Many wonder: should I invest in Bitcoin (and/or other cryptocurrencies)?
To which I usually respond with various questions about goals, savings, extra cash flow, etc. Sorry, I wish there were a short answer!
First off, asking that question is similar to asking questions like the following:
Should I invest in gold (and/or other commodities like silver, oil, etc.)?
Should I invest in real estate (from rental properties to REITs)?
Should I invest in my company's stock options (think small cap companies)?
Should I invest in 'fill in the blank?'
Cryptocurrency/digital assets is a new asset class in itself. Time will tell what happens - nobody knows what will happen, but it certainly appears that the world of digital assets is here to stay. The big question being which digital assets will turn out to be winners and which ones as losers.
See the article: Is Crypto A Productive Asset? to learn more about Bitcoin.
For many asset classes - we have a rough enough idea of how they perform over LONG PERIODS of time. For digital assets - we don't. Digital assets have barely been here a decade. But that doesn't mean you should not invest in them, nor does it mean you should. Rather, take a look at the following charts and graphs:
Here's a link to see Niccoo Conte's chart at Visual Capitalist. It shows every asset class and its respective performance in 2021: Visual Capitalist Asset Class Performance
You'll notice a few patterns from all these charts:
What did amazing last year, does not mean it will do well this year.
There is relatively little consistency except that asset classes are typically positive, but not always positive.
A diversified portfolio leads to less volatility (fewer roller coaster rides)
Back to the original 'Should I' question - what you invest in will have risk. Asset classes have different types of risk that can often bring untimeable returns or losses.
Even your savings account has risk - it has lost 8.5% of its value over the past 12 months because of inflation.
For example, the $1,000 in your savings account 12 months ago essentially can only buy $915 worth of stuff today.
Most important is that you understand the risk before investing in any asset class AND how that risk affects the rest of your financial life.
At Pomegranate Financial - we help you understand how to balance out the risks, returns, and goals you have. Often we see clients take either too much risk or too little risk, and after working together we make it simple to balance out the risk.
As always, feel free to reach out with questions or comments.
Blake Jones, CFP®, EA
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