40% In Bitcoin You Say?

Let's start with this;

The quote is of course all about optionality. He pretty much says that. That is a huge life priority for me so the idea of optionality makes its way into a lot of the content we explore here. Talking about optionality can go in quite a few different directions. Jack is obviously referring to physical optionality which is well worth the time needed to achieve. There's more than feeling good, being able bodied and not spending a ton of money on medicine to manage chronic maladies that might be reversible and we'll get to that in moment.

Then there is the notion of financial optionality which we've long described as having a high savings rate, starting early on then getting into your 40's or 50's and deciding you want or need to do something completely different even if it pays less money. A high savings rate from your first career-type job well into your 40's allows this sort of life change, maybe it's an existential change, financially possible. After we stumbled into that idea way back when, the financial independence/retire early FIRE movement became popular and then after that came what is called Coast FIRE which is what we just described with optionality of being financially able to leave your career to go to some more purposeful even if lower paying work. 

Living a $50,000 lifestyle on a $110,000 income for a long time makes it plausible at 45 or 50 to start living a $50,000 lifestyle on a $50,000 income. At 50, it is not a stretch that a retirement account balance could double over the next 15 years even if there are no more contributions. Not having to continue making retirement contributions at 50 creates all kinds of freedom and optionality which is where we can tie in the physical optionality in the above Tweet. The combination of financial freedom with being very physically capable is a great place to be. You have enough money to be comfortable in a way that at 25 you probably do not but you can still physically get it done maybe not too far from what you could do at 25.

Well known advisor Ric Edelman caused a ruckus over the weekend saying that everyone should have "crypto" but I am guessing he meant Bitcoin more specifically. Edelman said "the correct" allocation for conservative investors is 10%, moderate investors should have 25% and aggressive investors should have 40%. Owning it is not speculative he said, not owning it is. To not own it is to effectively short it. "There's no logic to omitting an asset class that has outperformed all others and is widely projected to do so for the next decade or more."

This is a behavioral festival that looks backwards at a narrow exposure and then just extrapolates it forward. By all means own some, I do, but model out those weightings to Bitcoin.

It is easy to say put 40% into Bitcoin within a percent or three from the all-time high. The odds of succumbing to emotion when a 40% position turns into a 25% while the rest of the portfolio is down 10-15% are very high. The next time Bitcoin cuts in half, what happens if it never snaps back? The "fundamental" argument for now boils down to more people are going to use it because more people are going to use it so the price will go to $1 million. 

My context for Bitcoin has always been as an asymmetric opportunity, it could go to a bazillion or it could crap out. My current position started small in late 2018 and has grown into not a life changing piece of money but a useful piece of money.

Here is where we can tie back into Coast FIRE. A small bet, it was a bet, I bet on a positive asymmetric outcome, with very little consequence if it goes wrong that ends up working out very well....what might that pay for? I frame this out as focusing on my resiliency if something goes very wrong with our financial plan. My Plan A is to delay SS until I am 70 so my wife gets a larger payout if I die young. 

I am 11 years from 70. If things went horribly sideways for us in a way I can't imagine, we have enough in Bitcoin to cover a little over a year's worth of regular expenses. I appreciate that doesn't sound like much, it is not life changing, but 10% of what we need to get to 70 for when I want to take SS is absolutely useful. If in this scenario we could not last until 70, maybe the Bitcoin would be the difference between taking SS at 67 instead of 66 which would be meaningful. And if Bitcoin does go to $1 million before I needed to start spending it, then it would have become a life changing piece of money.

Or I could put 40% in right now, oops it craps out and I am in serious trouble. No need to worry because Michael Saylor told Bloomberg "the accounting has been fixed." Anyone have the first fricking clue what that means? 

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