The trouble with Bitcoin

A national lockdown. A decimated job market and the deepest recession since records began...do you feel the journey to financial freedom has just got a lot harder? There’s no beating around the bush. We are living through an exceptional period. But don’t let the pandemic discourage you from achieving your goals.

Instead, sit tight, listen to my advice and ignore the pandemonium that comes with a crippled economy.

If you’ve noticed, the topic of money flows differently once we enter a recession.

As the economy flounders in the turbulence of uncertainty, money-making schemes rise to the surface and hook our attention. It’s hard not to notice. Go on Facebook, LinkedIn or even Twitter and it won’t be long before you come across a financial ‘expert’ promoting the latest investment opportunities with big returns.

Step out of the digital realm and into any social situation, someone will be lauding the lucrative high-interest rates that cryptocurrency have to offer. Wherever you go, there seems to be a new Tik Tok expert telling you what to do with your money. Don’t listen to them.

Why? Because there are no get-rich-quick schemes that can justify the risk that comes with the reward. I should know, because I’ve tried them! A long, long time ago of course, when I was young and green enough to think that I knew better, that if I just focused hard enough, I’d crack the code. The code that everyone wants in order to avoid the hard work, grit and patience needed to build reasonable wealth. At 20, I wasn't interested in hearing that the only way to build wealth would take me decades.

The truth is that there is no code. Instead, there’s sitting still and following a long-term plan. Boring and sensible sounding though it is, this will never make the script of a Hollywood film, but that’s because it works. If it didn’t, millions of people wouldn’t be able to retire. It would just be the handful of people who manage, against all the odds, to go out on a limb and risk it all.

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Bitcoin is not the answer

The frenzy over Bitcoin’s boom have drawn in new buyers looking to make money. People who wouldn’t normally consider themselves investors. But the headlines obscure the alarming facts.

After a boom in 2017, the price of bitcoin fell by about 65% during the month from 6 January to 6 February 2018. Wikipedia tells us that “By September 2018, cryptocurrencies collapsed 80% from their peak in January 2018, making the 2018 cryptocurrency crash worse than the Dot-com bubble's 78% collapse. By 26 November, bitcoin also fell by over 80% from its peak, having lost almost one-third of its value in the previous week.”

There are other misconceptions and complexities that aren’t just around the figures. Thankfully the Financial Conduct Authority has this week has weighed in to break up the party: ‘Be prepared to lose all your money’, it warns. It says that that some crypto investment firms aren’t just overstating potential payouts, or understating the risks. They also state that as a newer and relatively lightly regulated market, consumers are unlikely to have access to state-backed compensation if something goes wrong.

How would you react if your investments plummeted by 20, 40 or even 80%? Bitcoin’s total peak to trough drop in 2018 was 84%! Anxious? It’s easy to say that you’ll remain calm and detached from your emotions, but it’s easier said than done.

So what’s the alternative?

Let’s remind ourselves of the boring bits

The long-term strategy isn’t as appealing as the short-term strategy, but it certainly tends to be the most profitable. But how do you stick at it? This is where your financial planner comes in.

A financial planner is indispensable to safeguarding your finances as well as your mental wellbeing. You wouldn’t have to spend every day second-guessing your decisions, nor would you have to invest copious amounts of time thinking about your next move.

Financial planners do all of the hard work for you. It’s like getting a personal trainer. You don’t have to plan your meals or your gym sessions. You just have to simply follow the programme given to you.

All of my clients are liberated from the emotional anxieties that come from investing, especially during a time like this. Whenever they’re unsure of anything, I tell them to follow A, B, C. Likewise, if they want a change of direction, I provide them with a tailored solution that encompasses all important variables and factors.

And do you know what’s the best bit? They can go to sleep every night knowing that all of their life savings are in safe hands.

The long game is simple, boring andeffective. There’s no magic formula here. Spread your assets across a reliable investment portfolio, lock them up and watch them grow. That’s it. Stay focused, play the long game and be consistent.

Warren Buffet is an advocate of this approach: “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”

Anyone can be their version of Warren Buffet and enjoy inevitable wealth. Inevitable wealth yes, but I didn't say it would be easy.