Disclaimer: I am not a professional financial adviser, and this should not be considered as advice from one. Please always do your own research and what you believe is best for you.
It has been a busy month or so. Work has continued to move at a fast pace, and I have continued to welcome every moment to catch my breath and rest. With only so much energy that I was able to give during this period, I channeled most of my available time to learning more about cryptocurrency and, more specifically, decentralized finance (DeFi). While I played through a game and watched a few episodes of anime to take it easy, I’ve still been thinking about the long term. Why? I’m looking to live life on easier mode.
Before I get into the main topic, I’d like to say that I had already heard about crypto by 2016. I was interested in the concept of “the people’s money” and the little guys and gals trying to take back control in a rigged system.
Make no mistake. If inflation wasn’t clear before, it definitely has been in recent months. We can easily see the effects of this at our local grocery stores. About three weeks ago, I had heard from Peter Schiff, an economist who I occasionally follow, that the Federal Reserve and the government had reported inflation had risen by more than four percent in the CPI, more than double their targeted rate. We know these numbers are suspect because food prices have risen by well over four percent in the past year. I’ve had this suspicion for years prior to 2020 and already had a decent portfolio going into last year to hedge against inflation. Even so, the price of corn, which is used in a lot of food and non-food products (including gasoline), rising by more than 140% year-over-year does not give comforting thoughts. And that is only corn. There also are the likes of oil and lumber that have had considerable price increases which we see at gas stations and in real estate, respectively.
A non-emergency fund savings account by itself is not going to cut it, and most 401Ks and IRAs probably won’t, either.
In my opinion, I agree with Schiff, Zero Hedge, etc. in regards to the United States’ stock and real estate markets being way overleveraged and overvalued. If the Federal Reserve and the government lose control for even a moment over this “everything bubble”, many people and their portfolios are going to get wiped out like in the 2008 financial crisis and it will be even worse.
There may be moments like AMC and Game Stop’s stock growth that can be good for the little guys and gals, but we have to be serious: these were companies that were likely close to going bankrupt before their stock prices considerably increased. For example, Game Stop’s business model still doesn’t really compete well with Steam and Amazon in particular and even Walmart, Target, and Best Buy. There are many companies like it across every industry. I’ve heard them referred to zombie businesses when they are especially bad.
I say that to get to this: an eight percent average growth rate for the US stock market may be fine now, but years of growth would be wiped out if the market suddenly fell 20 percent or more.
We have really no way of knowing what will happen, and that is why it is important to diversify. We live in a global world, and one advantage of that is we can easily invest in foreign countries and businesses that aren’t directly tied to the United States’ markets. Well, 99% of countries have central banks, so it can easily be understood why people, wary of what happened a little more than a decade ago, would also be bearish on foreign stock markets and would turn to a more decentralized market such as cryptocurrencies.
Yes, cryptocurrencies carry a lot of risk, but you can mitigate the risk to various extents. For example, you do not have to day trade. If you research them thoroughly and believe that one or more of them are long-term assets, then invest in them (hopefully no more than what you are willing to and can afford to lose) and don’t be concerned about the shorter-term volatility. You also could consider staking your crypto assets or generally providing liquidity for the crypto trading that others do and potentially receive passive income in either case. There are risks with this also. The underlying smart contract program that basically facilitates the liquidity process could become glitched or hacked. Like crypto assets themselves, crypto liquidity providing in any form is not insured by the FDIC, etc. Although, recognizing this as a quickly growing market, private crypto insurers have formed to help provide insurance.
I like the FIRE (Financial Independence Retire Early) movement and hope to be able to retire early some day, myself, and I think DeFi can take it to another level in the form of DeFIRE. If anything, it is worth considering to try to overcome the rising prices at grocery stores, gas stations, and such. Whether it is through DeFi or the existing, traditional CeFi (centralized finance), we have been in an environment where we have to invest large portions of our income to have a chance of meeting longer-term financial goals such as retirement. Even a “high-interest” savings account offering .4% APY is definitely not going to be enough with these rising prices.
