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Successful investing, like many endeavors, is often discussed simplistically, as though it were an either/or activity. Either you store your nest egg in an FDI-insured bank account and let it gradually accumulate a return at a paltry rate of interest. Or you do something highly speculative with your cash — like play the futures market or slap money down on momentum stocks – with an eye towards a quick and luxurious return on your investment.

There’s something to be said for both extremes. It certainly makes sense to keep cash on hand in case of an emergency. Having enough cash available to cover six months’ worth of your basic expenses is a good rule of thumb. But keeping the bulk of your portfolio in cash, especially at current reduced rates of interest, is foolhardy. A portfolio consisting solely of cash in the bank can never grow enough to fund you in your retirement years.

Still, highly aggressive investments in vehicles like momentum stocks or the futures markets can wipe out an unseasoned investor in months or even weeks. But a diverse portfolio that allows for ample protection as well as a bit of rapid growth is a good way to go.

Towards this end, a portfolio consisting principally of gold – physical gold – and a moderate quantity of bitcoin can work very well for a lay investor. Here’s why. Gold has been around for thousands of years. As former U.S. Mint Director, Ed Moy, has observed, “Gold is the undisputed king of longevity for being in use since the dawn of civilization.”

What’s more, gold is a tangible asset that routinely serves as a safe haven for investors fleeing the negative effects of equities markets and a declining dollar. Central banks store physical gold to hedge their inventory of world-reserve currency (dollars) and the devaluation of their home currencies. Because of gold’s limited above-ground supplies, investors can feel reasonably confident their own stash of physical gold will hold its value and stabilize their portfolios.

If gold represents a balanced portfolio’s stabilizer, bitcoin can serve as its primary growth additive. The new electronic currency, bitcoin, has ranged in value (in dollars) from zero to $1,230.00 and is currently around $416.00. Target, Subway, Paypal, Amazon, Victoria’s Secret and Zappos are just a few of the many businesses that now accept bitcoin. The cryptocurrency stands only to grow in value as its circulation base expands. As such, it represents a splendid opportunity for robust growth in a balanced portfolio.

The question remains why invest in bitcoin, and why not invest in momentum stocks or even value stocks for rapid growth? There are several reasons – mainly having to do with the current challenges of publicly owned stocks.

According to a recent poll by FactSet, analysts anticipate first-quarter earnings per share in the S&P 500 will decline by 8.7 %. If they’re right, this will be the fourth consecutive quarter of a decline in earnings. This decline would also mark the first such four-in-a-row series of declines since the 2008-2009 financial crisis.

Clearly, if S&P stocks are this vulnerable to decline, momentum stocks – smaller speculative stocks – will be even more vulnerable.

Also, many of the stock purchases we’re now seeing are originating from company stock buybacks. This kind of stock purchase, if handled in sufficient quantity, can reduce the number of outstanding shares and make a stock appear more attractive to outside investors.

If you happen to know someone in a company and have intimate knowledge of its markets, as an investor, you might have a leg up. But lacking such knowledge, you’d best steer clear of a momentum – or so-called “hot stock” – in the current market environment.

For an alternative approach to a balanced portfolio, then, you might want to consider a mix of bitcoin and physical gold. Bitcoin represents a new form of investment. So be sure to use your own tolerance for risk and your available resources as guidelines to the respective percentages of gold vs. bitcoin you choose to invest.

What is this strange new object called “bitcoin,” anyway? Many feel stymied, even intimidated, by the possibility of buying a thing or a service without reaching into their pockets for the familiar green and white printed paper buried in their wallets or stuffed into their handbags. Others still are suspicious of initiating a click on their computers without the inevitable follow-up act of volunteering sensitive personal credit card information.

But once you come to appreciate how bitcoin enables you to bypass the banking system and any intermediary altogether, you’ll feel only too happy to embrace a commercial transaction without using traditional money or plastic.

The fundamental way all of us can become more comfortable with bitcoin is to rethink the idea of money and currency altogether. What is money and what is currency, after all? In his positively reviewed 2013 book, Money,TheUnauthorized Biography — From Coinage to Cryptocurrencies http://www.amazon.com/Money-Unauthorized-Biography-From-Coinage-Cryptocurrencies/dp/0345803558, former World Bank official, Felix Martin, provides us with an alternative definition to the traditional definition of money we’ve come to accept without examination or question:

“Coins and currency … are useful tokens to record the underlying system of credit accounts and to implement the underlying process of clearing….But currency is not itself money. Money is the system of credit accounts and their clearing that currency represents.

…The vast majority of our national money – around 90 per cent in the U.S., for example, and 97 per cent in the UK – has no physical existence at all. It consists merely of our account balances at our banks. The only tangible apparatus employed in most monetary payments today is a plastic card and a keypad.”

There you have it – money is not truly a physical object, per se, but rather “the system of credit accounts and their clearing.”

Once you read through the exhaustive history he cites, and give the matter some thought, you’ll realize Martin’s analysis is unassailable. You’ll realize too that former U.S. Mint Director, Ed Moy, nails the essence of bitcoin when he writes:

“…The physical form of money has evolved from commodities to precious metal, to coins and paper bills and to electronic representations. Digital currency is just the next step in the development arc of money http://www.newsmax.com/Finance/Ed-Moy/cryptocurrencies-bitcoin-book-money/2015/05/29/id/647430/.”

And if we actually do rethink the definition of money, we canappreciate what Felix Martin means when he refers to money as “social technology,” and what writers about digital currency mean when they report how the bitcoin system works through “peer-to-peer technology.” They give a whole new meaning to the time-honored maxim “money talks.” Indeed it does – but in a more universal language.

Tag: silver

The New Bitcoin Portfolio Diversification Strategy

Bitcoin – the Elegant New Alternative to Money