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Suze Orman approves of your Bitcoin investment – with a couple conditions.
“I think it should be a part of your portfolio as long as you can afford to lose that money and you’re going to keep it for a seriously long period of time,” Orman recently told us during a NextAdvisor interview in celebration of Pride Month.
The personal finance icon also revealed the exact size of her stake in Bitcoin: $5,000 as of the time of our interview.
Orman also told us how she bought it: “I do it through PayPal, because it was just easy to do it,” she said, noting how complicated some of the cryptocurrency exchanges seemed to her — not to mention the prospect of whether she needed a crypto wallet too (something she has no interest in).
Despite the consistent crypto market volatility and other unknowns about potential future regulation and cybersecurity concerns, Orman has an optimistic outlook. “Even with all of that said, I am still a fan of Bitcoin,” Orman said.
How to Invest In Bitcoin, or Other Cryptos
Experts recommend sticking to the most popular cryptocurrencies like Bitcoin and Ethereum. And that’s only if it won’t get in the way of other financial priorities like saving for emergencies, paying down high-interest debt, and investing in a conventional retirement saving plan.
You should consider crypto a high-risk asset class within your portfolio, and many experts say it shouldn’t exceed more than 5% of your portfolio. The value of Bitcoin and any crypto can fluctuate wildly by the day and even the hour — so you should be comfortable with the volatility and uncertainty that comes with it.
Orman has an even simpler way to determine how much of your portfolio should be comprised of crypto assets: “It depends on how much money are you willing to lose, in my opinion.”
Like other personal finance experts, Orman likens Bitcoin to gold as a long-term investment and store of value. Still, cryptocurrency is a new and emerging asset class, with more uncertainty than predictability at this point. “I would view it as a seriously speculative investment at this point in time,” Orman said.
But if you are in position to devote a portion of your investment portfolio to Bitcoin, Orman says to treat it like any investment and take a long-term approach. Forget meme stocks and other get-rich-quick investment gambits, and go in for the long haul, she says.
And just like she advises with more conventional index funds, Orman recommends a dollar cost averaging strategy with Bitcoin. In other words, determine how much you are comfortable investing and spread it out throughout the year, making smaller, incremental deposits adding up to the total you’d like to invest.
As for what the future holds for Bitcoin and other cryptocurrencies? Uncertain as it may be, Orman sees an upside worth taking a chance on. “I don’t plan to sell even my little amount, no matter what,” Orman said.
How Bitcoin Compares to Index Funds
With decades of steady growth behind them, index funds offer a predictable method of building wealth over the long term. While some people have struck gold with Bitcoin, countless others have lost everything. As such a young asset class, Bitcoin is both far less predictable and much more volatile.
Financial experts, with Orman among them, have long touted the benefits of index funds – low-cost portfolio investments that allow you to purchase shares of a wide swath of companies representing a section of the stock market. “In the index funds, eventually you are going to make money no matter what,” Orman said. “You’re going to be just fine as long as you have at least 5, 10, 15 years until you need this money, preferably longer.”
That’s quite a contrast to Orman’s advice that any Bitcoin investment should come with the knowledge and preparedness that you could lose it all.
What Does the Future Hold For Crypto?
Nobody knows for sure what the future holds for cryptocurrency, but many finance experts have seen enough to believe it could be around for many years. If nothing else, experts say the underlying blockchain technology that powers cryptocurrencies could drive transformational innovation in finance and beyond.
But plenty could still go very wrong from the investor’s point of view.
Orman pointed to the recent Colonial Pipeline hack and Bitcoin-paid ransom as an example of what could hold Bitcoin back. If criminals increasingly rely on Bitcoin payments to hold people, organizations, and even governments ransom, Orman says, it’s difficult to imagine the U.S. government wouldn’t take action to “really clamp down on Bitcoin.”
The U.S. Federal Reserve is also researching the prospect of a national digital currency – the effects of which on Bitcoin and other cryptocurrencies is unknown. But for an investment class that’s still in its relative infancy, the influence of more robust government regulation could be significant.
Another thing Orman doesn’t like about Bitcoin is how susceptible it is to the influence of celebrity Twitter accounts – Tesla CEO Elon Musk has repeatedly shown his ability to move markets with as little as a tweet or a Saturday Night Live appearance.
Along with Orman’s concerns about potential future U.S. crypto regulation, this “other thing I’m not liking is that it’s as if one person comes out and makes a comment, it goes up,” she said. “And then it goes down, and then it does this, and then it does that.”