Dear DTA,
Any thoughts on cryptocurrency? I’ve been dabbling. Not sure if it’s better than trading stocks.
-Andy T.
Hi, Andy.
Thanks for taking the time to write in.
Your readership is very much appreciated.
You pose an interesting question there.
First, I’ll note that cryptocurrency and stocks are not mutually exclusive.
One can hold and/or trade cryptocurrency assets and equities at the same time.
But if we’re talking which one is better, I don’t think it’s even a contest.
My answer would be stocks.
Of course, I’m biased.
I used stocks to go from below broke at age 27 to financially free and retired at age 33.
And I lay out exactly how I did that in my Early Retirement Blueprint.
A big component of that Blueprint is the investment strategy I used.
The strategy takes the bigger idea of stocks and condenses it down into only some of the best stocks in the world.
That strategy is dividend growth investing, which fellow contributor Dave Van Knapp deftly explains in his Dividend Growth Investing Lessons.
I bought shares in world-class enterprises that pay reliable and rising cash dividends.
Enterprises like you can find on the Dividend Champions, Contenders, and Challengers list.
I would buy these high-quality dividend growth stocks when they were attractively valued.
I’d then reinvest the growing dividends, with the intention of holding shares forever.
Growing dividends bought more shares that were also paying growing dividends.
It’s the epitome of money making money.
This is how I built my FIRE Fund.
That’s my real-money early retirement dividend growth stock portfolio.
It generates the five-figure passive dividend income I live off of.
How much passive income is a crytpocurrency going to generate for you?
Zero. Zilch. Nada.
Look, I’m not going to bash on cryptocurrency.
But I honestly don’t get it.
We’re quickly moving to a cashless society. No doubt about that.
However, crytocurrency didn’t start that revolution, nor is it necessary to see it through.
All currency is becoming digital.
The dollar is becoming digital all by itself.
It might not be becoming “crypto”, but it’s as useful a medium of exchange as it’s ever been.
There’s a case to be made for blockchain technology, but cryptocurrency itself doesn’t seem to really add value to society. It doesn’t make everyday life easier or better. Not from what I can see.
And I don’t even get the investment case for it as an “asset”.
Warren Buffett, the billionaire investor, seems to agree with me.
He recently said this:
“Bitcoin is an asset that creates nothing.”
At least gold, which is often compared to cryptocurrency as a store of wealth, provides some value to society, be it through jewelry, electronics, etc. Gold can’t be “mined” from someone’s bedroom. Plus, there’s the fact that humans have been using gold as an asset for millenniums.
You can trade cryptocurrency all day long.
But I don’t think it’ll be a great long-term generator of wealth. It certainly doesn’t provide passive income.
Furthermore, you can trade any currency all day long. It doesn’t need to be “crypto”.
Trading or investing in cryptocurrency is certainly something you can decide to do.
I would simply recommend thinking about keeping cryptocurrency a small part of your overall portfolio.
In terms of risk, it’s way up there.
And if it’s as prolific as some people believe it to be, even a little bit of exposure might go a long way for you.
Meanwhile, don’t skimp out on the high-quality assets that have proven to make people a ton of many for generations.
Stocks have returned about 10%/year for the last 100 or so years.
That means you could end up doubling your money every seven years or so, based on the Rule of 72.
Slow, steady compounding is a powerful force that you shouldn’t completely turn your back on in favor of a speculative bet.
If I wanted to go a little crazy with a bet on cryptocurrency, I’d keep the trading or investing to no more than 5% of my portfolio.
Just my thoughts.
You can modify that number based on your own tolerance for risk.
The remainder of the portfolio should be in higher-quality assets with greater visibility in terms of cash flow and returns, in my opinion.
By the way, make sure to read through some of the resources I linked to earlier on.
Dividend growth investing might not be as hyped up as cryptocurrency, but it’s a phenomenal long-term investment strategy that has the potential to create a lot of wealth and passive income over the long term.
I personally highlight a compelling long-term dividend growth stock idea every Sunday.
These ideas are presented as part of the Undervalued Dividend Growth Stock of the Week series.
Every stock in the series has to meet certain quality and valuation thresholds before being shared.
And every idea also passes muster from professional equity analysts.
The series includes some of the best long-term generators of wealth and passive income you’ll find.
No matter what you decide to do, Andy, I’d recommend one last thing.
Start today.
I wish you luck and success.
Jason Fieber
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