We’re going in a different direction for this week’s Investing With Charles.
You know me as the retirement guy, the dividend guy, the conservative, stodgy investor guy.
Well, today we’re going to talk about crypto.
Why cryptocurrencies, and why now?
It’s where the action is. Fortunes are being made. We want to have some exposure here.
But I’m not going to recommend you sell all of your good workhorse dividend stocks to fund your crypto portfolio. That’s crazy!
Instead, I want to tell you my approach to this ever-evolving market. You could call it a “conservative approach to crypto.”
Check out some highlights from the crypto edition of Investing With Charles below.
How Much to Invest in Crypto
You can get any two investors in a room and they’ll argue about position sizing.
The big thing to keep in mind with cryptos is that this stuff could go to zero.
I don’t think it will. I think cryptocurrency will be with us for a while.
But individual cryptos will go to zero.
Bitcoin and Ethereum have been around longer and are more likely to stay the course. But even they may be eclipsed by something newer and better.
So you have to ask yourself: What percentage of my portfolio would I be comfortable losing?
For me that number is 2-3%.
I wouldn’t be happy about losing 2 or 3% of everything I’ve spent my life working for. But it’s not the end of the world.
Would I be willing to wage 10%, 20%, or more of my net worth on a cryptocurrency or, or even all cryptos in aggregate?
No. That’s too much money for me. I’m not comfortable taking that amount of risk.
Cryptocurrency is not something you want to bet the farm on. 2% to 3% is a nice rule of thumb.
There’s a lot of room for wiggle on that. If you are younger or your nest egg is smaller, you can invest a higher percentage. But the key takeaway is: Don’t put more into cryptocurrency than you can afford to lose.
Think of it as kind of a small-cap or micro-cap stock. You’re not going to put the same amount of money into some micro-cap marijuana stock as you would in, say, Microsoft or Amazon.
My Portfolio
I’ll tell you what I’ve been doing, and it may or may not be the right move. Only time will tell.
I find it makes sense to sprinkle your bets around several cryptocurrencies.
I did my research, or I thought I was doing my research. I was looking into the cryptocurrencies that I thought had the best real-world applications.
I stumbled across Stellar Lumens. I thought it looked brilliant. This is one that had the backing of IBM. And it was designed to facilitate money transfers across borders.
So let’s say you’re a small farmer who operates in Laos and Cambodia. You’re selling your products across the border. Something like Stellar Lumens could massively reduce the cost of your transactions. You get around international money transfers. You get around having to use the banking system.
Well, Stellar Lumen hasn’t done much.
I’ve dabbled in it off and on for a while. And it hasn’t gone anywhere. It’s been one of the poorer performing cryptocurrencies, despite its real-world applications.
You compare that to Shiba Inu, the cryptocurrency with the Japanese hunting dog as its mascot… That thing went up thousands and thousands of percent for no real reason.
Shiba Inu became a meme. It was sort of an inside joke that went viral.
It’s not unique or special in the world of crypto. Yet, somehow it became a Top 10 crypto!
At one point the value Shiba Inu was greater than the gross domestic product (GDP) of Albania. It was bigger than the stock market cap of Peloton. It was huge.
Why did it become valuable? I don’t know. It became a thing on the internet.
People were talking about it. And next thing you know, Tesla CEO Elon Musk is on Twitter showing of a picture of his dog, a Shiba Inu, and the world goes nuts and starts bidding up the coin.
You can’t make this stuff up. It’s just nuts.
That’s why the key here is to spread your bets around. It’s okay to have a few just crazy rolls of the dice on smaller alternative coins.
There’s a degree of randomness here that you can’t model or research.
I have a few mainstays in the portfolio. Bitcoin, Ether and some of the other larger coins have more staying power.
And then I’ll pepper in smaller positions in cryptocurrencies that are more speculative. The coins that don’t make as much sense. Maybe it’s a smaller one, or it has a funny name. I’ll sometimes think: “I bet that goes somewhere because someone will think it’s funny and make a meme out of it.”
There’s nothing wrong with having a few of those. Just keep the position size reasonable.
A Real Crypto Expert
By the way, I am not an expert in crypto. I’m learning this as I go.
It’s a very exciting asset class. We want to be a part of it.
But if you want someone that has dug into cryptos, you need to check out my colleague Ian King. He’s forgotten more about cryptocurrencies than I’ll ever know.
Ian is tracking some of these newer cryptocurrencies that you may not have heard of.
And his track record within the crypto space is incredible! It shows top gains of 3,900% in three months (on half a position) and 1,900% in four months (again, selling half a position).
The other half of that one is up over 12,000% over 11 months.
This is a difficult space to navigate on your own. And Ian is ready to be your guide.
Click here to watch his presentation on “Crypto’s Third Wave” now.
My Favorite Cryptocurrency
The biggest chunk of my small crypto portfolio belongs to Ethereum because of its blockchain.
If something evolves into a proper platform, it’s probably not going to be Bitcoin. Bitcoin was crypto 1.0. It was a proof of concept.
We now know that Bitcoin works. For crying out loud, El Salvador has it as legal tender.
But Bitcoin has its limitations.
Ethereum may not be the end. It may just be version 2.0 on the way to something else down the road. But to me, Ethereum looks like more of a proper platform. A lot of other tokens use Ethereum’s infrastructure. They use its blockchain as their base.
So I think if anything’s going to stick around, it is likely going to be Ether.
Bottom line: This Is one of the biggest innovations in finance since the beginning of online payments or even the credit card. It will change the way we do business. It already is.
But we don’t know what the standard’s going to end up being 10 years from now. It could be that every crypto we’ve talked about today, or every crypto you see today, will just be gone.
But it makes sense to at least dabble in this. Go open an account, put a little money in and play with it.
This is something that we want to be a part of.
Where to Find Us
Coming up this week, Matt will have more on The Bull & The Bear podcast, so stay tuned.
Don’t forget to check out our Ask Adam Anything video series, where chief investment strategist Adam O’Dell answers your questions.
You can also catch Matt every week on his Marijuana Market Update. If you are into cannabis investing, you don’t want to miss Matt’s weekly insights.
Remember, you can email my team and me at Feedback@MoneyandMarkets.com — or leave a comment on YouTube. We love to hear from you! We may even feature your question or comment in a future edition of Investing With Charles.
To safe profits,
Charles Sizemore
Co-Editor, Green Zone Fortunes
Charles Sizemore is the co-editor of Green Zone Fortunes and specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.