On this episode of A Wiser Retirement Podcast, Casey Smith, Matthews Barnett, CFP®, ChFC®, CLU® and Brad Lyons, CFP® talk about if cryptocurrencies belong in an investment portfolio. They talk about some of the main cryptocurrencies, how they are being used today, the advantages and disadvantages of investing in them, and they offer advice on how to manage them in your portfolio. It is important to analyze the risks and rewards of including cryptocurrencies in your portfolio, so you can make the right decision.
Cryptocurrency can be defined as any form of currency that exists virtually and uses blockchains to monitor transactions. There are tens of thousands of cryptocurrencies out there, the most popular being Bitcoin and Ethereum. Two influential aspects in the market that affect cryptocurrencies are supply and demand, and storage. There is still much to be discovered about cryptocurrencies. However, we do know that the more people want them, the higher the price will be. Due to this fact, it is important to consider that these currencies are highly subject to fluctuation in price.
The three main benefits of cryptocurrency are anonymous transactions, international transfers of money without hassle, and you can circumnavigate politics or any virtual walls. These benefits allow you to use cryptocurrency with ease, but don’t be fooled. With anonymity comes people with bad intentions, scammers for example. To avoid falling for a scam, it is important to be mindful of them. Becoming educated on them and researching scammer tactics could allow you to worry less and reap all the benefits of cryptocurrencies.
In short, storage value can be described as the ability to store wealth for later use. It is important to note storage value defines a currency. Ask yourself if the cryptocurrencies you are choosing to invest in store value. If they do, it may make sense to invest in them long-term. Since they fluctuate a lot, it may take time to see any return, which may take some patience. To better understand the timeframe, look at price fluctuation relative to other currencies.
As you start thinking about investing in cryptocurrencies, keep in mind the risks that come along with them. First and foremost, they are highly unregulated meaning there is no SEC (Securities and Exchange Commission) regulation. Wealthy people can manipulate the market for their own gain and it’s perfectly legal. Be aware that it is also very easy to be scammed. A question to ask yourself is, is it worth it? It certainly could be if you are an early adopter. However, it usually takes hard work and perseverance to become wealthy, these early adopters are lucky. With this in mind, it is important to be frugal. Don’t poor all your money into it.
The short answer is possibly, it is a personal decision. This is a way of investing that requires recognition. You can choose different coins, all with different risks. It is important to understand it is difficult to decipher which cryptos will be the winners in this marketplace, just like picking stocks. Cryptocurrency could be the future, and infrastructure is coming. However, put simply, the future is unknown.
There is so much unknown when it comes to financial industry. It takes daily research to stay on top of these investments. If you think cryptocurrency is the future, speak with an advisor. Financial advisors can assist you with strategizing how to invest in them. Keep in mind, you may not need a financial advisor to manage them, but it is important to talk to them about it.
Since cryptocurrencies have a non-correlated return stream, they can be great for diversifying your portfolio. When thinking about the amount to invest, it would usually make sense to invest 10% of your net worth. This should not apply to cryptos. Because of the high risk, it’s pertinent to only invest around 1 or 2% of your net worth. If you believe technology is going to move forward in a way where cryptos will be beneficial, put money in it. Consider your perspective and the location in which you live. Those should be the main factors of deciding if cryptos are a viable option for your portfolio.
Download our white paper on "3 Ways to Grow and Protect Your Portfolio"
2:45 What are Cryptocurrencies?
7:19 Benefits of Cryptocurrencies
10:35 Storage Value
21:03 Risks of Investing
27:08 Should You Invest in Cryptos?
29:35 Speak with an Advisor
36:27 Cryptocurrencies in Your Portfolio
Learn more about Brad Lyons.
Learn more about Matthews Barnett.