FIRE BTC, Issue 17: Going Global 🌎
Getting exposure to the world economy through bitcoin
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Traditional approaches to investing hail the virtues of diversification within a portfolio.
Beyond seeking diversification across asset types, many people advocate for seeking exposure to international markets, in addition to US-based markets. The idea is to mitigate country-specific risks, since no single economy, even one as strong as the United States, is immune to challenges. Political instability, economic downturns, or regulatory changes can impact markets. Global exposure reduces reliance on a single country’s performance, so they say.
Other arguments to investing globally sound compelling as well:
🔸Countries in Asia, Latin America, and Africa experience rapid growth at times. Investing internationally allows you to capture opportunities in industries flourishing outside the U.S.
🔸What if the dollar loses value relative to foreign currencies? A globally diversified portfolio could provide a hedge to dollar weakness.
The FIRE approach typically rejects these arguments. Financial independence advocates like John C. Bogle, JL Collins, and Mr. Money Mustache claim that US-only investments are sufficient for a FIRE portfolio.
While I agree with their assessment, there’s an even better option. (You’ll never guess… 😉)
Let’s dig in!
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🇺🇸 ‘Murica!
The reach and success of the companies that make up the US stock market indices like VTI and SPX go beyond America’s borders. A large portion of their revenue is generated from assets and businesses that operate overseas.
Apple is a prime example. As of the fourth quarter of fiscal year 2024, Apple's revenue distribution by region was as follows:
🔸Americas: $52.65 billion
🔸Europe: $33.86 billion
🔸Greater China: $18.5 billion
🔸Japan: $8.99 billion
🔸Rest of Asia Pacific: $10.29 billion
MacroMicro
Apple - Revenue by Region | Apple Inc. | Collection | MacroMicro
Geographically, North America, Europe, and Greater China are the top three revenue generators for Apple.
This distribution implies that more than half of Apple’s revenue was generated outside of the US. That being the case, buying Apple stock means you are getting exposure to the world economy by proxy. Both the growth prospects and risks associated with the international markets that Apple operates in are transmuted into the company’s earnings and are reflected in the performance of the stock.
The same applies to other major stocks in the indices that FIRE practitioners buy. NVIDIA, Pfizer, Intel, Google, Meta, Coca Cola, etc all have significant exposure to foreign regions of the world. When you buy VTI, that exposure is captured in your portfolio.
JL Collins sums it up nicely in The Simple Path to Wealth:
"With VTSAX you own ~3600 companies, virtually every publicly traded company in the USA. More to the point, the largest of these are all international businesses, many of which generate 50% or more of their sales and profits overseas…Since these companies provide solid access to the growth of world markets, while filtering out most of the additional risk, I don’t feel the need to invest further in international specific funds."
JLCollinsnh
Stocks — Part XI: International Funds
In Part VI of this series we looked at some portfolio ideas to build and keep your wealth. Last time, in The Smoother Path to Wealth, we did much t...
Another solid principle of the FIRE approach is to keep things simple. By keeping a simple structure to your savings portfolio, you guard yourself against overthinking and trying to pick winners and losers. In this case, getting global exposure through a single fund is a better way to pursue your FIRE goal. Better results, less complexity.
😓 The downsides of stocks
While the FIRE community has found the most effective vehicle in traditional finance for saving, there are a few downsides to be aware of. I covered them in the post that inspired this newsletter: Bitcoin is FIRE Friendly.
treysellers.com/bitcoin-fire/
🔸Index funds have counterparty risk — If you’re using stock market index funds as a savings vehicle, there’s a slight risk that your funds may not be accessible when you need them. This counterparty risk means you’re dependent on a third party that might not be able to meet its obligations. Make no mistake — you’re operating in a world of IOUs.
🔸Taxes and fees are a drag on your returns — VTI has a 0.03% annual management fee (aka expense ratio), which is low compared to other funds that can charge 1-2% or more. This means the absolute amount of the fee grows as your portfolio grows, which adds up significantly over time. Additionally, dividends are taxed as income, further reducing your net returns. These costs act as a drag on your wealth, meaning your investments need to grow even faster just to maintain your purchasing power.
🔸You might not have access to US stocks — The FIRE approach has been a US-led phenomenon, but who’s to say Americans are the only people who care about financial independence? If you live outside the US, your access to the preferred stock market index funds may be limited, and your alternative choices are likely to underperform.
🔸You might not have access to stocks at all — The point above assumes that alternative vehicles for savings and investment exist where you live, which is certainly not true in many parts of the world. Some people are forced to try saving in assets or property that are inferior to stocks, like gold, real estate, or even fiat currencies that their governments print into oblivion.
🗺️ A better global alternative
If global exposure is important, we can look to a truly global alternative to US stocks.
Bitcoin transcends borders. It’s not tied to any one country or economy, making it one of the few inherently global assets. This means it will benefit naturally from economic expansion across the world over time, and its perfectly fixed supply prevents value leakage. Not to mention the asymmetric opportunity presented from the fact that it’s undergoing rapid adoption…I cover that in a previous issue of this newsletter:
🚀 Supercharge Your FIRE Journey
FIRE BTC Issue #4 - How bitcoin can help you reach FIRE faster
Bitcoin also shines where stocks are weak:
🔸You can hold it directly, without counterparty risk. No governments or financial institutions can control access to your money.
🔸Holding it directly can be done without fees or taxes.
🔸The access problem highlighted above does not exist with bitcoin. It is available virtually everywhere in the world and trades 24/7/365.
🔸Bitcoin can also be used directly as money, instead of incurring the friction of liquidating stocks to fund lifestyle purchases. Sure, adoption as a medium of exchange is still in its infancy, but I expect that to change over time. In the meantime, the fiat system is a great scaling mechanism for bitcoin on the payments front.
So for the FIRE folks who follow the advice of JL Collins and John Bogle, who think that US stocks provide adequate global exposure, it’s time to consider a better alternative.
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Thanks for reading! Below is the direct link to this post:
firebtc.substack.com/p/going-global
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