Published Date: 2021-04-16 | Source: INCE|Connect | Author: Robby P, Joint Head of Trading, Unum Capital
Not all investors are created equal. But the one thing all investors have in common, is that they want as much return for as little risk as possible.
Whether cryptos can or should be included in an investment portfolio, is one decision that can only be answered by the investor himself...
There's a BIG difference between "can" and "should."
Yes, you can invest in crypto. With ease of on-line trading access, anyone has the ability to invest in this new exciting asset class and including it in your investment portfolio will certainly help you diversify. The key here is to find out if you should.
Ask yourself, will owning crypto's:
• Help me achieve my investment goals?
• How much risk am I prepared to take?
• How close am I to retirement, and do I have sufficient time to recover from a large, adverse move in the asset?
As I mentioned before, not all investors are created equal. Crypto may suit some investors while being completely the wrong investment for others.
Yes, cryptos can be an exciting alternative to mainstream investing but due to their volatile nature, they simply aren't for everyone.
You shouldn't be asking your broker or advisor about Ethereum or Bitcoin or Ripple if you know you have a low tolerance for risk. Apart from rolling his eyes on the other side of the phone with a perplexed look on his face, he is going remind you of the obvious.
He is likely to say,
"Mr and Mrs client, based on my recent Financial Needs Analysis, your risk profile is a 2, moderately low risk, whereas Ethereum, Bitcoin and Ripple are ten times that! Why are you even asking me about it?"
This is why it is important to understand that volatility equals risk and why you need to know yourself well enough when it comes to taking on risk in your portfolio.
"But I still want to own some crypto..."
If you absolutely cannot resist the urge to own crypto, my advice would be to have a small portion your investment portfolio "re-profiled", by adjusting upwards the level of risk you are prepared to take on a small sliver of your portfolio - a few percent that you are willing to "gamble".
Then familiarise yourself with the volatility that cryptos are synonymous for.
Expect 30% swings in value, both up and down, and only then add the appropriate amount of exposure.
The bottom line...
Be honest with yourself about what you expect from your crypto investment and why you want to own it in the first place.
Whether you think it's a great store of value and view it as digital gold, or maybe it's just a simple a bet on the future, have clear and realistic expectations from the get-go.
The bottom line when it comes to crypto: it is still a very speculative bet and they do come with a warning label. Of course, try telling that to the guy who bought his first Bitcoin for $1 (and is still likely holding on 5,000,000% later!)
Robby P, Joint Head of Trading, Unum Capital
To enter the exciting world of Cryto trading or to add a Crypto related trading instrument to your portfolio, email email@example.com or call 011 384 2927.