the difficulty does not end there.
Because retirees need money from their portfolios to pay bills, they must generally sell assets at current market prices to generate income throughout retirement. In the case of bonds, nowadays, this can be a big problem. Consider the following equations.
- How much money does it take for a bond paying an interest rate of 2% to yield $20? Answer: $1000. ($1,000 x 2% = $20)
- How much money does it take for a bond paying an interest rate of 4% to yield $20? Answer: $500. (500 x 4% = $20)
These two equations reveal that for the same return of $20, the market value of the underlying bond changes based on the promised interest rate.
- When interest rates rise, the market value of bonds falls.
- When interest rates fall, the market value of bonds rises.
The market value of bonds has an inverse relationship to interest rates. Keep in mind that interest rates today are hovering near historic lows. Over the next 20 to 30 years, what will happen to the market value of bonds held by retirees if interest rates increase significantly? Answer: The market value of their bonds will collapse.
This changes the entire risk model of bonds in retirement portfolios and may make them much less safe than usually imagined. Bitcoin is in a separate asset class from bonds; It is a bearer instrument that is not exposed to the same risks as the money market. As such, owning Bitcoin may help you offset some of the potential risks you may incur from owning bonds in retirement.
5. Bitcoin offers a potential solution to long-term health care risks
Another area of concern for retirees is the cost of health care. Here, I'm not so much referring to regular medical bills, but rather to the possibility of incurring long-term care expenses at a later age. Insurance is available for long-term care, but there are some unique and increasingly difficult challenges to overcome.
Healthcare in general takes a double whammy when it comes to price inflation. Not only are health care costs rising because of cash retrenchment, health care faces additional headwinds from the demand it stimulates Growth in an aging population.
States regulate long-term care insurance. To keep policyholders safe, insurance companies face scrutiny over where and how they invest premiums. To maintain the capital required for future claims, insurance companies generally rely on low-risk, medium- and long-term bonds. However, as our discussion above of bonds reveals, low yields and the potential for higher interest rates further complicate this practice. One immediate consequence is that long-term care insurance premiums have risen dramatically.
We have previously noted the usefulness of Bitcoin as a hedge against inflation and the potential for long-term price appreciation. Regarding long-term healthcare, it may make sense to allocate some Bitcoin explicitly allocated as a hedge for these rapidly rising expenses.
6. Bitcoin provides you with individual sovereignty
The final reason we'll consider for owning Bitcoin in retirement is that it provides you with more individual sovereignty. Bitcoin provides you with a level of ownership that cannot be achieved with other assets. It can be easily carried across borders Hardware wallet or seed phraseFor example, or peer-to-peer transfer anywhere in the world at low cost.
If you keep your bitcoin securely in a wallet you control, no central bank can steal the value of your bitcoin by printing it into oblivion. No CEO can dilute its value by issuing more “shares.” The bank cannot arbitrarily deny access to your funds or confiscate them. Unlike central financial custodians, who can be ordered to freeze or withhold funds at the whim of government or other third-party authorities, Bitcoin whose keys are properly held resists this type of abuse.
Specifically for retirement purposes, you can also keep your Bitcoin keys in an IRA. Products like Unrestricted IRA It is a powerful tool for building and preserving your wealth based on tax advantages. And keeping your Bitcoin keys in the form of a multi-signature collaborative custodial vault allows you to eliminate all single points of failure while you do so.
Sound financial principles and owning Bitcoin
Profiting from Bitcoin does not require a commitment to wild speculation or a reckless abandonment of sound financial principles. In contrast, the more you look at Bitcoin through sound financial principles and apply them to your thinking, the more opportunities it offers. One consistent financial principle that coincides with Bitcoin ownership is prudence.
Macro investment strategist Lynn Alden often talks about building a “non-zero position” in Bitcoin (i.e. owning at least some of it). The risk of losing a few percentage points to the portfolio in a worst-case scenario, in my estimation, is worth the potential upside. But to be clear, each person's situation is unique. You should do your own research and make the best decisions possible about what works in your scenario.
Originally published on Unrestricted.com.
Unbound It is the official US collaborative incubation partner of Bitcoin Magazine and the primary sponsor of related content published through Bitcoin Magazine. For more information about the services offered, custody products, and the relationship between Unchained and Bitcoin Magazine, please visit our website.
