As retail investors many people are somewhat confused about the state of the economy and all of the new digitalized asset classes so lets simplify some things. Interest rates are extremely low resulting in many investors borrowing money. Cash in an inflationary environment is better off placed in a position where it can grow rather than sit and lose value to inflation. Where are people putting their money? Growth is the desire of the investor and the more there is to gain the better the placement. Think of any blue-chip stock verse any company who is new to the market. While you may feel safer with a large company there is relatively less to gain simply because the company has already gone through its large growth phase which is why it is currently a “Blue Chip” stock. When investing in a new company there is greater risk BUT if the company takes off then you share in its incredible gains. Do you understand how emerging markets can add to your portfolio?
Digital currency is relatively new with a new form of it popping up all the time (i.e., NFTs). Yes, this means there is a ground floor in which one can invest and the upside can be huge. Unfortunately, we must take into consideration how these new opportunities are being funded and how/if they produce cash. Unlike gold, the anti-inflationary commodity to which crypto is usually compared, crypto is not known to produce anything tangible. As previously cited, it is completely digital. Does history repeat itself? Well, we’ve seen a similar scenario during the dot com bubble. A new online or technology company popped up one after the other, each with an incredible valuation. The problem was the production cash/revenue, what did they produce that was tangible? If you can see this parallel, then our job has been done and hopefully you have a deeper understanding of these relatively new digital class of assets/commodity (the SEC has not decided yet as of this blog post). Remember not all companies considered part of the dot com bubble failed, we still have Amazon, eBay and Shutterfly just to name a few. Simply remember the possibility of all these new digital currencies having future success is nil. Diversification is needed for success and there is no charge to find out the tweaks needed in your portfolio!
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