Bitcoin Just Ended Investing | The NEW 60/40 Rule

What's up, ding dongs? It's Poinky Doink here! There you go, I said it!

But anyway, I never thought I would be making a video on this topic today. But research has just come out that claims the traditional way investors grow their wealth, build their money, and one day retire off of passive income for the rest of eternity is now becoming obsolete because of Bitcoin.

Yeah, this is really one of those things where, had I heard about this a few years ago, I would have called it crazy. But as more and more time went on and more research was done, it's beginning to make a lot of sense why Bitcoin would cause you to make some rather drastic changes in terms of how you invest your money long term.

Although here's the thing: I want to get this out of the way early on. This video is not about going and telling you just to go and invest in Bitcoin; it's going to be worth a million dollars one day, and then you can just go and retire.

But instead, this has to do with some rather drastic changes that completely ruin the traditional investment portfolio and some of the changes you could begin implementing today to make sure you don't fall behind.

Now, it's very rare that I say a video I make will apply to everybody watching, but this is one of those few times where I highly recommend you watch all the way to the very end. By considering what's just happened, you may very well be able to set yourself up with a very comfy retirement where you could basically do whatever you want.

You could watch YouTube videos like this, and most importantly, you could also make sure to destroy the like button for the YouTube algorithm. I had to plug that somewhere; that's a nice plug right there.

And of course, as a thank you for smashing the like button, because it helps me out a ton, I will make you a promise: I'll intro one of my next videos with whatever the top comment of this video says.

All right, so here's what happened. It all starts with what's called the 60/40 portfolio. This was an investment formula discovered in the 1940s, which found the ideal amount of money that you would need invested in both stocks and bonds to be able to last you indefinitely without you needing to ever work another day in your entire life ever again.

The reason for this was simple: when you go and retire, you can't just throw all of your money into GameStop and then hope for the best. After all, what happens if you retire and then GameStop drops 40% in 30 minutes? And then your next 30 years are fortunate. That's where the 60/40 portfolio comes to the rescue.

This system analyzed the returns of stocks and bonds throughout history during the best bull markets and the worst bear markets and came up with an asset allocation that would be able to survive whatever you throw its way. And as you would assume, that investment portfolio consisted of 60% stocks and 40% bonds.

They found that if you want to retire, 60% stocks gave you enough growth and passive income during a time where the market's going up. But during a downturn, 40% bonds protected you from losing too much money when you need it the most.

This also ties in very closely to what's known as the four percent rule, which suggests that you could spend four percent of your investment portfolio every single year, and definitely that will last you the rest of your life.

That means, for example, if you want to retire off an income of $40,000 a year without ever having to work another day in your entire life ever again, you're gonna need one million dollars invested, and you have an 89% chance of that lasting you for the next 60 years without running out.

But that four percent rule is also influenced by how and where you invest your money, and that's where the problems begin to arise. See, recently, people have begun to notice a growing concern with this strategy because historically, it only worked so well because bonds were paying an unbelievable amount of money.

Just think of a bond like a guaranteed source of income. You'll buy in for a set term, and then during that time frame, it'll pay you a set amount of money no matter what happens. Now, if that sounds amazing to you, that's because, well, it was—but not so much anymore.

That's because when the 60/40 portfolio was at its peak popularity, bonds were at the time paying a whopping 15% return on your money. But now, as you can see throughout the last 40 years, those bond returns have been consistently dropping, and now, of course, if you're lucky, they're going to be paying you a lovely 1%.

That means you're no longer getting the same protection and the same returns as what you would have when this was first developed, and that could end up losing you money. Now, of course, you might be wondering, "But Graham, why don't we just invest in stocks instead? My Tesla stock is up already 1200%, and Elon Musk is awesome!"

And you know what? That's a very valid point. But a good portfolio is all about risk versus reward and maximizing the amount of money you make for the risk you take. Investing a hundred percent in stocks is a risky strategy in the event the market goes down, like during the dot-com bubble, and prices never recover to their original level by the time you need access to that money.

Like, just take a look at Cisco, which peaked in 2000 at $79 dollars a share and now, 21 years later, it's still trading 40% less than what it was. Don't let that be you! That's why nearly everybody recommends you have something else in your portfolio to be able to fall back on.

Having bonds like this has historically been the right move because they've held their value and paid pretty well. But like I mentioned, that's not so much the case anymore. So, given all the problems to this, there's one missing piece to the puzzle that we gotta talk about, and that would now be Bitcoin.

When it comes to the 60/40 rule, experts are now saying that Bitcoin could soon replace bonds in your retirement portfolio. Like just recently, ARK Invest's Kathy Woods said that people should begin treating Bitcoin like a new asset class because it is large corporate and institutional investors who are beginning to use Bitcoin as a hedge against the US dollar by buying up a lot of it.

Like, we just had Tesla announce their $1.5 billion dollar Bitcoin investment earlier this year. PayPal announced that they would enable cryptocurrency as a funding source for 26 million of its merchants. They also just bought the crypto security company Curve for $200 million dollars. The payment processing company Square also invested $170 million dollars into Bitcoin, and the analytics company MicroStrategy has been keeping a significant amount of their cash reserves in Bitcoin.

Plus, they've continued to buy in even at all-time highs. When it comes to this, Kathy Woods said that Bitcoin represents insurance against unhinged monetary policy and outright wealth segregation in some countries.

Other investors are also advocating for a small allocation of Bitcoin in any retirement portfolio, and these aren't exactly small no-name investors either. Like JP Morgan, who not so long ago called Bitcoin a fraud that will eventually blow up and who also said that they would fire any trader who bought Bitcoin because it's against our rules and they are stupid and both are dangerous, is now advocating three years later that investors place 1% of their portfolio in the cryptocurrency.

And they're even launching their own Bitcoin exposure basket that gives access to 11 companies that hold Bitcoin. Goldman Sachs also analyzed 300 of their clients, and found that 40% of them already have exposure to cryptocurrency.

They say this run-up today is a lot different than the mania hype back in 2017 because today it's driven by large institutional investors who are buying in as a reserve against the US dollar—not by speculation. To me, it's not exactly surprising either.

It seems as though some of the big institutional investors behind Bitcoin are really worried about a few key points. I think the first would be inflation. By keeping interest rates low in an effort to stimulate the economy, there's the expectation that at some point, there's going to be some inflation as more people begin spending their money.

That just means our dollar is going to be worth less as more money is printed, and more demand pushes prices higher. As a way to hedge against that, Bitcoin is starting to look like an alternative to holding cash.

Now, number two: the money supply has increased exponentially throughout 2020 as more money has entered the economy, and that, I believe, is really eroding at people's faith that the dollar they have today is always going to be worth a dollar.

Now, if that sounds like I'm exaggerating here, here's a chart that you should look at. As you can see, throughout history, we've always had a consistent increase in our money supply as the population grows, the GDP increases, and we take on a little bit more debt. But in 2020, that changed entirely.

There's no shortage of articles out there pointing out that one-fifth of all of our money ever printed was in 2020, and because of that, people are looking for other places to put their money, and Bitcoin has been perfectly positioned to fit into that spot.

Now third: Bitcoin is also being called an uncorrelated asset, meaning it's not easily influenced by other investments like stocks or real estate or bonds. By being completely independent from everything else, it allows for a lot more diversification in a borderless space with a lot more opportunity.

And fourth, I believe, in absence of other safe haven spots to put your money, combined with a big push of mainstream popularity, Bitcoin has just started to become the recent go-to investment. I definitely believe there's a safety in numbers here where the more institutions buy Bitcoin, the more acceptable it becomes, which means the more institutions buy Bitcoin, which means the more acceptable it becomes, and that just continues.

Bitcoin is definitely going to benefit from a network effect of growing adoption across multiple industries. As it begins to solidify as an alternative asset class, its value should begin to stabilize, and that has a chance to benefit those who use this as a store of value.

But unfortunately, the downside to all of this is that pretty soon, tech stocks could be influenced by the price of Bitcoin because that's how these companies are now keeping their reserves. For example, analysts now say that the price of Tesla stock is tied to the value of Bitcoin. So if Bitcoin goes down and Tesla owns Bitcoin, then Tesla could actually go down because of that.

The same could also be said about any other company that holds its reserves in Bitcoin. And really, as more companies in the S&P 500 begin placing their reserves in Bitcoin, you'll probably have some exposure to Bitcoin inadvertently because of that, whether you like it or not.

So, given all of this and the potential end to the 60/40 portfolio, here are my own thoughts and where we could go from here when it comes to creating a portfolio that allows you to one day retire and live fully off your investments.

I agree there's actually room for Bitcoin. As bond yields have just gotten lower and lower over time, it's made them considerably less appealing to invest in. My overall thinking, though, is this: if you're within five to ten years of retirement, it's not a horrible idea to keep some of your money in bonds, really just as a way to keep more money on hand in case the market goes down and you need something to fall back on.

But if you're 20 years or more away from retirement and you're looking to grow your money as efficiently as possible, then I do agree that Bitcoin is a place in your portfolio alongside stocks. That's because when you're young, you have enough time to recover from any sort of market crash that you don't necessarily have when you're older, so you may as well use that to your advantage now.

Now, as for myself, I currently have about 2% of my net worth held in Bitcoin, and I'm looking to probably bring that up closer to 5% by the end of the year. I see a lot of potential in holding this just as a hedge against the US dollar and also with the expectation that over the next few decades, it's probably going to continue going up in price.

Now, that's not to say that I don't think there's going to be a crash or that it can't drop 80% in value. Listen, I'm sure at some point that's probably gonna happen, and that's a risk we have to take. But if you have decades of time just to hold this out and see how it goes, then I think allocating a small amount of your portfolio to Bitcoin is probably a good move to make.

That means as it stands right now, if the 60/40 portfolio is broken, I could very well see a day in the future where it might become 70% stocks, 15% Bitcoin, and 15% bonds, or maybe a slight variation of that depending on your risk tolerance. As Bitcoin continues to grow mainstream, I really believe the more stable and secure it's going to become.

And I'm sure over these next few years, we're going to continue to see more people allocating Bitcoin into their portfolio, especially if they start allocating this as the optimal investment portfolio for the rest of your life.

So with that said, you guys, thank you so much for watching! I really appreciate it. As always, make sure to destroy the like button, the subscribe button, and the notification bell! Also, feel free to add me on Instagram; posts are pretty much daily. So if you want to be a part of it there, feel free to add me there as well!

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