Ric Edelman telling you to dump 40% of your portfolio into crypto. Forty. Percent. Let’s face it, that’s not testing the waters, that’s a cannonball into the deep end. And while the siren song of crypto riches is tempting, especially when traditional investment models feel…well, traditional, we need to ask ourselves: is this freedom, or financial foolishness, especially for those who can least afford it?
Is 60/40 Really Dead Already?
Edelman contends the 60/40 portfolio is a dinosaur. Okay, maybe it's showing its age. Before we go throwing out the baby with the bathwater, though, let’s muse as to why it was there in the first place. Beyond this, it often provided a counterweight – a moderation – to progress or development in favor of stability. It was not about moonshots—it was about inching the ball forward. Is that so bad?
We're living longer, sure. But are we all living longer, and all equally well-equipped to ride out the crypto maelstroms to come? A retired teacher living on a fixed income is not comparable to a Silicon Valley technology billionaire with hundreds of millions of dollars in venture capital funding. The risk tolerance simply isn't comparable. To propose that they each just set aside 40% to crypto is, quite honestly, reckless.
Crypto's Rise, Redemption or Mirage?
Edelman credits the evolution of crypto and its growing mainstream acceptance. Bitcoin ETFs are a thing. We shouldn’t confuse institutional interest with guaranteed returns or built-in safety. Remember Pets.com? As we’ve seen many times over, just because a big pile of money dumps in doesn’t mean it’s a good investment.
The argument for uncorrelated returns is stronger. If crypto really zigs when everything else zags, that’s worth it. Diversification is the most important thing. Uncorrelated doesn't mean immune. It certainly doesn't mean easy money.
Then there's the promise of higher returns. Ah, the siren song again. Yes, the potential is there. The risk for catastrophic loss is just as great. That loss isn't distributed evenly. It does so in a way that disproportionately punishes those who have less capital to start.
The Rich Get Richer?
Here’s where the new social justice angle comes in. Because crypto, at its heart, is a democratizing force. It can provide financial inclusion to the unbanked and underserved. Right now? It frequently feels like a ploy for the rich to accumulate more riches. In the process, the most unlucky are stuck with the fallout.
Think about it: who's best positioned to navigate the complex world of DeFi, NFTs, and altcoins? Who has the time, resources, or technical ability to navigate the world of scams and rug pulls. Not the single mother working two jobs. Certainly not the old immigrant who can’t pay his bills.
Edelman skips most of the risks, emphasizing only the possible rewards. Unfortunately, the crypto landscape is still a Wild West. On track for $2.1 billion stolen in hacks in just the first half of the year?! And that’s not a bug, that’s a feature of a system that’s very much in its infancy and therefore still largely wide open and unregulated.
Hacks, Scams and Regulations Needed Now?
Senator Tim Scott is trying to pass crypto market legislation by the end of September. Will it be enough? Most importantly, will it truly protect the average investor from bad actor/revenue generating practices? Will it help ensure a level playing field, or just further rig the game in favor of those who are already powerful and well-connected?
Bill Pulte’s crypto mortgage plan feels brilliant at first glance but deeply scary upon inspection. Now, picture that happening to your home, shackled to the volatile swings of the crypto market. Foreclosure rates would skyrocket.
Here's where the "Unexpected Connection" comes in. Remember the subprime mortgage crisis of 2008? We were sold that it was about expanding homeownership, about making sure that there was some sort of equal opportunity at the American dream. But as we all know, it ended in disaster, with millions losing their homes and the entire global economy hanging in the balance. Are we about to repeat that same fate by sleepwalking into a new version with crypto?
In reality, a 40% allocation to crypto would be the quickest route to bankruptcy. For millions, that’s a bet they can no longer afford to lose. We cannot allow ourselves to be seduced by the siren call of instant wealth. It’s important for society to understand the enormous potential for devastating monetary collapse, particularly among those already at a disadvantage.
- Housing Crisis 2008: Subprime mortgages, deregulation, and a belief in ever-rising housing prices.
- Potential Crypto Crisis: Crypto mortgages, limited regulation, and a belief in ever-rising crypto prices.
The parallels are unsettling.
What's the Solution?
- Education First: Before anyone considers allocating a significant portion of their portfolio to crypto, they need to understand what they're getting into. Not just the potential upside, but the very real risks.
- Responsible Regulation: We need clear, comprehensive regulations that protect consumers without stifling innovation. This is a delicate balance, but it's essential.
- Financial Literacy for All: Let's equip everyone with the knowledge and skills they need to make informed financial decisions, regardless of their background or income level.
A 40% allocation to crypto might be a path to financial freedom. But for many, it's a gamble they can't afford to lose. Let's not let the allure of quick riches blind us to the potential for widespread financial ruin, especially for those who are already struggling.
