Should Bitcoin ETFs Change Your Investment Strategy?

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After months of speculation, last week the SEC approved spot Bitcoin ETFs. In the months prior to the approval, Bitcoin reentered the public consciousness. Its price jumped by over 60% in just under three months.


Simultaneously, I’ve been noticing a resurgence in interest in Bitcoin in personal finance circles. SEC approval makes trading Bitcoin more accessible and provides an air of legitimacy. 

So this is a good time to take a step back and reconsider what role, if any, Bitcoin should play in your portfolio.

What is Bitcoin’s Use Case?

The first Bitcoin was mined in January, 2009 acording to Investopedia. It is purported to be an alternative to traditional currencies, designed as a means for anonymous peer-to-peer transactions with no third-party involvement or government regulation.

Another talking point of Bitcoin proponents is that it is a scarce resource, making it a store of value. It was designed with a cap of 21 million Bitcoins able to ever be created. This is in contrast to fiat currencies created by governments. They constantly expand the money supply, making money less valuable over time.

Bitcoin’s massive price volatility makes its usefulness for transacting challenging at best. Its primary use to date has been as investment/speculation by people who buy it with hopes that it will go up in value.

What Is Bitcoin’s Role in Your Portfolio?

The approval of spot Bitcoin ETFs makes this asset easier to own and trade. This should add a layer of security for those who are interested in Bitcoin, but concerned with fraud which has been rampant in the cryptocurrency space.

ETFs will add convenience, making storing and trading Bitcoin easier. Stories about people losing millions of dollars because they lost a hard drive or password should become less prevalent, or at least become a preventable occurrence.

The approval of Bitcoin ETFs has revived excitement in this cryptocurrency. That enthusiasm seemed to be waning after Bitcoin lost nearly 74% of its value in a year between November 2021 and November 2022.

Does any of this mean you should own these ETFs? Consider what purpose Bitcoin would serve in your portfolio.

Going Up?

There is an idea that these ETFs will draw in many new investors. New demand will increase the value of Bitcoin competing for this limited resource.

This is possible. However, there are reasons it may not come to fruition.

Having Bitcoin ETFs regulated should decrease fraud risk associated with owning this asset. The risk of losing access to your assets because you lose a password or hard drive can be eliminated.

However, a point pounded home in William Bernstein’s The Four Pillars Investing is that risk and reward are inextricably linked. Making Bitcoin less risky could decrease its upside potential.

One of the key features of Bitcoin was operating outside of the traditional financial system and avoiding regulation. Regulation will undoubtedly make Bitcoin more attractive to some. Simultaneously, it may drive away some of the most ardent supporters. Time will tell what the net impact will be.

Finally, I’ve seen social media posts highlight Bitcoin’s past outsized returns as a reason to invest. Bitcoin’s value grew at an annualized rate of nearly 85% over the past 8 years, despite multiple 50+% drawdowns along the way. Is anything approaching this rate possible?

Some people who get a lot of attention in financial press think so. It seems highly unlikely to me that anything approaching this rate of growth is sustainable.

Think of anything that starts small and grows exponentially: the most successful businesses, the spread of a novel disease, or the followers of popular social media influencers. In any of these cases, early rapid growth is possible. When you start small, there is much room to grow.

But at some point, there aren’t many more towns that don’t have a Walmart, people who haven’t either died or developed immunity to a particular virus, or people who want to watch your YouTube videos. There is less capacity for growth and rates slow, stops completely, or even reverse.


Another proposed role I’ve seen for adding Bitcoin to an investment portfolio is to provide diversification to traditional stock and bond assets. Proponents argue Bitcoin’s true scarcity will provide a store of value. People will rush to it in times of panic and crisis as they traditionally have to gold.

This theory was tested in 2022. The S&P 500 dropped 18%. The US aggregate bond market ended down 13%. Inflation was high. If ever there was a time for Bitcoin to provide a diversification benefit to a traditional asset allocation, this was it.

Instead the price of Bitcoin fell 63% in 2022. If we measure from the top of the drop in November 2021, the drop was even larger, nearly 75%.

Speculation vs. Investment

The introduction of spot Bitcoin ETFs decreases some risks and increases convenience of holding and trading this asset. At the end of the day, the Bitcoin that backs these new ETFs remains a purely speculative play.

If Bitcoin prices go up, you can make money. If they go down, you can lose money.

David Stein provides a framework for differentiating speculation from investment. Speculation has no cash flows. There is disagreement about whether the price will go up or down. Making a profit requires you to be correct in predicting the direction of its future price. This is in contrast to an investment, defined by having cash flows and a positive expected return.

Bitcoin is still a relatively new technology. No one knows what, if any, long term role it will play in society, finance, and investment portfolios.

Before allocating any of your investment portfolio to this, or any, speculative investment, it’s  important to ask yourself two questions.

What if you’re wrong?

Choosing to purchase a speculative investment means you think its value is going to go up. But by our definition of a speculation, it may not.

As with any investment, you should have a plan for controlling risk. One way of accomplishing this is limiting how much of your portfolio you allocate to Bitcoin ETFs. If you silo this speculation off from the rest of your portfolio, then you can’t lose more than that initial purchase.

I became interested in Bitcoin several years ago, attracted by the idea of having a small allocation to an extremely volatile asset. If it is not highly correlated to other assets, which remains to be seen over time, the rebalancing effect could substantially boost portfolio returns. 

I ultimately decided not to allocate any money to Bitcoin due to the inconvenience of holding and trading Bitcoin directly. This is a more feasible strategy with the convenience of trading ETFs.

However, this approach requires purchasing more of the asset when it goes down. This is in contrast to the risk management idea of siloing the investment. 

How do you determine when and for how long to follow your rebalancing plan that requires buying more Bitcoin if prices drop? How do you know if and when to stop throwing good money after bad and admit your initial speculation was wrong if you take this approach?

These are important questions to figure out before purchasing these speculative investments. They aren’t easy questions to answer.

If you don’t understand why I wrote those last two sentences, I challenge you to read Annie Duke’s Quit: The Power of Knowing When to Walk Away. It is a fascinating look at our mental and behavioral biases, particularly when it requires admitting we were wrong and changing course.

What if you’re right?

Being wrong is what most people worry about. There is an equally important question before making a speculative purchase.

What if you’re right….at least initially? I encourage anyone thinking about buying Bitcoin to take a look at this chart tracking its historical prices.

You could have purchased Bitcoin in late 2020 or early 2021 when it had a massive price run-up similar to what it is experiencing today. Seeing your money double or triple in a couple months would certainly qualify as “being right”…. Until it wasn’t when Bitcoin dropped by over 50% in just a few months by mid-2021.

Many people again felt “right” when buying along the ascent to new highs in the second half of 2021. Bitcoin again more than doubled in price in just a few months. Hopefully you wouldn’t have gotten too excited about being right about any of your purchases along that run up in prices. Bitcoin experienced a one year 74% drop in price between November ‘21 and November ‘22. 

Maybe the current run up in prices will last longer and go even higher than previous highs, spurred by new demand for these ETFs. Maybe there won’t be another huge crash in prices. BUT maybe they’ll never reach old highs. Or will crash to even lower lows.

The problem is no one knows. This is the nature of speculation.

If you feel the euphoria of initially being right for a few months or a few years, will you stay to your original hypothesis, risk management strategies, and investment plan? Or will you be seduced by “being right” and ignore the fact that you may have just gotten lucky?

My Personal Take

I don’t know how to set reasonable expectations related to future Bitcoin prices, don’t have good answers to the questions I posed related to risk management, and don’t need to add the complexity and risk of adding this asset class to my investment portfolio to achieve my financial goals.

For those reasons, I’ve felt comfortable remaining on the sideline with regards to cryptocurrencies. The new Bitcoin ETFs do not change that.

I would love to hear how you are thinking about these developments. Will these new Bitcoin ETFs change your investment plans and strategies? Let’s talk about it in the comments.

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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. After achieving financial independence, Chris began writing about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. Chris also does financial planning with individuals and couples at Abundo Wealth, a low-cost, advice-only financial planning firm with the mission of making quality financial advice available to populations for whom it was previously inaccessible. Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He has spoken at events including the Bogleheads and the American Institute of Certified Public Accountants annual conferences. Blog inquiries can be sent to Financial planning inquiries can be sent to]

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        1. To the contrary of this opinion expressed in the media, it amazes me to see the other extreme of this position (aka Kathy Wood, see link in post) getting so much attention in financial press. Her Bitcoin price projections would require Bitcoin prices to continue to grow at or greater than the rate they had over the past eight years (>80%/year). That is a reason I decided to cover this topic.


  1. I subscribe to the “buy what you know” investing theory. For example, I know Exxon, Chevron, Southern Company, S&P 500, etc. I don’t know Bitcoin or crypto stuff – it’s not for me.

  2. Wow! Great article! It’s been a long time since I’ve looked at a new ETF and been this excited and that’s what scares me. As Peter Lynch once said, “Know what you own, and know why you own it.” I’m not sure any of us need to own a crypto ETF to be diversified or to build wealth at this point. It could be fun, so I’m look at it as more as a speculation. I fear that kids will put too much money into it because of FOMO and either become fearful of investing when it crashes or overconfident when it doubles. Both are bad lessons. My biggest investing regrets are when I tried to make a quick buck thinking I was investing, but I was actually speculating and then lost too much. Let’s hope people don’t buy on margin and are sensible with small position sizes. My kids haven’t asked me about it yet, so maybe there’s hope, ha, ha. Best of luck Chris.

    1. Thanks for chiming in Ed. I was curious what responses I would get.

      To your idea of it being “fun” you may be surprised to know I share a little bit of that sentiment. (Not sure why because I have never bought a lottery ticket in my life, and I hate casinos).

      If you would be willing to share: If you decided to put a little bit of money towards this asset, would you treat it like a trip to the casino and not a part of your investment portfolio? Or would it be part of your investment plan, something you rebalance with other assets, etc.?


      1. Chris, I think I would treat it like a collectable investment. Like buying an old classic car. You hope it goes up in value, but it’s difficult to predict the appreciation and you likely won’t sell it unless it becomes a double bagger.

          1. Sorry Chris, I realized I didn’t answer your question. I think I’d treat my position in Bitcoin as like walking into a casino rather than an investment I balance every year. The reason is we all need to have fun with our money once and a while too. Maybe the point is we don’t need to have Bitcoin to make it financially, but maybe giving our lives a little bit of excitement is ok too.

          2. Makes sense, though I prefer to get my excitement in the mountains and be boring with my money. 🙂

  3. Hi Chris,

    I have followed you we’re almost as long as I have followed Bitcoin. I greatly admire your wisdom in the finance world. It has helped me with my retirement planning. But I have to say this most recent post is highly disappointing. I have time bias and ownership bias regarding bitcoin. But you made a couple comments that I have to push back on because respectfully they seem to illustrate that you don’t truly understand bitcoin the network.
    You wrote, “ It seems highly unlikely to me that anything approaching this rate of growth is sustainable.”
    While normally I would agree with you on this, Bitcoin is not a normal asset/commodity. If it is in fact digital gold, it is just become the scarcest commodity the world has ever known. Adoption rate is probably somewhere less than one percent. But as you pointed out Wall Street has just legitimized bitcoin with their spot ETF. I personally think the ETF is a bad idea the publicity and normalization of bitcoin and future adoption is only bound to increase as result of this.
    You also mentioned something about that money chasing out good money. That is a true formula that has proven historically accurate time again. You have all people really understand the bad money that the US dollar is. Which is why investors always look to store their time energy in something else other than the dollar. Bitcoin is a player as you said, is the good money that the bad money will be chasing after. Meaning if bitcoin, is a strong store value, possibly the hardest money humans have ever known and it stands those who understand it quite literally be throwing their bad money, US Fiat dollars, at this new hard money while they try to maintain the value of work energy into the future.
    Two other quick points before I close this out. You mentioned that bitcoin is speculative. But aren’t all investments speculative?
    It’s true bitcoin is young with only a 15 year track record. But the longer Bitcoin ticks on the stronger it gets and a greater adoption cycle. I’ve read no less than 10 books on the subject already. I humbly suggest you pick up one or two and study it a bit more. Bitcoin represents freedom from the walled gardens of fiat slavery. There’s a reason major world governments don’t like it. Because it exists as a threat so they are current monetary thievery infinite money printing.
    Lastly, while bitcoin technically is a cryptocurrency, it was the first. Money only needs to do one thing. Hold its value into the future and exist a medium of exchange that can be sent across time and space with little to no cost.
    Bitcoin excels at this in spades. Which is why it is the lion’s share of my current retirement portfolio.
    Thank you for all your posts.

    Brian B

    1. Brian,

      Thank you for your thoughtful comment. I always appreciate respectful disagreement and hearing opposing points of view.

      I agree that to an extent all investments have a degree of speculation. There are a few big differences I see between Bitcoin and traditional investments.

      Bitcoin (as opposed to traditional investments like stocks (dividends), bonds (interest), and real estate (rents)) has no cash flow. So it is purely speculative. There is no way to make money unless you are correct that demand will drive future prices higher.

      Bitcoin as you note has a short track record. Assumptions like yours and Kathy Wood’s assume that its phenomenal growth rate over a short period will not only continue, but potentially accelerate. This just isn’t possible given the rules of math. If this assumption is correct, then Bitcoin would have a larger market cap than the S&P 500 within a decade and would eventually crowd out every other investment.

      I have written about Modern Monetary Theory. I understand at least some of the challenges fiat currency present and I think those challenges are grossly under appreciated by the public at large. I just think it is a huge leap from there to Bitcoin replacing fiat. That is a huge bet to place to have the lion’s share of a retirement portfolio in Bitcoin, an asset that (I think one point we can agree on) is a new and largely unproven asset/technology.

      The collapse of our monetary system and economy is something I don’t think we want to imagine. If/when the time comes that it occurs, I have little confidence that it will matter how much Bitcoin anyone has.

      I don’t think I will change your mind or you mine on this, but I hope others can learn from these differing viewpoints and make more informed decisions for themselves.

      Thanks again for reading and taking the time to comment.


      1. I would be very conservative in my position on Bitcoin. It is a financial instrument of untraceable ownership and trades that has been used by horrible people on many continents to pay for their purchases of extremely illegal goods & activities. While YOU may not personally be paying for human trafficking, drugs, or bribery; usage of this cryptocurrency will be fraught with potential repercussions in the future. There is some evidence that the price has been manipulated, but I don’t currently have any hard evidence. I think that the 1-2 year future of this coin is limited and would probably limit my investment to an amount that I felt comfortable with losing.

        1. Tom,

          I respect your opinion, but that would not personally drive my decisions. As despicable as those uses of Bitcoin are, you could make similar arguments for any currency, the internet, etc. They are all tools that can be used for good or bad. Sadly, there are people who want to do awful things and they will find a way.


  4. I don’t comprehend the use of the word ‘spot’ in this context. Being a strictly buy and hold index investor I have no experience with markets that use this term. Googling it was a waste of time. Can anybody explain it in a single sentence?

  5. The longer something exists the greater the tendency for it to persist. I think 99.5% of the current crop of token &coins will go to zero over the next 3-5 years while bitcoin isnt like the Tulip or any other bubble.
    ETF’s lend legitimacy and clarity.
    But we’re years away from mass adoption if that depends on the much vaunted “self-custody.”
    98% of the world haven’t even tried that yet and for many of the few that have its been like holding water in the palm of their hand.
    Still, how would I feel if I didn’t make a 1% allocation and its not a Pinocchio?

    1. JT,

      Thanks for chiming in.

      I’m curious as I’ve asked some others if you’re willing to share. Will you purchase that 1% as a “lottery ticket” and keep it separate from your other investments, or 1% initially and rebalance back to that, possibly buying more over time if it goes down and selling if it goes up? And if not rebalancing, how will you decide when to take your winnings off the table?


  6. Very good article Chris, I really appreciate your opinion.

    I see Bitcoin’s value on the value of Bitcoin’s network adoption, i.e. how many people are ready to put their money into it and hold it. Currently that number is still going up, and the more attention it gets by the media, the more it polarizes and more people are willing to experiment with it. After 15 years, Bitcoin is here to stay as a new asset class. Hopefully, uncorralated to the rest. Although it doesn’t look like that in the recent years.

    I personally don’t trust Buffet’s or Munger’s opinion on investment when it comes to new technologies. After all, they started investing in the big tech only after they had consolidated. They said they would only invest in companies they understand. I guess it took them very long to understand how these operate. I think it’s similar for Bitcoin, they don’t (or didn’t) understand what value do they bring. Hence, they will ignore it until it consolidates.

    I acknowledge my bias, since I start investing in BTC and ETH in 2017. I have experienced insane volatility. My advice for anyone reading this comment is:
    1) If you want to hold for a long term, try to understand the value that they bring and only invest if you believe in it. Otherwise, you might panick and sell. There will be plenty of volatility along the way, both up and down.
    2) Buy when it gets less media attention, tipically that is when the price goes down. However, that will only psycologically work if you believe in it.

    I might be wrong with this “speculation”. But I prefer to be wrong and loose a small part of my portfolio, than be right and miss it. Call it FOMO, because that is what probably is.

    1. Ury,

      That seems to be a common sentiment. Thank you for taking the time to share. If you’re willing to share, what do you consider a small part of your portfolio? Will you purchase that small part as a “lottery ticket” and keep it separate from your other investments, or rebalance back to that as part of your investment plan, possibly buying more over time if it goes down and selling if it goes up? And if not rebalancing, how will you decide when to take your winnings off the table?


      1. Hi Chris,
        At the moment is just below 5% of my portfolio of invested liquid assets, i.e. not considering real state.
        My investment plan looks like a watermark, i.e. if it goes up I don’t do anything, but if it goes down I buy more until it reaches the previous high. But I am not rebalancing my portfolio. I only buy using my disposable income. This is a contrarian strategy, which I will only be able to follow if I believe in the technology. It also helps in spreading out the buying and dollar cost averaging. I can say I already bought at previous highs and at previous lows.
        When people ask me when will you sell, I always say: “When selling makes a significant change in my life”. This could happen if it ever reaches ~50% of my invested liquid assets. That would what mean x10 the current levels (or a lot more buying at current levels :-). At that point I wouldn’t be comfortable having such a big position in cryptos and I would start rebalancing or maybe even selling everything.
        So, yes. I buy it with the “lottery ticket” stamp.

    1. Jarvis,

      Those are interesting ideas. I touched on them in the post.

      Using your terminology rather than that which I used, siloing an investment off from the rest of your portfolio limits your downside (bounded to your initial purchase) with unlimited upside. This would make sense on paper.

      BUT, I question how many people who put $1,000 or $10,000 or $100,000 into Bitcoin and saw it turn into $3,000 or $30,000, $300,000 in a couple of months in past run ups would continue to stick with their risk management plans. How many more bought more, maybe much more, at higher prices in the euphoria of these run ups and then incurred a large paper loss when prices crashed, or worse yet locked that loss in by selling at or near the bottom?

      I think most people underestimate the psychology involved in sticking to a plan. The more exciting and the stronger the story around an investment, Bitcoin fits the bill on both counts, the harder it is to be rational and stick to sound risk management strategies.

      I would love to hear more about how you think about these ideas.


  7. Hi Chris,
    I own about 3 Bitcoin. Note that each Bitcoin is subdividable by 100 million Satoshis, so there is no need to buy a whole Bitcoin, which is becoming increasingly difficult to do. I am only interested in Bitcoin, by the way, and appreciate how you did not conflate it with other cryptocurrencies. It has emerged as the lone commodity in the space and is regulated as such, while everything else is being litigated in the US, at least, as potential unregulated securities. Bitcoin is different.

    My principal attraction to it is its clear scarcity, which you cover well. There has simply never been an investible asset class before whose supply is unrelated to demand for it. Think about that crucial fact for a moment. More dollars can be printed, more gold can be mined, more houses can be built when those asset classes are in demand. More shares, bonds, diamonds, lumber, and whatever you can think of, are produced when in demand. Not Bitcoin. It’s code controls it’s very regulated supply issuance, which drops in half every four years. A better but imperfect analogy for Bitcoin is real estate lots on the island of Manhattan. There is only one highly-desirable island of Manhattan and it has only so much dirt to purchase.

    Bitcoin is volatile in its early life of 15 years this month, because it is understood by so few. Only a few coins trade at the margins, providing its price discovery, so when hype cycles commence due to public demand, there aren’t many Bitcoin available to purchase. The price spikes rapidly, drawing in FOMO-induced buyers. Eventually, that wave of interest subsides and some sell and flew. Others, however, hold. Adoption growth will probably continue in this manner until Bitcoin finds its ultimate balance in the world’s asset classes.

    Bitcoin may never become a medium of exchange, as you touch on, or at least not until it stabilizes its market share and price volatility in coming decades. Given its monstrous price appreciation as the best performing investment over any 4 year+ period in its 15 year history, buying coffee with it is perhaps the most stupid thing a person could do. Its use case is simply to buy and hold long term, i.e. “HODL” (Hold On for Dear Life). Given that HODLRs own most of the 19.5M Bitcoin produced toward a cap of 21M, available supply is even more scarce. Those final 1.5M will take the next 120 years to be produced. This thing is scarce and getting more so.

    The world has never had a finite supply asset class. The world has never had an asset class that people everywhere globally, many of whom live under hyper inflating fiat regimes, can buy on their phones to protect their purchasing power. Bitcoin requires only one miner and one node to function, yet there are now millions globally of each, meaning that the Bitcoin network is wildly decentralized and secured under every jurisdiction.

    For these and other reasons, and after watching it with interest since 2017, I started accumulating in 2021. It’s a fascinating and rewarding intellectual rabbit hole to participate in the creation of a unique asset class, which is breaking models and assumptions. Some people “see it”, like Larry Fink of BlackRock and Abigail Johnson of Fidelity, while others do not, like Jamie Dimond of JP Morgan and Tim Buckley of Vanguard. And that’s where we are in January 2024. Thanks for the article.

    1. Very interesting comment Mark A. Thanks for sharing.

      The part that I found most interesting and under discussed is the fact that very few people own most of this asset.

      Given the strife already caused by income and wealth inequality, do you think wider adoption of Bitcoin would further feed this problem? What would be the impacts societally? What would be the mechanism to distribute Bitcoin to enough people to have a viable use case?

      Without a viable use case, will scarcity continue to equate to value? Will people want something in the long-term if it has no use? For example, if gold no longer had any value as a speculative investment it would still be a commodity used to make jewelry, in manufacturing, etc. So comparisons of Bitcoin to any other commodity mentioned (gold, diamonds, lumber, etc.) is really apples and oranges in my mind.

      It’s an interesting thought exercise, and one that hasn’t convinced me to buy Bitcoin yet.


      1. There’s a saying, “Everyone buys Bitcoin at the price they deserve,” meaning some study is required to really grasp the significance of the emergence of Bitcoin. Price escalation provides the incentive for most people to look into it, a tad of FOMO. It took me 5 years before I decided to focus some time on it and really figure this thing out with podcasts, YouTube and Bitcoin news channels.

        The answer to your societal questions is, Bitcoin can be accumulated more readily than any other asset on earth, via cell phones. One might not have a bank account but most humans have phones now. If one’s purchasing power is collapsing at 100% or more per year, as in Argentina, Lebanon, Turkey, etc. and, meanwhile, one can convert a few pesos or lira into an asset on one’s phone that is appreciating at 50-80% per year, well, it’s a safe harbor that one didn’t have before.

        That is empowering. That IS Bitcoin’s primary use case: Owning and holding long-term a sliver of the only fixed-supply, globally decentralized, rules-based, confiscation-resistant, digital property in a world in which the value and purchasing power of everything else is subject to deterioration through inflation caused by human decisions. That makes it ethical. It’s the lone diamond in a bowl of oatmeal. Bitcoin can do a lot of things but protection of individuals’ purchasing power is the only use case it needs, whether in the U.S. or anywhere else.

        I recommend you backtest model just a 1 or 2% Bitcoin allocation, with annual rebalancing, over any 4+ year period since Bitcoin achieved price discovery, circa 2013. Should Bitcoin ever go to zero, 1 or 2% won’t derail your retirement. But if it keeps doing what it is doing, well, just go look. After having enough curiosity to research and write your article, you at least owe it to yourself to see how it helps portfolios of stocks and bonds. I achieved conviction through my study and started with a 2% allocation at late 2020 prices. I now look forward to my future a little differently. Cheers.

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