So here's my conundrum in a nutshell -- should I just say "screw it" and put every dime I make into Bitcoin...because I cannot think of what else to do with it.
NOTE: Obviously this is a Bitcoin subreddit so you guys will bias towards Bitcoin, but there's no other financial sub where I can write this where I won't be told I'm an idiot by people who just plain don't like crypto without understanding it. But I'd enjoy some serious feedback on this.
First a quick summary about my overall situation...
CURRENT FINANCIAL SITUATION:
Right now I'm making a lot of money (between $300,000 and $500,000 a year gross -- it varies because a big chunk of my income is in the form of quarterly and bi-annual royalties). This is A NEW situation for me. Just about 3 to 4 years ago I was making more like $30k to $50k a year.
My income jumped the most over the last 2 years.
I'm 35. I have very low cost of living and I have ZERO desire to live a lavish lifestyle (I'm a US citizen who stays most of the year in Thailand). I drive a scooter. I live in a rental. No kids. No wife. No debt.
I splurge occasionally on fancy dinners, partying, and first class flights / 5 star hotel rooms when I travel (which is once or twice a year). But besides that I will never go out and buy a fancy car...never going to go buy a big house. Not interested in flashy living to signal that I have money. Because I grew up poor and in very dangerous spots in the deep South it's stuck in my head that people who display wealth get shot and robbed lol so I stay away from displays of wealth.
In other words -- things are pretty good. I'm comfortable. But with the new income I now find myself constantly wondering what to do with it. Here is the series of mental loops that keep bringing me back to the idea of "screw it -- I should just put everything in Bitcoin"
MY THOUGHTS ON INDEX FUNDS:
The valuations in stocks over the last 10 years have essentially been completely fake. Nothing about the stock market right now is real.
Looking at the correlation between Fed money printing and the overall movement of the stock market is so stupidly tight it just seems like the whole thing is a giant scam.
The Fed has singlehandedly orchestrated the idea of TINA -- There Is No Alternative.
Remove free-market interest rates so no there is ZERO point in saving your cash in a savings account -- door closed.
Depress bond yields so there is ZERO point in investing in fixed income assets like that -- door closed.
Now they're even trying to stop crypto custodians from offering attractive yield on stable coins -- door soon to be closed?
The idea is simple -- you have NO CHOICE but to stuff every dollar into the stock market and hope number go up FOREVER.
You've got entire communities of FIRE disciples who have bought into the religion of the "4% rule" -- that you can stuff $1 million or more into an Index fund and live off 4% without growing broke.
And all of this madness is predicated on the idea that stocks will KEEP going up a certain amount each and every year no matter what -- and besides, what the else are you going to do? TINA.
But here's my BIGGEST issue with this -- more so than the tight-knit correlation that stocks going up are almost exclusively dependent at this point on the Fed printing tons of money forever. Which I assume they will start doing again once their recent interest rate hikes and purchase tapering blows up in their face and brakes something.
Demographics decline.
Remember what happened to the Japanese Nikkei in 1989? Everybody thinks that was because of a speculative bubble and that is partially true, but from my research I think the more likely culprit was a demographics crisis.
If you go to a site like this to look at population pyramids you'll see just how screwed almost every country in the world is: https://www.populationpyramid.net/world/2019/
The only notable exception are African countries. African countries by and large are the only places on the planet earth right now with nice looking population pyramids and birth rates above replacement levels.
The idea of a population pyramid is pretty simple:
Before the age of 20 you're basically a "taker" on society. You're a baby, your a child, you're a teenager. You're not contributing much to the economy. And up until 35 you're likely in debt.
Between the ages of 35 and 55 you are at your most productive.
Past 55 and going into retirement you stop generating value through labor primarily and you stop making an income and typically you're living off investments or savings.
So the idea is simple -- when there is a LARGE group of 35 - 55 year olds in a country you're looking at incredibly heightened productivity and economic strength (similar to what happened to Japan after WWII and China after the Cultural Revolution and America after WWII as well).
But if the amount of children being born is not sufficient to replace that most productive age range in society and instead you have a LARGER group of people moving into the retirement bracket -- then productivity absolutely cratered.
Now you have a large number of older retirees that are being supported -- in part -- by their children and social programs and stuff like that and the new 35 - 55 age range is having even less kids -- and suddenly you've got this top-down population pyramid.
Where most of society is old and dependent and non-productive -- rather than the inverse.
This is what happened to Japan and this is also what is happening around the world.
I keep thinking about the effects this will have on capital in-flows to the indexes.
In 2020 in the United States for example record numbers of Baby Boomers left the work force, in part causing a massive labor shortage. At the same time birth rates hit their lowest rates in over a century (millennials are NOT having kids).
If this is a phenomenon happening all around the world -- especially in the biggest countries like Canada, US, China, India, European Union countries and more.
Then won't this eventually end up in a contraction of capital flowing into indexes?
Recently this idea was fleshed out by one of my favorite analysts Lyn Alden in her report "The Capital Sponge" https://www.lynalden.com/january-2022-newsletter/?mc_cid=bc2519e6ca&mc_eid=64c8f69b63
Inside she notes that the WHOLE WORLD invests passively into US markets, but that at a certain point...that runs out too.
Here's some choice excerpts:
Indeed, fund flows into passive index investments have now surpassed fund flows into active products. Many 401(k) plans just pour money each and every week into the S&P 500 and similar indices that closely benchmark themselves to the S&P 500.
For lack of good money, we monetize other assets instead. Rather than holding cash that offers interest rates that are below the rate of price inflation, we shovel money into market-weighted equities even if their valuations go up dramatically. This works well as a rather liquid store of value until we stretch valuations to their sustainable limits, and those limits are not really knowable in advance.
US households now have record high allocations to equities, from a combination of inflows and valuation increases. The red line in the chart below is US household equity exposure (currently 29% of total assets) and the blue line is US household real estate exposure (currently 25% of total assets):
That means we have to start asking where the marginal buyer will keep coming from. What pools of capital, domestic or foreign, will shift more of their capital into US equities than they have already allocated?
Will US household allocations of equities go higher, to 35%? Will US market capitalization eventually reach 65% of global market cap, even as its share of GDP continues to decline from 23% of global GDP? Probably it could, but the higher these numbers go, the heavier they get.
In conclusion to Index Funds -- if the market is over-valued to an insane degree because the Fed has orchestrated a low-yield world creating TINA and that market is dependent on a CONSANT inflow of cash to stay propped up at those levels (through printing and also passive investing).
Yet global populations are declining and huge numbers of people are moving into retirement (thus they could start drawing down on these accounts).
Then this starts looking a lot like a Ponzi Scheme that's running out of new money.
In other words -- it's entirely dependent on an inflationary environment -- population inflation, income inflation, capital inflation.
Yet Bitcoin is deflationary which means even in the even of population contraction, entering into a global deflationary environment, due to its fixed supply it should preserve its value at the very least while steadily growing as well, despite global economic slow-down.
WHAT ABOUT REAL ESTATE?
Been thinking a lot about this too. But something keeps nagging at me about Real Estate investing in the United States (where I'm a citizen). Namely -- nobody in the United States can actually OWN property.
Here's a scenario -- you spend 30 years paying off a $350,000 mortgage and you now "own" your home.
Then the "bad luck" thing happens -- you lose your income, you lose your job, and for some reason you lose your savings and your investments crater.
But AT LEAST -- thank god -- you OWN your home, right? You don't have to pay rent. If worse comes to worse you can light a candle and grow some vegetables and compost your own poop.
Extreme scenario I know, but this really is the "fall back" of home ownership.
Yet there's just one issue -- you STILL have to pay let's say 2% (property taxes vary obviously but they're in every State) of your home's value.
Let's say your home went UP in value -- good for you -- to $500,000 now you're paying $10,000 a year in property taxes.
Or $833 a month. That's probably similar to what you paid for monthly mortgage.
And here's the thing -- if you DO NOT pay this tax it will start accumulating. If suddenly you find yourself 4 years down the line with $40,000 owed in taxes and still no mob the State will come and take away your home REGARDLESS of how much you paid to "own" it.
So you CAN NOT own property in the United States. From what I see, if any country has property taxes you do not own property there.
All you're doing is exchanging rental rights to the property FROM the State. The State is granting you permission to use this asset to generate an income for yourself by renting it out for example, or by allowing you to "rent" the asset and sell "rental rights" to that asset to somebody else down the line for a profit. But you DO NOT own it.
Of course, there are some countries around the world that do not have property taxes, which I may consider investing in.
The issue is that they are illiquid and I cannot take them anywhere in the world with me and there's also the possibility that the Governments there change on a dime and "change the rules."
But with Bitcoin nobody can "change the rules" -- no Government can seize it from me. I can take it anywhere in the world across all international borders and I can liquidate portions of it at any time.
WHAT ABOUT GOLD?
I actually have invested a fairly sizeable amount into gold, but the draw-backs are instantly recognizable.
For example -- I've purchased roughly $25,000 worth of gold Bullion in Thailand. I have another $25,000 worth of bullion in the States that I've shipped to trust family (see? I have to trust somebody to store it for me).
And I've purchased roughly $25,000 of PAX Gold, which is kept in a vault (.and I have to TRUST them to keep it safe there and TRUST them to hand it over to me when I ask and TRUST that their third-party auditor is not lying about the amount of gold they have in storage).
I cannot travel anywhere with my physical gold easily without filling out paper work and even then it can be seized.
Anybody traveling with a sizeable amount of gold could be "suspected" of money laundering or being a terrorist (any excuse to seize it at the airport).
I cannot send the physical version anywhere I want easily. I could go to a gold shop and liquidate it fairly easily, but that's only IF the Government is allowing those shops to operate.
For the tokenized version -- that's easier to liquidate and is borderless and easier to transfer -- but still relies on trusted third parties.
I've bought gold as a "just in case" it's got 6,000 years of history. But I'm happy with the amount of gold I own now and I don't see any rason to buy anymore.
Bitcoin is obviously superior in every way. No trusted third-parties required, fixed supply (harder than gold), P2P transfer, easy to liquidate, won't get seized when traveling (I don't need to fill out forms)...etc....etc.
CONCLUSION -- WHAT ELSE IS THERE BESIDES BITCOIN THAT MAKES ANY SENSE?
This is the ultimate "end point" I keep coming back to -- nothing makes sense except Bitcoin. But in my ears are ringing "Don't put all your eggs in one basket!" and "you need to be diversified!"
But I just can't -- for the life of me -- figure out what ELSE to do with my cash that makes sense rather than to just buy Bitcoin, lock it up, and one day when I'm ready to buy property somewhere, buy a business of my own, invest in a business or something like that -- then I can look at using that money.
But if my goal is essentially to just take excess capital and preserve it over time and space until I want to use it one day -- then what else makes sense?
So I'm heavily considering saying "screw it" and putting any cash I'm not using for my daily life RIGHT into Bitcoin and NOTHING else.
Please poke holes in my logic or help me see something maybe I'm missing?
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