A reader who is a successful entrepreneur, saver and investor recently had an experience she shared with me that has her worried. An employee had made a handsome return on a Bitcoin investment. He locked in his gain, a tripling of his investment. The gain wasn’t the problem. It was his regret that had her concerned. He wished he had bought more — and it reconfirmed his decision to forgo the company plan and free money via the company savings match that came with it.
This business owner comes from three generations of family that prioritized the habits of saving bit by bit and investing along the way. In other words, their wealth was built on the value of slow money.
History has many moments of fads (Google “Dutch Tulip Bubble”) or ‘fast money.’ The initial batch of folks make a lot of money really fast and that drives a larger pool of folks to invest with dreams of doing the same. I think about the loads of people buying into Bitcoin at its peak. They had the same dreams as those who bought in at $10,000. This was an investment going to the moon. So certain of what they were buying that many amplified their investment with “margin,” aka, “borrowed the money to invest.”
And so it goes, Bitcoin dropped in value by 30% over a two-week period on two bits of bad news. Elon Musk seemed a little less excited about accepting Bitcoin for Tesla purchases and China put the brakes on crypto currency, revealing that Bitcoin was not orbiting the moon. While it is promoted as a currency, on planet Earth, Bitcoin is subject to the laws of gravity.
Some Bitcoin investors lost it all when they were forced to sell their position on the margin calls.
Let’s take some time to break down the arguments in favor of buying Bitcoin and the reality of the purchase.
First argument: It will become a global currency. Let’s follow that logic hypothetically. In January a Bitcoin investor buys a $35,000 Tesla with her Bitcoin. Three months later, Tesla’s Bitcoin is worth 30% less. Great for the Tesla owner. Bad for Tesla.
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No surprise in Tesla’s decision to stop accepting Bitcoin. They are in the business of selling cars, not currency or commodity trading. Tesla cited environmental concerns, but when we use currency, we are assuming the stability of that currency. Businesses might start accepting Bitcoin — when it stops having wild swings.
Second: It’s the wild swings that make Bitcoin so interesting. It’s the sudden money stories from dramatic gains that make it far more interesting than traditional currencies or commodities. When Bitcoin becomes more (relatively) stable like other currencies or like gold, will it be enticing as an investment? Maybe not.
Third: It’s the investment as a percentage of our personal wealth, not the dollar investment that matters. Everyone pointed out the $1.5 billion investment that Elon Musk made in Bitcoin, but the guy is worth a little less than $150 billion. By that same logic, take someone who has a life savings of $10,000. One percent of that would be $100. Tripling that investment in a once-in-a-lifetime opportunity is a shrug. But we know many investors are not using side money or what we call “money we can afford to lose.” Instead, it’s money they would otherwise be investing in retirement accounts with diversified investments, tax advantages and company savings matches.
Finally, let’s talk about the sudden money. Money is fungible, but fast money allegedly carries a different value. Last week I heard a podcast interview with a Dogecoin paper millionaire. The story was amazing and packed with luck and opportunity but more importantly with a reverent attachment to the investment itself, versus any goal of investment return.
But what confused me were his sweet phone calls to his mom to share the news that he is a millionaire and that she would be just fine.
After that anecdote with his mom, I found myself yelling at my phone, SELL, SELL, SELL!!! Even my four-year-old joined in, thinking they were cheers. Seconds later the host of the podcast got animated and started saying the same thing. Anyone alive and adult enough through the late 90s had to be yelling.
In 1999 during the tech boom I bought and sold all kinds of tech stocks with a similar echo of what people are saying now. Tech is the future. We can’t possibly put a value on it, so people — including me — were buying up tech company shares at insane valuations. Some I bought low and sold for a modest gain, a couple I “round tripped.” Funny on those round trips — all I could think about was the doubling or quadrupling of my money. But there was no real return. It was all on paper, and as soon as I started daydreaming about the stuff I would buy for me and my family, “poof,” it all went away.
My real wealth didn’t start until a decade later when I discovered “slow money” and the value and intention of boring, monthly investing into fully diversified stocks and bonds, and using the leverage from tax efficient retirement accounts to accelerate those savings. I noticed it got less boring as the balances grew.
Those of us in the slow money world know the time it takes to build such wealth in more stable and predictable assets. When I open my accounts, I feel a sense of reverence and care for the wealth we are building and for our retirement and future. It’s not necessarily the feeling of exhilaration I felt when opening up my brokerage account each day and seeing my money double before my eyes.
I imagine listening to the Dogecoin paper millionaire story with a Boomer and Gen X perspective. We were rapid fire financial planning with our life experiences the financial goals this young man could achieve by locking in his gains and setting up for true wealth over his lifetime. We were buying a home and putting 20% down (or more), maxing a 6-month emergency fund, maxing out his retirement plan, maxing out his IRA contribution, and setting a chunk aside for starting a business one day or even a side fund for speculative purchases. We were using the rest of the money to buy passive mutual funds that bought the entire stock market (essentially buying into a less concentrated, less speculative future of the global economy), that with a 5%-6% return annually would make him a multi-millionaire using the laws of time and compounding.
Susan Bradley, author of “Sudden Money” describes the fork in the road for those who suddenly come into large sums of money, from an inheritance, a divorce, the lottery, or even pro sports players. Many end up “worse off” than they were before.
And by “worse off, ” she means they were better off never having the money in the first place.
Why? Well, a lot of reasons that can change depending on how the money was made. In the case of investors who hit sudden money, it’s probably the assumption that the investment had more to do with savvy than with luck.
My friend worried because her employee’s response was the wish he had invested more. Because the next time, he might double down. The next time, he might even use margin. And all along the way, he is missing out on what he could be gaining in a retirement plan.
The question isn’t about buying Bitcoin or not. I have an ongoing text exchange with a girlfriend who has done her homework, believes in it, and invests in it — but even she admits that her position is a small portion of her wealth. Instead, this is about being tethered to the sum total of decisions and actions that it takes to build wealth over a lifetime. It’s the concept of slow money that we must understand and pass down generationally, like the three generations of our business owner. And maybe that’s more important than the discussion of the investment itself.
Sarah Catherine Gutierrez is founder, partner and CEO of Aptus Financial in Little Rock. She is also author of the book “But First, Save 10: The One Simple Money Move That Will Change Your Life,” published by Et Alia Press. Contact her at sc@aptusfinancial.com.