The Myth behind Diversification

Should I invest in bitcoin? That is a common question that is being asked by more people on a daily basis. Before answering that question, let’s start with debunking some common investment myths about diversification.

To many people diversification is something that they hope is happening with their money and investments but not really certain that it is actually taking place.

For example in a catastrophic event that affects the global economy a diversified portfolio should protect and individual’s assets from a significant, let alone a complete, loss of capital.

But what does that type of portfolio look like? What percentage of tech, health, real estate, large or mid cap stocks should one own? How much insurance do you have? Real estate? Businesses?

Even if you have all of these different assets in your portfolio there’s one common thing that is tying them together in a titanic sized iceberg at the end.

The U.S. Dollar.

Yes your insurance, 401k, real estate, and other securities investments have a reliance on the U.S. Dollar. That means if the dollar takes a hit your investments take a hit.

Now back to the question, should I invest in bitcoin?

Well, it depends. Bitcoin is a crypto-currency not directly tied to the U.S. Dollar.

In fact it’s not tied to any currency because it has it’s own intrinsic value independent of other currencies.

At the time of this writing is worth almost 7500 dollars.

Let’s say for example the dollar underwent hyper inflation over a short period of time and one bitcoin was worth 15000 dollars. Now you might that think man I need to cash in that bitcoin because it’s worth twice as much money.

Not so fast my friend. Under the hyper inflation the scenario the dollar is worth less than it was before.

So converting into dollars could beĀ  risky proposition since it’s value is fluctuating downward rapidly.

But bitcoin is protected from this hyper inflation since technically you could exchange bitcoin for a different currency that has a more favorable exchange rate to the dollar or you could simply use bitcoin in place of the dollar in places where it is accepted.

In short true diversification lies not just in the diversification of your assets but also in the underlying monetary instruments that represent them.

So should you buy bitcoin?

If you’re serious about true diversification you should.

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