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₿ The case for bitcoin?

January 28, 2021 Sign up

Hope you're having a great week!  Here are the money topics for today's edition. Let's get right to it.

  • Bitcoin rollercoaster: is bitcoin the future or wild speculation?
  • The tale of mutual funds: is it time to say goodbye to them?
  • Two truths and a lie: can you guess which statement from the ones below is a lie?
🔎 A debit card is the safest payment solution.
🔎 Used cars are not always better value than new cars.
🔎 Life insurance isn't for everyone.


Is bitcoin the future or wild speculation?

With the US government continuing to print cash, many are worried about inflation and the knock-on effects.  As a result, there's been a lot of chatter about cryptocurrencies and in fact, many are pouring money into them.  The question is: should you?  

Crypto pundits are vouching for bitcoin because of the high level of government spending.  The latest stimulus package contributed to a new rush into cryptos.  As prominent Silicon Valley angel investor Naval Ravikant puts it, "Bitcoin is insurance against politicians."  He goes on to say that the Treasury will never be able to raise interest rates again because it will go bankrupt if it does so. 

But wait, is bitcoin a proven and trusted strategy?  Well, the short answer is not yet.  And some would go as far as to say it's "speculative" because of all the risks associated.  A few of those risks include extreme price variability, systems risk, potential fraud, and inability to recover a forgotten password

What's more... there is a significant regulatory risk for cryptos.  Janet Yellen, the new US Treasury Secretary, asserted that bitcoin supported finance terrorism, money laundering, and malign activities that threaten US national security.  And she promised to look closely at how to encourage their use for legitimate activities while curtailing illegal uses...  did she mean regulation?  You know she did. 

Our take: if you're contemplating crypto investing, take it slowly.  One coin at a time.  If you're going to dip your toes, try a proven marketplace like Coinbase to start.  Cryptocurrencies are bets, and we don’t know what the future holds for them.  If you invest in a company that delivers products, you can expect that it will still be there in the future.  In the case of cryptocurrencies, you can’t apply the same reasoning.


Bye-bye mutual funds?

Did you know that the first modern-day mutual fund was created nearly a century ago in 1924? Today, US mutual funds hold $18 trillion in assets, and it's no secret that US investors love their mutual funds.

But...  there is a Millennial in town, and it'll be celebrating its 28th birthday this year. It's called the ETF (short for an exchange-traded fund). It offers several advantages that a mutual fund cannot match, and some would say is the future of investing.  Let's take a closer look.

ETFs disrupted traditional mutual fund fee structure

The first barrier ETFs had to overcome was the lack of load and distribution charges, which traditional Financial Advisors historically heavily relied on to get comped.  But the reality has since changed. These days, financial advisors increasingly avoid shares that contain sales and distribution charges, favoring instead institutional classes of mutual funds and ETFs.

ETFs' tax-advantage and tradability are key features mutual funds can't replicate. While distributing income similarly to mutual funds, ETFs create and redeem shares "in kind," which reduces capital gains.  And you can trade them any time during market hours just like stocks!

Fast & furious innovation

At first, ETFs were exclusively passive stock funds fully replicating a market index. Over time, they've broadened to other asset classes, sectors, weighting methods, and now actively managed options.  In fact, the fastest-growing ETFs are actively managed—think ARK funds.  Even mutual fund stalwarts such as Capital Group, the parent company of American Funds, are now getting into the ETF business.

Trading powerhouses on the street—Robinhood and Public—don't even offer mutual funds

Millennials and Gen Zs are not even thinking about investing in mutual funds unless it's within the confines of their retirement savings accounts. In the foreseeable future, mutual funds will remain a mainstay of 401(k) plans, because 401(k) recordkeepers still can't figure out how to handle ETFs.  But the direction is clear—ETFs are taking over! 


Can you guess which one is the lie?

👌 Used cars are not always better value than new cars (truth).  If you're using a loan to purchase a vehicle, buying a new car may actually be a better value, particularly if you're getting a rebate and a low interest rate, and if you're planning to keep the car for a long time.  Also, additional costs such as insurance and maintenance can add up over time—you never know what you're getting with a used car.  

👌 Life insurance isn't for everyone (truth).  Life insurance is a terrific risk-mitigator for some and an incredibly poor investment for many others.  Those who've accumulated enough wealth can forgo paying for life insurance.  If you don't have life insurance through work and you know you need one, you may want to check out Bestow (you can get an offer online in about 5 minutes without a medical exam).

🤥 A debit card is the safest payment solution (lie).  The notion that using a debit card is far safer than many other payment options is now totally antiquated.  Even though debit cards are protected by the FDIC, to an extent, and are more easily recovered than lost cash, credit cards are safer: they offer zero liability for fraudulent purchases, making them the safest bet.


  • [Finny Learn]: What is an ETF? Take this 5-minute bite-sized, quiz-based lesson to learn the basics.
  • [Women in ETFs]: Women in ETFs is a global organization for people interested in the industry to join, connect, and be inspired! We know first hand they're the real deal. It's free to become a member.
  • [CNBC]  The beef with Credit Karma credit coresCheck out your Credit Karma score—and make sure it's not overinflated.
  • [Finny Discussions] Which small-cap value ETF should I choose if I'm a long-term investor?
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