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3 lazy portfolio recipes that make money

The lazy portfolio is just what the name implies--an easy way to invest. Here's my recommendations on how to get your lazy portfolio started!

Ramit Sethi

It doesn’t matter who you are or how much money you make. There’s no better way to assure you’ll be rich one day than by investing in index funds.

And when you leverage multiple index funds it becomes a powerful tool called the lazy portfolio.

What’s a lazy portfolio?

A lazy portfolio is a diversified portfolio of low-cost index funds that allows you to…well, be lazy. That means no active trading, no checking your stocks every day, and no paying some hedge fund manager (who won’t beat the market anyway) to handle your money.

It just gives you results.

It’s the set-it-and-forget-it approach to investing, allowing you to set the same asset allocation in your portfolio for a lonnngggggg time (typically for 10+ years).

Does this sound boring? Yes.

Will it make you rich? Oh, yeah.

That’s because lazy portfolios generally have:

  1. Fewer fees. Many mutual funds come with a bunch of dumb costs because they’re handled by money managers. Index funds do not, because you’re just investing in the whole market, so transactions are handled by computers that are happy to take much less money.
  2. Less risk. Since index funds invest in the entire market, they’re MUCH less volatile. You’ll earn money slowly, but if you keep your cash in the market over your lifetime, I promise you’ll make money.

Check out the graph of how the S&P 500 has performed since 1950.

S&P 500 Returns Chart 1950 to 2016

The S&P 500 since 1950.

If you don’t know how to purchase funds yet, I highly suggest you at the very least read my How mutual funds work article. In fact, do that now. (Don’t worry, this article will still be here!)

When you’re done, I want to show you a few funds to get you started in building a lazy portfolio for yourself and start earning money in the market today.

Bonus:If the COVID-19 pandemic has you worried about money, check out my free Coronavirus Proofing your Finances guide and protect your money during this pandemic!

How do I build my lazy portfolio?

Good news: Building a lazy portfolio is easy. You do it the same way you would put money into any other fund.

However, there isn’t a one-size-fits-all way of doing things when it comes to a lazy portfolio. That’d be like saying that there was only one single fund or bond that EVERYONE should put exactly XX% of their money in…which is wrong.

Luckily, there are certain “recipes” that people have leveraged to help them earn money on their investments. These recipes differ in terms of how many funds are in the actual portfolio and also how the assets are allocated.

They are also completely malleable, which means you can change them whenever and however you want depending on your financial goals.

While there are many different recipes out there, they generally break down into three categories:

  • Two-fund portfolios
  • Three-fund portfolios
  • Four-fund portfolios

Below are three portfolios that I suggest that fall into each category — along with suggestions for funds you can put in them.

Rick Ferri’s Two-Fund Lazy Portfolio

The 60/40 rule of asset allocation is a tried-and-true rule of thumb for approaching your portfolio. And it’s ludicrously simple:

  • 60% stocks
  • 40% bonds

That’s it.

Of course, you’re going to want to find funds that fit those asset classes. One great combination of funds (as well as their stock symbols) recommended by Rick Ferri, founder of Portfolio Solutions, is:

  • Vanguard Total Bond Market ETF (BND)
  • Vanguard Total World Stock ETF (VT)

If you choose to set this up as your lazy portfolio, your asset allocation will look like this:

Rick Ferri's Two Fund Lazy Portfolio

You can change how you allocate these assets depending on your risk tolerance too. If you’re willing to put a little bit more into the market via stocks — a riskier choice — you can put more into the Total World Stock ETF. Otherwise, you can place more into bonds and get a more assured return.

Taylor Larimore’s Three-Fund Lazy Portfolio

Developed by the guy who Jack Bogle called “The King of the Bogleheads,” this fund is another one that’s pure 60/40 rule. However, unlike the aforementioned two-fund portfolio, this one suggests investing in both international index funds as well as stock market index funds.

The percentages for the asset allocation look like this then:

  • 42% U.S. stocks
  • 18% international stocks
  • 40% bonds

As a Boglehead himself, Larimore suggests going with Vanguard funds here:

  • Vanguard Total Stock Market Index Fund (VTSMX)
  • Vanguard Total International Stock Index Fund (VGTSX)
  • Vanguard Total Bond Market Index Fund (VBTLX)

If you choose to set this up as your lazy portfolio, your asset allocation will look like this:

Taylor Larimore's Three Fund Lazy Portfolio
If your assets don’t look like the Mercedes symbol, you’re doing it wrong.

Over the past decade, this fund has returned roughly 7%, according to the Wall Street Journal — which beats out the VAST majority of actively managed funds and even the S&P 500. It’s a no-brainer if you want to invest in an easy, hands-off portfolio that will give you gains.

Speaking of no-brainers…

Dr. Bernstein’s “No-Brainer” Lazy Portfolio

As a neurologist turned financial wizard and author of The Intelligent Asset Allocator and The Birth of Plenty, Dr. William Bernstein has championed the power of the index fund over individual stocks and bonds for YEARS. So it’s no surprise that he suggests you put your money in a lazy portfolio that’s made of a few of them.

One portfolio that he suggested in The Intelligent Asset Allocator is called the “No-Brainer” Portfolio, and is comprised of four equal funds:

  • 25% U.S. stocks
  • 25% small-cap U.S. stocks
  • 25% international stocks
  • 25% bonds

You can see why it’s a “no-brainer.” This portfolio also gives investors a chance to diversify their risk (since there are four equally distributed funds) over time.

Here are his suggestions for the funds you can invest in:

  • Vanguard 500 Index (VFINX)
  • Vanguard Small-Cap Index (NAESX)
  • Vanguard Total International Stock Index (VGTSX)
  • Vanguard Total Bond Market Index (VBMFX)

If you choose to set this up as your lazy portfolio, your asset allocation will look like this:

Dr. Bernstein's "No-Brainer" Lazy Portfolio

Over the past decade, this portfolio has had an annual return of about 5% — which is in line with the S&P 500. It’s a great one for anyone who likes low-risk, assured returns.

Bonus: Ready to start a business that boosts your income and flexibility, but not sure where to start? Download my Free List of 30 Proven Business Ideas to get started today (without even leaving your couch).

Other recipe suggestions

Those are just a few solid recipes that I suggest.

If you’re a weirdo like me, and want to dive even deeper into the world of lazy portfolios and asset allocation, here are a few great recipes for portfolios for further reading:

No matter what you choose, remember that when it comes to your lazy portfolio, there’s no right or wrong way to go about it. It’s just what matters to you and your goals. That’s it. One of these lazy portfolios might make perfect sense to you while the others seem AWFUL…and that’s fine! It’s your finances, and ultimately, it’s you who gets to make the decisions.

How to invest in your lazy portfolio for peak laziness

When you finally invest in your lazy portfolio, you can take your laziness even further by automating your finances.

I. Talk. About. This. A. LOT. But that’s only because it’s the best way to invest, save, and earn money. This system allows you to automatically send your money where it needs to go as soon as you receive your paycheck.

How To Automate Your Finances Infographic

To find out more on how to automate your finances, check out my 12-minute video explaining it here:

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  1. avatar
    Adrian- Investor Tuition

    Hi Ramit,

    I certainly liked reading your post. The strategy certainly makes sense although I have always been slightly flummoxed as to why there is a sudden religious fervor towards index funds. I am aware of the strong argument against active manager's who have quite the history of underperforming benchmarks, but it is only in the last 3 or so years that indexes have begun to rise from their previous highs.

    Imagine an investor undertaking the index strategy in 1999. The S&P shows it took 14 years to exceed the Y2000 top. That's a very long time to be invested with absolutely no growth. Along the way, there were certainly valleys and peaks but you still ended up at your starting point 14 years later!

    Do you feel that as bull markets begin to enter their final phases, that investors blindly piling their funds into an index is going to condemn them to what will become 'investment purgatory' during the ensuing bear market that always follows booms? I suggest this only as there has been an 8 year run from the previous low which is a huge amount of time to convince younger investors (Millenials) that markets only ever go up but never fall!

    Regards Adrian

  2. avatar

    I first learned about this great option from Scott Burns of the Dallas Morning News. He called it the Couch Potato!

  3. avatar
    C.J. Cato at The Vow of Practicality

    Warren Buffet placed a bet for any Hedge Fund to try and outperform his simple investment in an index fund for 10 years. A Hedge Fund finally agreed to take the bet and Buffet won, because the fees ate up all the profits.

  4. avatar
    Sean Thomas

    This is the WORST advice about investing I've ever seen.

    1. BONDS loose you money because of high fee's low reward.
    2. Stock market is set to crash right now, its at all time high. Look at the S & P 500, see any recessions? Save your money and do options not stock.
    3. Bitcoin has had over 1000% increase. Wanna rethink what you just said? Its based off of a REAL mathematics.

  5. avatar
    Making Moves

    Another angry old man who has to yell at cryptocurrency for the simple reason he does not understand it and is not making money with it. Good luck with your bonds 🙂

  6. avatar
    Ramit Sethi

    That is not a valid response to investing for the long term.

    1. To say "bonds lose you money" shows a lack of understanding of how risk and balanced portfolios work.

    2. When you say "the stock market is set to crash right now," you don't know that. Neither does anyone else. Furthermore, what would have happened to your investments if you'd stuck in a long-term portfolio in 2008?

    3. Bitcoin has certainly increased. If your goal is to have some fun investing, and you want to put 5-10% in a risky investment, great. However, notice how many people are putting their entire portfolio into Bitcoin. That's not investing, that's speculation.

  7. avatar

    Completely agree with you about Bitcoin Ramit. I wrote a post recently talking about how Bitcoin is the equivalent of a $6000 Pokemon card haha

    Shout out to ZTL for teaching me how to make shareable content like this…

  8. avatar

    Thank you for these emails, and posts. Even though I am still dealing with consumer debt (with a plan to be debt-free in early 2018) I am learning about better financial choices from you, and others.

  9. avatar

    I don't have any bitcoin, so I'm not biased, but.. Well, It may be your opinion that Bitcoin is in a bubble and won't make people any money, but it's fact that bitcoin, and other cryptocurrencies have made thousands of millionaires.

    Maybe you should do some research into the underlying technology (blockchain), because it'll probably change the world, and for the better. It's thus far been unhackable, and therefore eons ahead of any other security we have, and it's also incorruptible (e.g. Once something is on the blockchain, for example, a contract, it cannot be changed and corrupted).

    You say it shouldn't be worth more than gold, but why does gold have a value? It's only worth anything because people are willing to pay for it. Our regular currencies (USD, GBP, EUR etc) are only worth anything because everyone agrees on its worth. Paper cash and coins are, at face value, worthless, and most of all money is electronic anyway and doesn't actually 'exist', much like bitcoin.

    Bitcoin may be overvalued, but the technology behind it is straight up genius.

  10. avatar

    Just so we are clear…

    Lazy does NOT equal smart. You are playing a game with the brightest minds in the world, and you want to do it by investing blindly, not considering valuation, and hoping in 30 years you have a pile of money…that seems quite insane.

    P.S. Your bond strategy is interesting…I could make the same argument here that you made about bitcoin…before these last few years, bonds have never traded at negative yields…yet 30% of global gov. debt is negative today!

    Ramit , I love what you write but stop offering fund advice here. Index investing + robo advisors = herd behavior, and completely eliminates the need to THINK. This is not like ordering a # 2 for lunch.

    Ask yourself – would you have offered this advice back in 1989 to a Japanese investor? What's the Nikkei at today compared to then?

    Valuation, demographics…these things matter.

  11. avatar

    Oh man Ramit. On one hand I am happy to know investing in imaginary currency is a fools game, especially if a hacker hijacks your account, but now I'm wondering if my investment in Dutch tulip bulbs can out perform an index fund with all the pundits saying a crash is imminent.

  12. avatar
    Patrick Huizinga

    Adrian, as someone who works in the financial industry, you should know about dollar cost averaging.

    If someone had started at the 2000 top by investing a fixed amount every month, they would've been ahead by the time 2004 rolled around. And that's assuming starting at the worst time in history (besides '39).

    That's the great thing about investing a fixed sum every month: you'll automatically buy more when everything's on sale and buy less when everything gets expensive.

  13. avatar

    This article itself is lazy. It was written before the Bitcoin era and got tethered to an email campaign with a polarizing opinion about Bitcoin. It's good, solid advice, but there's no reason to throw mud at digital assets.

  14. avatar

    1. Bonds often don't keep up with inflation, so it is, in fact, a losing proposition. You'd be better off spending your money than storing it in bonds.

    2. Nobody knows when corrections happen, but historically they're pretty common and you'd better be paying attention. That said, after those corrections, it usually comes back stronger than ever, so if you're willing to play the long game, and your portfolio is diversified enough, corrections shouldn't bother you too much.

    The same is true of crypto. Bitcoin, for example, has had SEVERAL "crashes", but the long-term trend is always upward. People who panicked in 2014 when it quickly climbed from ~$125, to just under $1000, and then "Crashed" back into the mid $400s, where it stayed for a while and then trended downward and bounced around in the mid $200s for the next couple of years. It never dropped back down to the $125 price again, but there was a lot of talk about how 'Bitcoin is dead'. Then, in early 2017, it obliterated the $1000 ceiling, and has been trending upward hard and fast for the past 10 months, hitting almost $8000, before correcting again into the mid ~$6ks. So what? Anybody who has adopted crypto, at ANY TIME prior to the past week is currently significantly better off than they started out, and even those who bought in at the peak last week, while they may be "down" on paper, odds are pretty well in their favor that in a few weeks' time, they'll be pretty happy as well, provided they didn't panic and sell.

    3. It's ALL speculation. Doesn't matter if it's oil futures, precious metals, crypto, index funds, or dumping everything you have into Enron stock. It's ALL speculative. Period.

    If you don't understand this, you don't have any business talking about finance.

  15. avatar

    What about bitcoin do you think is bad?

    I agree with you that people shouldn't put 100% of their money into it and that index funds are obviously more stable, but there's nothing wrong with putting some of your money into it.

    From your email today: "It’s [Bitcoin] made-up money that only exists on the internet that some brilliant marketer convinced a lot of people was more valuable than gold."

    I think you're misunderstanding the value proposition. If I live in Venezuela and want to sell trinkets on the internet I don't want to be paid in gold, and I certainly don't want to be paid in the Venezuelan Bolivar. That's just one application of crypto (Bitcoin), there are plenty more.

    I'd like to see a serious article on Bitcoin if you have contrary opinions, but I don't think this article is a fair indictment. That being said I understand, and agree with, the original point of the article: don't put all your savings into risky investments.

  16. avatar

    Index and mutual funds are a risk adverse way to invest as part of a larger balanced portfolio, but they will not make you rich – at best they will help you not lose your money. 7% over the past decade is an ok return, but nothing nearly in the realm of wealth.

    Most real estate investments over the same period have performed way better than that.

    It seems like youre article is making the claim that these strategies have performed better than actively managed / hedge funds which does not make it the best way to become rich.

  17. avatar

    Agreed. You beat me to it. Blockchain = Genius and gold's supposed great value is as much a construct as cryptocurrencies.

    Though the point of the article is valid which I read to be: don't sink all of your capital into shiny distractions in breathless excitement. The most reliable strategy to build considerable wealth is Get Rich Slow.

    Having said that I'm also a great advocate of having 5-10% of your portfolio in long shots with huge potential upside. Exposure to Black Swans and all that.

  18. avatar

    "Most real estate investments over the same period have performed way better than that"

    I doubt it.

    Real estate investment is a funny thing because it's dominated by Survivor Bias. Who wants to go to a dinner party to talk about the time they bought a house that stayed at the same value as when they bought it?

    Add to that a lack of diversification and lack of liquidity and it's really quite a shitty asset class to commit to when starting out. There's big money to be made, no doubt, but you really have to look for the right opportunity and be super selective about what you buy.

    I've done very well it of real estate in the past 10 years by passing on mediocre opportunities for the first 8 years.

    A reliable, brainless 7%pa is a very good option that's suitable for anyone at any time. Double your money every 10 years? I'll take it.

  19. avatar

    irresponsible for young investors to not have some exposure to crypto (<5%). massive upside far outweighs the chance it goes to zero. all about expected value

  20. avatar
    Alex B

    Ramit, I usually like your content and this was a solid piece. But for someone who is always talking about researching things in depth and capitalizing on opportunities, I think this line from your email – "[Bitcoin] It’s made-up money that only exists on the internet that some brilliant marketer convinced a lot of people was more valuable than gold." – has got to be one of the most throwaway comments you've made.

    I don't want to start slinging mud or bombard you with crypto techno-speak, but I'd be interested to know if you researched anything about blockchain technology or smart contract applications before making such a broad and seemingly uneducated statement.

  21. avatar

    I agree with investing the majority of your money in low cost Index Funds which I do myself, however I also like to allocate 10% for speculative investing by putting money into exciting new companies and technologies that align with my interests – This includes blockchain technology.

  22. avatar
    Kumar Bhowmik

    The value of a bitcoin was a small fraction of a cent in value. Today, one bitcoin is worth more than $6,000.

    A World Economic Forum report predicts that 10% of GDP will be stored on the blockchain by 2025.

    Global GDP is around $78 trillion. So we’re talking about a massive role for this technology.

    Why is blockchain technology so disruptive?

    Blockchain-based systems can be used to transparently account for and record just about any transaction.

    For example, it could allow for direct, peer-to-peer transactions that bypass the need for banks or credit card companies. It can also fundamentally transform the financial services industry and the way you buy stocks or bonds. You wouldn’t need an intermediary like you do today. It could all be done directly on a peer-to-peer basis.

    In addition, blockchain can store public records, real estate titles, contracts, patents and much more.

    It could eliminate the need for the “middleman” with most transactions and may even shutdown banks and credit card companies.

    I recently came across this video by Bill Gates where he is predicting along with many other Billionaires that 1 Bitcoin may Hit $1 Million by 2020.

    Bill Gates – Nobody can Stop Cryptocurrency (Bitcoin)… Bitcoin is Unstoppable

    Blockchain technology might not just be the future of money. It could revolutionize everything. It has the potential to disrupt almost every industry.

  23. avatar

    Hi Ramit,

    Did you read the book The Black Swan? I guess you read it…

    So it's very similar to what you are saying here…

    BitCoin is kind of Blackswan, if people will catch the right trend they will earn.

    I personally know investment company that buy and sold ICO when this trend just started and they made over 60 million dollars.

    The funny things when I talked to the CEO Which is the owner he told me: "don't do it now, you missed"

    Because he was smart enough to recognize the trend just started, before it's become to much popular (blue ocean theory), did a fast move – big money and quit.

    Why I reminded the Black Swan theory?

    Because many of University professors might take your approach, that you need something stable and all that.

    But maybe I'm wrong on this case and maybe not, there are in life "Black Swans" – things that no formula, or math equation can predict.

    And the people who are smart enough to recognize when Black Swan is rising?

    They hit the jackpot.

    Like this Business man told me,
    It's seems he recognize it when it's started and just hit the jackpot.

    But now?

    I think might some people will still be able to make it,
    but for sure it's will be FAR more harder because it's became
    massively popular.

    And the truth Ramit?

    The business world goes like that since always…

    The one who can see the opportunity first and act fast enough
    will seize the day…

    Anyway, I am pretty sure you did some business decisions that seems
    to many people pretty impossible, dumb or "Shiny object syndrome"
    but eventually you nailed it.


    I think it's a bit radical from you to cut it totally.

    And by the way?

    There are small precent of people who earned from Forex,
    I mean regulative Forex not scammy one they run with your money.

    People who were smart enough to use the leverage of Forex industry
    to buy Google and Facebook Stocks?

    Made Forex companies crush and make a big money.

    Jacob 🙂

  24. avatar
    Dilip Shaw

    I agree Bitcoin, Gold, Real Estate are BAD investments. However there is nothing wrong in investing just 10k-15k USD NOT MORE when very young in 10-15 stocks with very good fundamentals and leave them untouched until you retire. Your max loss is may be 50% of what you invested which is fine, but gains can be like millions of dollars in 20 years. For ex Indian Rs. 10,000 invested in ITC (an Indian company) in 1975 today would have been more than Rs. 600 crores + Rs. 200 crores dividend – not to forget all this is TAX FREE return. I do not mind risking 10-15k in early stages of my life and let it grow or go waste – you never know you may get lucky. But not more than 10-15k. Yes STAY AWAY from BITCOINS. Some equity funds in India perform much better than Index funds – like giving 22% return CAGR.

  25. avatar

    please type comment

  26. avatar

    I agree with index investing, but the blockchain sector is a great opportunity to supplement this for those who can justify the risk, learning curve and time commitments.

    Yes it's high risk, and not for most people. But there are strategic ways to approach it for those who are interested in this sector and like learning about the technology. I believe some IWT readers fall into this category.

    There are also new index-fund style blockchain investment vehicles, like the Crypto20 token or Iconomi platform. Consider that if you had replicated the Bleckley 10 Even Index and rebalanced monthly, you would have beaten Bitcoin, with lower risk:

    These new crypto index-funds take this into account.

    I've made 20x this year with my blockchain portfolio (much more than I've made with my business). This is not typical performance, and comes down to both luck and putting in the work.

    I've been using a diversified buy-low, sell-high strategy. Only projects that are well branded, with experienced teams and innovative projects make it into my portfolio. E.g., I bought Ethereum at $8, DASH at $8, NEO at half a cent, Ripple at $0.02, and several other lesser-known projects when they were under the radar. When they go exponential, I sell a portion of them to rebalance the portfolio.

    The Bitcoin community tends to hate everything to do with corporate partnerships, so I buy hated coins with good business models when they form big corporate partnerships (e.g., Enterprise Ethereum Alliance, or Ripple's partnerships with Asian banks). Once more people catch on and the price rises, people finally fall in love with them. At that point, it's time to sell and give the profits to new innovative projects that are under the radar.

    Buy into hate, sell into love. And only buy into projects that may actually bring value to the world.

    It has been a generous year, of course, and people investing now will see less upside. Once it becomes "safe" and easy to invest in this sector, the massive gains will be gone.

    It's also HIGH RISK for the average person, most of whom fails to buy low and sell high. But the fact that hedge fund managers are investing in this sector, every big bank and software company is getting involved (Microsoft, IBM, Google, etc), and the CME is rushing to create bitcoin futures is a hint that early blockchain investors are not dumb money.

    Of course, my blockchain profits feed a well-diversified ETF portfolio. Diversification is the only safety.

    Currently, this must be treated as speculating more than investing. But investing principles can still be applied. That means doing your own research, understanding that value tends to accumulate in the most used protocols (Fat Protocols Theory) and not the apps built on top of the protocols (like ERC-20 tokens). Also, the critical investor should accept that that Proof of Work (PoW) technology is unsustainable, so the sector will ultimately need to move to new consensus algorithms like Proof of Stake (PoS).

    Most importantly, never buy into mass hysteria and never buy on an exponential.

    Buy into hate, sell into love. And never invest more than you can afford to lose.

  27. avatar

    P.S. You can also get 5% exposure to ~Bitcoin through the ARKQ and ARKK ETF's, which are good for tax-free accounts. But for those serious about getting blockchain exposure, the easiest solution is one of the crypto index-fund options I mentioned.

    I need to emphasize that my results are not typical. And investing in this sector can be very stressful. But if you're fascinated by the technology and have the right temperament, it's a great way to learn about upcoming technology and mass human psychology.

    It must be treated as a learning experience, not a get rich quick scheme.

  28. avatar

    I agree with this article as it's written. Innovators usually win out short term, followers (like most commenters) win out mid-term, but the "lazy" and 'do nothings' always win in the end. it's like everyone getting to the red light at the end of the street. I'm not completely attacking Bitcoin, some are winning fortunes! But look outside of it. It's still tied to the Dollar (cash is King), you can't withdrawal it all at once because the governments are blocking people's large accounts from money laundering, drug activity and avoiding taxes which this is known for. And where can you really spend this or cash out? Not in my small town. You need to find people to buy it to cash out. It's so easy to rip-off these fools. All you have to do is a PayPal chargeback and Bam! Acquire bitcoins and your cash is back!

  29. avatar
    Kumar Bhowmik

    The “B” Word Since the dot-com boom crash and 2008 recession, calling a successful market a bubble has become high fashion.

    The bitcoin craze is no different.

    People have been calling it a bubble since the beginning.

    Bitcoin @$4: “Bitcoin is overpriced, this is a bubble”

    Bitcoin @$40: “Total insanity, everyone will lose their shirts”

    Bitcoin @$400: “I can’t believe anyone is stupid enough to buy this”

    Bitcoin @$4,000: “This is a fad, it’s just like tulips.”

    Now sitting at just over $6,000 per coin, there isn’t a week that goes by that
    someone doesn’t weigh in on why bitcoin must be a bubble.

    In March 2014, Warren Buffett went on CNBC and told viewers to stay away from bitcoin; viewers persuaded by the Oracle of Omaha missed out on a 620% run-up in the past 3½ years.

    Wall Street Is Getting It All Wrong

    Recently, both Jamie Dimon (CEO of JPMorgan Chase) and Ray Dalio
    (chairman of Bridgewater Associates) went on record saying they believe bitcoin is in a bubble.
    These guys are incredibly sharp.

    So how is it that they can be so incredibly wrong about digital currency?

    For one thing, cryptocurrency stands to disrupt their business (more on this later).

    Additionally, valuation of currency is difficult. Unlike real estate, stocks or bonds,
    currency doesn’t intrinsically produce an income stream — dollars stuffed under a mattress won’t increase in value over time by themselves, although ownership of a stock might.

    This difference is important because existing financial models depend on income streams in order to determine a fair price.

    Currencies do not produce income.

    The price is driven by supply and demand, making long-term price projections almost impossible.

    This is what makes cryptocurrency fundamentally different from other investments.

    When you buy stock in a company, it doesn’t impact the cash flow of the company,
    so the value of the company is the same whether you buy it or not.

    However, as we discussed with currency, as more people accept it,
    the more value it has.

    For many people (including Dimon and Dalio), the idea of a currency that is not backed by a government is hard to absorb.

    However, it wasn’t too long ago that trust in the government wasn’t enough
    and all currencies were backed by gold.

    The movement to digital currency represents a natural progression
    toward reliance on data to solve our problems.

    Market Bubbles? Depends on Your Perspective

    It doesn’t take a stretch of the imagination to understand why financiers like Dimon,
    Dalio and Buffett are pessimistic about the future of digital currency.

    JPMorgan’s ability to profit is dependent on customers depositing funds in a bank.
    However, cryptocurrencies negate the need for a bank to safely store funds.

    In fact, Dimon has expressed his concerns regarding cryptocurrency in the past.

    In a letter to shareholders in 2015, Dimon stated that “Payments are a critical business for us…

    But there is much for us to learn in terms of real-time systems, better encryption techniques and reduction of costs and ‘pain points’ for customers.”

    Basically the ones screaming “Bubble!” are the ones whose bottom lines are
    going to be most affected by crypto.

    It’s self-preservation feigned as financial analysis.

    Still not convinced? Consider this…

    For years, executives at Blockbuster Video dismissed the very real changes happening to their business model while Netflix ate their lunch.

    In fact, Blockbuster had the opportunity to buy Netflix for $50 million in the early 2000s but refused because the price was too high.

    Netflix has recently been trading at a market cap of $80 billion.

    When people ask whether I think cryptocurrency is in a bubble, the best response I can give is which side of history do you want to be on… the Blockbusters of the world or the Netflixes?

  30. avatar

    Kumar Bhowmik how many Bitcoins do you own? Yelling and Action are two different things. No one will become Warren Buffet trading Bitcoins.