Money Bag: Cryptocurrency FOMO, Selling Stocks at a Loss, and More

Money Bag: Cryptocurrency FOMO, Selling Stocks at a Loss, and More

Welcome to the Money Bag, where I answer questions and address comments from readers on a wide range of money topics, myths, and perceptions about money. No question is off limits, so hit me up in the comments section or send me an email about any money topic that’s on your mind.

This edition of the Money Bag answers your questions about cryptocurrency FOMO, selling stocks at a loss, selling stocks at a gain, and comparing your finances to others.

First up is Terri, who wants to know if she should invest a small amount of money in cryptocurrency, given its recent ‘hype’. Take it away, Terri:

Cryptocurrency FOMO

Hi Robb,

I wanted to get your opinion on this crazy cryptocurrency move – I’m sure you’re getting a lot of questions about it. I’m not sold on it as an alternative to fiat currencies or a way to hedge against inflation. To be honest I’m not 100% sure how it works and I don’t think anyone really understands how it derives value. However, it does seem like an opportunity to invest in an asset class in its infancy. Have you done much research into this? I will admit to having some “FOMO” with the recent move, I think I’d like to look into investing a very small portion.

Hi Terri,

I’ll be honest, I heard more about Bitcoin during its last run-up at the end of 2017. That culminated when our 19-year-old restaurant server talked about wanting to buy it with her student loan money. The price proceeded to plummet from nearly $20,000 per coin to about $8,000 in two months and continued down to as low as $3,200 per coin a year later.

Bitcoin price chart

So why should this time be any different? 

Here’s a bit of background on Bitcoin and Ethereum (the distant number two cryptocurrency):

Bitcoin really only has two uses: a digital currency and a store of value. The primary goal is to establish itself as an alternative monetary system. Like gold, there’s no intrinsic value but its price goes up or down based on public sentiment and speculation. Investors will bid the price up if they believe the demand for Bitcoin will increase, or sell and drive the price down if they believe demand will fall.

Ethereum, on the other hand, is an entire blockchain network that can be used to run decentralized applications, create and enforce smart contracts, and even create additional cryptocurrencies. Ether – the cryptocurrency of Ethereum – can be sent, received, and stored as digital money. It’s used to pay transaction fees on the Ethereum network.

You can buy Bitcoin and/or Ethereum on Wealthsimple Trade (WS Crypto), but the platform is quite a bit different than a traditional crypto trading platform like Coinbase where you actually hold crypto coins in digital wallets. WS Crypto simply allows you to trade the two cryptocurrencies – you don’t get to take hold of any coins in your own digital wallet. These traditional exchanges are prone to major hacks and security breaches. And, if you lose your “key” your coins are lost forever. Not ideal!

All of this said, I don’t recommend speculating on cryptocurrency any more than I’d recommend speculating on gold or other precious metals. Bitcoin is highly volatile, and if you do decide to buy make sure your stake doesn’t make up any more than 2-3% of your portfolio. You can’t hold it in an RRSP or TFSA, so it must be purchased in a taxable account and you track any capital gains or losses associated with buying and selling.

I don’t believe there is an ETF that holds a bunch of different cryptocurrencies. There is The Bitcoin Fund (QBTC) from 3iQ Corp – it comes with a management fee of 1.95%

Finally, I’ll leave you with one of my favourite investing charts from Carl Richards, called the Fear and Greed cycle:

Fear and Greed cycle

All the best!

Selling Stocks at a Loss

Here’s Norm, whose portfolio of individual stocks has taken a beating. He’s wondering when to pull the trigger on switching to a globally diversified index ETF. Sounds familiar:

Hey Robb,

I am planning to switch over my investments to a one-ticket ETF solution (VEQT) in a non-registered account, but I’m wondering about timing. Sadly, my portfolio is down significantly – the original investment of $175,000 is now down to $143,000. It’s largely made up of Canadian dividend payers that includes banks, materials, telecoms and oil stocks. It’s the oil companies that have ravaged the account – with some names down 80%.

I know it’s never a good thing to try to time the market, but I do feel like the banks, materials, and especially the energy sector finally have some tailwinds as the economy starts to reopen and could potentially recoup some of their losses. I wondered about waiting until this time next year, seeing how the portfolio does, and then making the official switch.

Hi Norm, thanks for your email. My advice would be to cut your losses and make the switch as soon as possible. You’ll benefit from the capital loss, which can be carried forward indefinitely to use against a capital gain in future years.

Related: Tax Loss Harvesting Explained

It’s a classic psychological mistake to wait for your losing stocks to come back to even. The stocks don’t care what price you paid for them. Their future prospects may continue to be bleak. Meanwhile, VEQT represents a significantly more diversified and therefore more reliable outcome over the long term. 

You’ll still have exposure to all of those sectors, especially given VEQT’s 29% weighting to Canadian stocks.

It hurts to sell something at a big loss. I know, I’ve been there when I used to be a stock picker. It might be helpful to think of your non-registered portfolio as one large lump sum of cash right now. If it were in cash, would you re-purchase the exact same positions that you have now – or would you just buy VEQT? There’s your answer. 

Selling Stocks at a Gain (to Rebalance)

Next up is Tracy, who took a chance on some growth stocks last year and now wonders if it’s time to take some profits and rebalance:

Hi Robb,

Last March I took advantage of the COVID dip by purchasing VEQT and some “play” stocks in electric vehicle companies. As a result of the growth in recent months, those “play” stocks now represent a double-digit percentage of my portfolio.

How does one go about rebalancing their portfolio in this scenario? Take out the original amount invested in the stocks (to buy VEQT) and leave the rest in? Leave it all in? Get out of the stocks altogether?

I don’t have much experience with stock investing, and I know you started in stocks, so thought I’d ask.

Hi Tracy, this would first depend on which account type you’re talking about. If in an RRSP or TFSA, I’d say trim your stock holdings by selling off shares to get you back to a comfortable level of “explore” compared to your core.

Yes, the idea would be to rebalance by using those proceeds to buy more VEQT. Set some rules around your stock picking, like no more than 5-10% of your total portfolio value, and then you’ll always have some guidance when to take some profits off the table.

Things are more complicated in a taxable (non-registered) account, as selling any holdings will trigger capital gains for this tax year (2021). You could get closer to your target asset mix by contributing any new money to VEQT only.

Letting your winning stocks ride can be risky as the range of outcomes is much more volatile with one single stock than it is with a globally diversified basket containing thousands of stocks.

Comparing Your Finances to Others

Finally, here’s a question from Peter who seems worried about how his finances are doing compared to his peers:

Hi Robb, I’m a relatively new passive investor, starting Jan 2019, but have been inspired by your timeline and I’m aiming for a goal you had early on: $100k by age 35.

I’m almost 34. My net worth is currently small at $76k. Therefore, my “plan”: save, save, save and at $100k seek out some fee-only advice (most likely yours) to hopefully find what I’m missing and if there are any inefficiencies in my portfolio.

What I didn’t realize until today though, upon reading your “2020 Year-End Review” post, was that at 35 you hit $100k in investments, PLUS you already had a home (purchased three years earlier). As a result, your net worth was MUCH higher than $100k at 35. Suddenly your timeline seems far less achievable…

My questions (finally):

    1. Should this dissuade me / am I on the right track?
    2. Does a home-purchase “before it’s too late” and then restarting my investment growth after that make any sense, especially considering I don’t really want or need a house currently?
    3. Does my “plan” make sense considering my late start to saving/investing?

Hi Peter, thanks for your email. I don’t think it’s useful to compare your situation to others. Everyone gets out of the starting gate at different times and with different circumstances that are largely out of their control.

Focus on your short- and long-term goals and strive to keep the needle moving forward each year. You can’t do everything all at once, so prioritize what’s important to you and make adjustments to those priorities as you move forward.

There’s nothing wrong with renting while you grow your investments. Renting offers flexibility and affordability, which can’t be understated.

If your employer offers a matching program, be sure to take full advantage of it. Make sure you’re investing the money in your TFSA rather than just keeping it in cash (if it is intended for long-term growth). Focus on increasing your savings rate each year. The milestones will come.

My finances were a mess in my 20s. I used my late 20s / early 30s to get them cleaned up and start saving. But I largely benefited from a sudden surge in real estate prices on my first home (from $129k to $239k in just a few years), which gave us some breathing room.

I changed careers to a slightly higher paying job that required less travel and was more of a 9-5. That freedom allowed me to start blogging, freelance writing, and eventually doing financial plans. The income earned from these side hustles significantly accelerated our savings goals.

My point is, don’t get bogged down looking at age-based savings goals. Focus on what you can control and keep improving each year. You’ll get there.

Best of luck!

Do you have a money-related question for me? Hit me up in the comments below or send me an email

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11 Comments

  1. Stuart on January 20, 2021 at 11:53 am

    Thanks for your interesting discussion about cryptocurrency. The main advantages of gold over Bitcoin is that it has a long history as a reserve currency and has industrial applications so it will always have some value. Both gold and Bitcoin must be considered speculative investments as their price depends on the supply and demand balance.

  2. Mary on January 20, 2021 at 7:06 pm

    Hi Robb,

    As a fairly new DIY investor, I have been following the two Rob(b)s and have been doing decently. I am however, truly puzzled by how well a particular bond ETF has been doing. I have ICVT in my US RRSP account, and everything I read says bonds don’t do well in a low interest environment . Do you have any insight as to why it is doing so well?

    with thanks,

    Mary

    • Robb Engen on January 20, 2021 at 8:04 pm

      Hi Mary, thanks for your comment. ICVT is the iShares Convertible Bond ETF. Convertible bonds are corporate bonds that can be converted into company stock.

      ICVT’s top holding is Tesla (~10% of its holdings), which clearly played a role in its outsized performance last year (ICVT was up 61%).

      So to answer your question, convertible bonds like the one you hold don’t behave like typical government bonds that pay extremely low yields right now.

  3. Dale @ Cut The Crap Investing on January 21, 2021 at 4:02 am

    Thanks Robb. You can hold the 3iQ funds (closed end funds) in a TFSA or RRSP or RRIF. TFSA is most preferable of course as along with that incredible volatility it is extremely explosive.

    There is a bitcoin find and ether fund. Investors might pay attention to the NAV as they can sell at a premium or a discount. Being a closed end fund they will trade on supply and demand (fund holders).

    An ETF would track the price quite closely of course, but there are no bitcoin ETFs as of yet. ETF providers have been turned down. There are new proposals that have been put forward again, even recently. Hopefully regulators do the right thing. Investors want them, give them products that more closely track the prices.

    I am not religious about it all, but I do hold the bitcoin fund. I saw 200% plus gains in quick order. My investments and mostly gains took it to a 5% portfolio weighting. That’s likely dropped over the last week.

    For me it is digital gold. I believe it will be accepted as a core portfolio asset on a mass scale. BlackRock just launched some funds as well. That ship has sailed IMHO.

    I want a store of value as money printing by central banks is at historic highs, and shows no signs of slowing. Money supply (well above GDP) is at record highs and rates of increase. When the monies are spent/circulated (money velocity) that creates inflation.

    It’s just another portfolio asset/risk manager. And it will be rebalanced with the rest of those portfolio risk managers.

    Bitcoin is the best risk/return proposition out there IMHO. We don’t need much (risk) because it is so explosive (return).

    Always to each his or her own.

    Dale @ Cut The Crap Investing.

    • Jim G. on January 23, 2021 at 4:46 pm

      Couldn’t have said it better myself Dale. You have exactly the same approach on Bitcoin as I do. I am fortunate to have a company pension ( as I believe you do as well), so allotting a max of 2% Bitcoin as a diversifier should not be a huge deal for me.

      Mind you, from your Seeking Alpha contributions I see that you and I think a lot a like – portfolio mix of Canadian and U.S. dividend-paying blue-chips. Where I differ is that I’ve built ETF positions in ZID and VWO as I believe emerging markets will outperform the US in the coming decade (because of declining USD). So far it is playing out that way.

      I also have 8% in gold. Some say governments have a hand in gold manipulation. If so, hopefully it is out of their hands when it (eventually ?) counts.

  4. Kevin on January 21, 2021 at 11:41 am

    Great Money Bag, Robb. I have to say that the below really hit home for me…you have said it before and I know it’s the right answer. After months of sitting on my hands with one particular stock, I decided to cut my losses and immediately dumped the proceeds into VEQT (which is my focused long term approach and I have another 20+ years before I retire). Sort of sad to say, but it’s actually like a weight has been lifted off of my shoulders. I no longer have the time or attention to be following individual stocks. Thanks again – best of luck in 2021!

    “It hurts to sell something at a big loss. I know, I’ve been there when I used to be a stock picker. It might be helpful to think of your non-registered portfolio as one large lump sum of cash right now. If it were in cash, would you re-purchase the exact same positions that you have now – or would you just buy VEQT? There’s your answer.”

  5. Diane on January 22, 2021 at 9:00 am

    We have a significant number of individual stocks (320 – 360 at any time). The decision of when to sell is probably the most difficult decision. You buy the stock because you believe in it’s purpose and that quite often doesn’t change. So to take the emotion out of the decision, we have developed our own rules. When a stock starts to fall we watch it closely and see if anything has really changed. If so, it’s time to sell. If not, we hold a little longer, but still keep a close eye on it. When it hits a 30% loss, we sell, period. This can be difficult and often the stock goes up again, but you have to stick to your rules. At the same time as the sell, we usually invest in a different stock. This can alleviate the fear of missing out. On the up side, as soon as a stock doubles, we remove the original investment. Many have gone on to double again, but there is no looking back. You have to be satisfied and stick to the rules. The rules have done well for us. The next thing to remember is to tuck some of the profits into a high interest savings account to ensure that the needed funds are available at tax time. We have even sent tax installments to the CRA when gains have been great. This avoids a directive from the CRA to make tax installments. If you owe more than $3,000 at filing, you will receive a notice requiring you to make installments. Our rules may not be suitable to your risk tolerance. The point is you need rules that are suitable for you, that allow you to sleep and force you to curb your emotions. We like every stock we buy and without rules, we found it almost impossible to sell.

    • Robb Engen on January 22, 2021 at 9:22 am

      Hi Diane, thank you for sharing your investing approach. As you know, I’m not a fan of investing in individual stocks, for many of the reasons you highlight above. It takes discipline to stick to your approach. You need rules like the ones you’ve outlined, but too many investors fall victim to their own emotions and don’t stick to the rules. Furthermore, it takes time – perhaps an incredible amount of time and dedication – to monitor, track, and implement these rules.

      It sounds like this approach works for you and I congratulate you on a sensible and disciplined approach.

      I think investors who ‘play’ with individual stocks should also follow and implement a set of rules like you’ve described.

      • Diane on January 22, 2021 at 1:00 pm

        Hi Robb, that is the point exactly, if you can’t take the emotion out of the picture, you will not succeed over the long haul. You are also correct about the time commitment. We spend in excess of 8 hours per week to study financials and other published information. If someone wants to “play” in individual stocks, they definitely need rules.

  6. Graham @ Reverse The Crush on January 26, 2021 at 3:26 pm

    Great post, I really liked the questions asked. I recently covered Bitcoin and share a similar opinion as you. It is speculation and should only represent a small percent of your portfolio. However, I have been researching it a lot and am starting to view it as a legitimate asset. It could eventually bring access to banking to everyone in the world. It makes it easier to transfer large sums without transaction fees as well. And there is a demand/supply issue because of how many Bitcoins are mined daily. It will be interesting to see how it plays out. Thanks for the read.

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