The U.S. Securities and Exchange Commission (SEC) has recently approved the first spot bitcoin exchange-traded funds (ETFs), which track the price of the cryptocurrency directly rather than through futures contracts or other derivatives. This is a major milestone for the crypto industry, as it opens the door for more mainstream investors to access bitcoin in a regulated and convenient way.
But where do bitcoin and bitcoin ETFs fit in a long-term portfolio? I would advise caution and prudence when it comes to investing in these volatile and speculative assets. Bitcoin and bitcoin ETFs lack any fundamental valuation method, meaning that their price is driven by supply and demand, sentiment, and speculation. They are subject to high risks, such as hacking, theft, regulatory changes, and technological disruptions.
Therefore, I would only recommend allocating a very small part of your portfolio to bitcoin or bitcoin ETFs, if and only if you have already funded all of your goals and have the money to have a speculative portion of your portfolio. This is the part of your portfolio that you can afford to lose without compromising your financial security and well-being. You should also be prepared for extreme price swings and potential losses, and diversify your holdings with other assets that have lower correlation with bitcoin.
That being said, owing a speculative asset can add some fun into your investments. At True Wealth we advocate for a "get rich slowly" strategy using broadly diversified ETFs. Having a part of your portfolio in speculative assets can add a little spice.
Bitcoin and bitcoin ETFs are not for everyone, and they are not a substitute for a well-designed and diversified portfolio that matches your risk tolerance, time horizon, and objectives. If you are interested in investing in these products, make sure you do your research, understand the risks, and consult a qualified financial professional before making any decisions.
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