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Heat wave sends mercury to all-time high of 41. The underlying technology securing bitcoin is known as the blockchain. Late last week, I noticed a spike in what we might think of as a certain financial index. It wasn’t the trading in a financial instrument per se, but in the online traffic in a column I had written in December 2013.
Lance’s Right (and Left)
The bitcoin crash of 2013: Don’t you feel silly now? 5,000, a point it breached during the day on Friday. A few bitcoin true believers had dug out that old story and were, metaphorically, waving it in my face. Tweets citing the piece and asking if it wasn’t me who should be feeling silly came pouring into my Twitter feed.
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No, I don’t feel silly, but vindicated. If the recent run-up in bitcoin price proves anything, it’s that the virtual currency is still a dumb investment. Not only that, but the surge undermines the case for bitcoin’s ostensibly chief purpose, as a medium of exchange. To understand why, we can start by scrutinizing the recent bitcoin surge — or as financial historians might view it, the bubble. Since Bitcoin is not backed by an underlying asset and instead has a fully fluctuating exchange rate the idea of bubbles seems salient. First, the surge is of very recent vintage.
900 range in December 2013, and about the same in December 2016. Most market participants, it’s safe to say, would regard a one-day collapse of that magnitude as cataclysmic. Remember this “article” you wrote in 2013 Michael? Bitcoins will undoubtedly rise in quoted value again, and also fall again,” I wrote in 2013. The one inevitability about them is their volatility, to which there’s no end in sight. As an investment, therefore, bitcoin is not for the average household. Even professional plungers might quail at such a volatile financial instrument.
What about people using bitcoin as a medium of exchange? Among bitcoin’s virtues, ostensibly, is that it’s anonymous, and theoretically easy to convert into or out of national currencies. This makes it relatively convenient for anyone needing to move financial assets around, out of the eyesight of government foreign exchange regulators, tax authorities or law enforcement agencies. Bitcoin is popular among businesspersons in places such as Greece, Spain and China, where the impulse to get capital out of the country confronts strict government policies aimed at keeping it in. You can buy bitcoins from home and convert it into dollars, sterling or euros. These transactions are anonymous and electronic, typically performed via a virtual “wallet” maintained at a bitcoin exchange firm.
Yet most bitcoin value appears to be held by investors, not used for trading or capital flight. That’s the conclusion of a research team headed by Susan Athey of Stanford. Since Bitcoin is not backed by an underlying asset and instead has a fully fluctuating exchange rate. Bitcoin exchange rates, the idea of bubbles seems salient. We may be in one right now.
That should give pause to anyone using bitcoins to transfer value. 50,000 in your local currency abroad. Factor in the instability of bitcoin exchange firms, which have experienced a string of failures, technical problems and government seizures tied to criminal activity for almost as long as there have been bitcoins. The bitcoin thesis is that its mathematical underpinning eliminates the need to rely on trust relationships with one’s transaction counterpart, as long as one trusts the algorithm. This may be why bitcoin still accounts for a minuscule proportion of financial transactions worldwide. The capitalization of the bitcoin market — that is, the 16. Oh, sure, let’s rely on bitcoin as a global reserve currency: The price action in bitcoin since July 2010 shows extreme volatility.
What bitcoin has that the Romanian currency lacks is a fan base that sees it in ideological terms. These fanatics believe that it’s a viable alternative to what they call “fiat” money, which is currency subject to central bank buying and selling. The central banks, they further believe, are devoted to maintaining inflation, which can only sap those currencies of their value over time. What they don’t acknowledge, however, is that bitcoin is even more vulnerable to externalities such as government policies. The real value of bitcoin may reside not in the price of these virtual coins, but the underlying technology, which is known as the blockchain.
Day 05: Jolly Buoy
Blockchains, put simply, are ledgers or databases that aren’t maintained by a government agency, corporation or other centralized authority, but their community of users. They’re encrypted to prevent unauthorized or secret tampering, which makes them especially secure. Bitcoin can be viewed as blockchain’s proof of concept. Indeed, bitcoin is facing competition from other virtual currencies purporting to exploit blockchain more effectively. Investors are pouring into the blockchain space, hoping to get in on the ground floor of a technology with broader application for business and government than merely as a way to move money around. That doesn’t mean those investors have much faith in the market price of bitcoin.
As is often the case in financial markets the real money is to be made via investments for which the actual value of the underlying asset is irrelevant. That’s why brokers prefer to take a commission on every transaction, regardless of its price. As I wrote in 2013, bitcoin may well rise in price, but it may also fall — after all, it’s done both, big time, in the last week. As an investor you may end up getting rich. But you may also end up looking very, very silly. 5,000, that will always be true.
Keep up to date with Michael Hiltzik. The Call of the Canyons has Sounded! For example, I was once working through such a guide in a magazine from Northern Trust, a bank that caters to the wealthy. What life events do you need to be prepared for? The following table lists average costs. 140,000 per year for the rest of your life?
And that is, why not go for maximum happiness rather than maximum consumption? So, these banks and mutual fund companies will continue to tell you that you need millions of dollars to retire, because it benefits them for you to invest your money with them. Luckily, it’s a harmless bit of tomfoolery, since the saving benefits you as well. 40k and figure out how to make your savings produce that for you.
For a single person, it might be difficult to slice it in half because you lose some benefits from sharing a house and car. 30k per year, earning 5k of that combined in part-time luxurious post-retirement careers. 10k in his or her mini-career. I’m working on some much more detailed and exciting sample budgets using real numbers from my own spending experiences before and after retirement. But they’re not done yet because the Call of the Canyons has sounded and the MMM family is off for some desert adventures and camping for a few days. You wouldn’t want a fake financial superhero who tells you how great it is to be free, but then sits at home all day as a slave to his blog, would you? Money Mustache, Good for You, but What About Real People?
Dude, those retirement calculators are set up by companies that need to pull in big assets under management to make payroll. When you see the light these clowns’ll never make a dime off ya. On the scale of Mass Consumer Deceptions, at least we can say that financial companies are on the low side, because they are selling you something that can benefit you. Much less dangerous than, say, car or credit card companies. It’s not just the retirement calculators that mislead. The advice of many financial advisers is just plain crazy.
Mine — the one I fired in February — actually advised that I work until I’m 64 and the Mrs. Is that a statistically good assumption? Hi Unattentive, thanks for the question, many people are probably wondering the same thing! I admit there is high standard deviation with these results and Mr. Money Mustache’s approach of a 10-year time horizon adds to the variability. Man, I should write one of those calculators myself using the publicly available data, it could be a great magnet for potential new readers searching on Google! It’s like some people who owns a house, but don’t live in it, and rent another one do live.
Can someone tell me some bad things about IOTA?
They use the rent income from the house they own to pay the rent of the house they live, but nevertheless the rent they pay should count on their annual budget, shouldn’t it? 27,000 plus how much it would cost if you had to rent to live in your place. So keep writing and I’ll keep reading! I’d be interested if it also factored in assumed inflation rate the interest the invesmtment would make.
With something like that, I could plug in a bunch of hypotheticals and be endlessly entertained. 100 per month of the principal, its power to produce income shrinks, leading to more principal erosion the next year, in an exponential fall-off. It’s only in the last 15 years of your life that you would really start sucking away that stuff. But most old people can’t predict when they are 15 years from death. 55, you may have 15 years to live, or you may have 45 years. I have never seen one as flexible as that one.
While that isn’t a crazy early retirement date like is being discussed on this website, it is a heck of a lot earlier than I had previously dreamed of. This was just running as-is numbers and increasing savings by a bit, without even going down the path of cutting expenses. Unless you want to leave a large amount of money for your future generations, it makes no sense to not use the principal. I don’t have children and don’t plan to have, there is no point for me to not start using the principal at some point and reach an age like 80 or 90 years old with a huge amount of money on the bank. Maybe, if I factor in using the principal at some point, I can push back the early retirement date by some years? You are so right Dude, go off and have a good time in the canyons! Compound interest is the eighth wonder of the world.
I just noticed this exact issue on a calculator on Merrill Edge’s website. Can someone point me to the articles that refer to the square one plans mentioned? I tried the Google search bar but couldn’t find references to square one plans. I have still never written any examples like that.
Yes, I am a disorganized blogger. Good to know I didn’t miss anything. BTW, thanks for the quick replies to my questions. It shows that you really do care about me as a reader. Two points that drive me nuts about the bulk of retirement calculators. You want to preserve your nest egg and never, oh my gosh, ever, touch your principle. So you can leave it to your heirs.
When I look at this I figure it this way, If I die five years into retirement, my 30 and 40 year old kids get a lot of money at a tough point in their lives. If I die 30 years into retirement, my 60 and 70 year old kids dang well shouldn’t be needing my money. If I preserve my principle, I limit my income. But if you don’t have any heirs it seems inefficient not to use at least some of the principle. On the down side I think you need to be a customer to use it. Is this the Calculator you’re talking about?
MMM, have you checked this one out and does it look any better than the others? FIrst off, I just want to say what a big fan I am of this philosophy and so glad I found the site. 2 without severe penalties to Uncle Sam. How am I supposed to tap my retirement savings in my sheltered accounts? At least not until you are at that age.
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I have the exact same question! Do I stop taking advantage of the tax shelters for the sake of building the stash I’ll use between 35-59. I had been contributing to the account, I’m going to pay down my debts that much faster and then plow that cash into a low-fee index fund as soon as the debt is paid off. I like the idea of a low-fee fund. I have a Roth IRA and a mutual fund account at Morgan Stanley and just took a closer look at my statements.
25,000 in those two accounts total. I hear you on not wanting to miss out on the company match. Are you thinking of nixing the Roth contributions in favor of taxed investments? I hate the idea of leaving tax-free money on the table, so I’m torn.
Andrew, look up and read the Mad Fientist on how to maximize tax-advantage accounts. He’s a bit more of a quant than MMM, and really likes the details of the IRA tax scene. I was shocked to learn that I needed close to 3 million dollars to enjoy retirement via a Learnvest calculator that I used a couple of years ago. I won’t be able to have that much at retirement.
Granted I wasn’t making big bucks and I did what I could but it just seemed so unattainable to me. I would need 4 million bucks! I basically blew that idea off and figured I’d work until I was 67 like my social security statement says I should. I replied I’ll get employer paid medical from age 55-65.
She rebutted that I’ll need money to spend to entertain myself unless I just want to sit on the porch in a rocking chair. But now I just crunched a few numbers and I’m thinking: Bullshit! The idea of spending money to entertain yourself seems more and more ridiculous to me now, 9 years into retirement. Sure, we spend money regularly, but it has nothing to do with entertainment.
It’s mostly food, plus whatever purchases that come up on the long quest to lead a better and more meaningful life. One problem I find with retirement calculators is they don’t take into account income from a Rental Property. I’ve owned my rental for 15 years, and my girlfriend has owned hers for two. Our goal is to have them both paid for by retirement, but I haven’t found an easy to use calculator that takes this scenario into consideration. Is there one out there that can calculate the income generated, as well as the total value over the years? Do you still use your OHIP card up here in Ontario, or do you pay for it all down there? My card has long since expired, plus I’ve never been seriously ill or injured during a visit to Canada since moving away.
As a civil servant and military reservist, I have a couple of those in my future, though I plan to FIRE well before they kick in so I generally exclude them from my math. Or, for super-Badass mode, build your Excel skills and chart it year by year, month by month, adding historical average investment earnings to known pension payouts and subtracting spending. Please proceed to forums for more assistance if you haven’t found them yet. I’ve only read a few posts thus far, but this one actually surprised me.
I often worry I might be saving too much and this particular post makes me stop to re-evaluate. I have run multiple retirement calculators and have maxxed contributions for as long as I can remember. If you need some of the funds from your tax-deferred accounts, start doing SEPP and Roth conversions right now. Or just work a few hours a week for fun to make up the difference while you approach a more convenient withdrawal age. I’m not going into debt for it, so I’m proud of that.