Some investors have long believed everyone should allocate some of their portfolios to gold or other commodities. Gold, goes the argument, helps protect your investments from inflation and stock market drops.
Now some are arguing the same thing about Bitcoin.
“My personal belief is allocating to Bitcoin is a logical approach and should have a role in everyone’s portfolio, in the same way that many people believe gold or commodities should, as a diversifier,” Meltem Demirors, chief strategy officer at cryptocurrency investment firm CoinShares, recently told Barron’s Streetwise podcast.
But to what extent is the world’s most popular cryptocurrency similar to the world’s best-known safe-haven asset — and do investors truly need to have gold in their portfolios, anyway?
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Bitcoin: a bit like gold but with ‘huge volatility’
The economic downturn triggered by the COVID-19 pandemic has re-ignited inflation fears among some investors.
Many central banks, including the U.S. Federal Reserve and the Bank of Canada, have been increasing the amount of money in circulation in their countries as a way to stimulate economic activity. The playbook is similar to the one central banks turned out during the global financial crisis of 2007-08.
And now, like back then, some fear this kind of monetary policy will eventually fuel inflation.
“The usual idea is that the money supply increases, then people just have more money in their hands and prices will go up,” says Andreas Park, associate professor of finance at the University of Toronto.
Consumers flush with cash, in other words, can end up bidding up prices, causing inflation.
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Park doesn’t think fears of rampant inflation are justified. Economies like the U.S. and Canada haven’t seen high inflation since the 1980s, he notes.
But investors who worry about inflation often look to gold as a way to hedge against it. While central banks can dial up the amount of money in circulation, there is only a limited quantity of gold available in the world.
“You have to mine it if you want to add to it,” Park says. “It cannot be inflated.”
The same is true of Bitcoin.
The digital token, which was intended to be an alternative to inflationary national currencies, was designed to have a maximum cap of 21 million coins. New coins are created only as a reward for “miners,” users who employ computing power to record and validate crypto transactions.
So far, around 88 per cent of bitcoins have been mined.
And as with gold, there is little use in the real world for Bitcoin, Park says. You can use gold to make jewelry, for electronics, or as a collectible. And you can use Bitcoin to pay for some goods and services if you find a seller willing to accept crypto. For the most part, gold and Bitcoin are only worth what buyers are willing to pay for them.
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Some people also buy Bitcoin, like gold, as an investment that’s not going to be correlated with the performance of the stock market, says Robb Engen, a financial planner and author of the popular personal finance blog Boomer and Echo.
Gold is commonly touted as a safe-haven asset, an investment that will retain or increase in value during times of market turbulence.
But both as an inflation hedge and as a safe-haven investment, Bitcoin comes with “huge volatility,” Park warns.
While gold itself is volatile, Bitcoin’s ups and downs dwarf the precious metal’s price swings, Park says.
On Friday, Bitcoin was trading at around US$32,000 ($40,700), more than 20 per cent below the record high of US$42,000 ($53,500) hit two weeks ago, losing ground amid growing concerns that it is one of a number of price bubbles and as cryptocurrencies catch regulators’ attention.
Traders also blamed the sell-off on a report posted to Twitter by BitMEX Research suggesting that part of a bitcoin may have been spent twice, even if concerns were later resolved.
The pullback still leaves the cryptocurrency some 700 per cent above its 2020 low of US$3,850 ($4,900) hit in March. The dizzying rally has been partly driven by large investors, with a number of Wall Street firms making moves in the crypto space.
JP Morgan Chase, for example, has created and tested its own digital token, JPM Coin, despite CEO Jamie Dimon having been a vocal critic of Bitcoin in the past. The investment banking giant has also started offering banking services to two well-known crypto exchanges, Coinbase and Gemini Trust.
And Paypal announced in October that it would enable U.S. account holders to buy, hold and sell cryptocurrency. Derivatives marketplace CME Group and Fidelity Investments Inc. also offer services that allow for buying and selling crypto assets.
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Placing a bet on Bitcoin
Engen sees both gold and Bitcoin as speculative investments. Investing in cryptocurrency may also be a way to get exposure to a technology in its early days.
As with cannabis stocks pre-legalization and the dot-com boom of the late 1990s, investors can make big profits by pouring money into a new industry in its infancy, he says. But with that comes the risk of steep losses when the boom goes bust, he warns.
“By all means, you could use five per cent of your portfolio to make a bet,” Engen says. “But you have to go into it with your eyes open.”
You could lose most of your investment, he warns.
If you do want to dabble in speculative investments, you’ll need to start out with some clear ground rules in mind and stick to them. For example, committing to having no more than five per cent of your investments tied up in volatile crypto assets implies you’ll have to sell a lot of your holdings if they surge in value, which means they’d be taking up a larger share of your portfolio, Engen notes.
But it can be hard to bring yourself to sell investments that saw skyrocketing growth, he adds.
Early success with speculative assets may lead you to believe “you are good at this,” when, in fact, it was just luck, he says.
— With files from Reuters
© 2021 Global News, a division of Corus Entertainment Inc.
Bitcoin hovers near 6-month high on ETF hopes, inflation worries
Bitcoin hovered near a six-month high early on Monday on hopes that U.S. regulators would soon allow cryptocurrency exchange-traded funds (ETF) to trade, while global inflation worries also provided some support.
Bitcoin last stood at $62,359, near Friday’s six-month high of $62,944 and not far from its all-time high of $64,895 hit in April.
The U.S. Securities and Exchange Commission (SEC) is set to allow the first American bitcoin futures ETF to begin trading this week, Bloomberg News reported on Thursday, a move likely to lead to wider investment in digital assets.
Cryptocurrency players expect the approval of the first U.S. bitcoin ETF to trigger an influx of money from institutional players who cannot invest in digital coins at the moment.
Rising inflation worries also increased appetite for bitcoin, which is in limited supply, in contrast to the ample amount of currencies issued by central banks in recent years as monetary authorities printed money to stimulate their economies.
But some analysts noted that, after the recent rally, investors may sell bitcoin on the ETF news.
“The news of a suite of futures-tracking ETFs is not new to those following the space closely, and to many this is a step forward but not the game-changer that some are sensing,” said Chris Weston, head of research at Pepperstone in Melbourne, Australia.
“We’ve been excited by a spot ETF before, and this may need more work on the regulation front.”
(Reporting by Hideyuki Sano in Tokyo and Tom Westbrook in Singapore; Editing by Ana Nicolaci da Costa)
These are the only times it's smart to make changes to your investment portfolio – CNBC
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Recent market volatility has many investors wondering if now is a good time to alter their investments.
The short answer experts generally advise? It’s rarely actually a good time to make changes to your investment portfolio.
“Most investors who jump in and tweak their portfolios typically do it in response to market conditions and history has shown us this just doesn’t work out in their favor,” says Tony Molina, a CPA and senior product specialist at Wealthfront. “What often feels right when it comes to investing, is usually wrong.”
Though you may feel tempted to modify your investments when the market dips, you’re often better off leaving them alone for the long haul. The reality is, downturns happen but your money is safer if you ride out the storm. Just as quickly as the market can go down, it can also go up — and keeping your cash invested throughout these fluctuations is what helps your money grow over time. This is especially true when investing in index funds and ETFs.
But, we wondered, is there ever a good time to adjust your investments? Turns out, there are a couple conditions when it’s OK.
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When it’s a good time to make changes to your investment portfolio
While it’s typically best to leave your investments alone, you may want to change course if there has been a change in your investing goals’ time horizons, and consequently, your risk tolerance, advises Ivory Johnson, a CFP and founder of Delancey Wealth Management.
On one hand, you may find that you have extended the number of years until retirement and can take on more risk. Or, on the other hand, perhaps you’re retiring sooner than you thought and shortening that timeframe means that you need to put your money in lower-risk investments.
Using a robo-advisor is an effective workaround to avoid having to worry whether your investments match your risk tolerance. Robo-advisors have users fill out a brief questionnaire that helps them know how to best allocate your cash depending on your investment goals and the top robo-advisors will regularly rebalance your portfolio for you as needed.
Betterment, for example, will recommend a stock-and-bond allocation based on your goals and adjust automatically whenever you make a deposit, withdraw funds or change your target allocation. Betterment’s algorithms will also check your portfolio drift (how far you are from your target allocation) once per day and rebalance if necessary.
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The automated investing platform through SoFi Invest® automatically rebalances investors’ portfolios as well, but on a quarterly basis. SoFi is a good option for investors also looking for lending products as SoFi members receive a 0.125% interest rate discount on SoFi’s student loan refinancing and personal loans.
Johnson adds that he would generally change an investment allocation when a big event has taken place, such as a severe illness or a large economic windfall (like an inheritance). In both of these cases, an investor’s need for capital appreciation reduces, he says.
Molina agrees that a good time for investors to make changes to their portfolios would be in response to major life events. Specifically, he means events that put the investor in a position where they would need to access their investments in the near future (three or so years). Examples include marriage, a family emergency or as an investor nears retirement.
“This would be a good reason to reduce their investment risk or pull out their funds altogether,” Molina says.
Much of an investor’s decision to change their portfolio in this scenario depends on how soon they may need to withdraw their funds. “In general, if you need the funds within the next three years or less, you may want to consider changing your investment strategy,” Molina adds.
When it comes to investing in individual stocks, keep in mind that you should be using money that you are comfortable having tied up for at least the next five years. While individual stock investors are advised to hold for the long term (especially during times of volatility) in order to best maximize their returns, they may choose to sell a losing stock if it is more risk than they can handle and it generates significant financial loss. Investing in index funds and ETFs are an easy way to take on less risk and diversify your investments.
If you’re thinking of adjusting your investments, most of the time it’s probably not the best move for your long-term growth in the market.
The exceptions to this rule are if your time horizon and risk tolerance suddenly change. Another exception is if there has been a major life event where you no longer need your money to be invested, or where you could be better off financially with the cash accessible in your wallet.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
Cushman Investment in WeWork Rests on Successful Stock Listing – BNN
(Bloomberg) — Cushman & Wakefield Plc agreed to invest $150 million in WeWork Cos., contingent on the flexible work company successfully completing its forthcoming stock listing, a person familiar with the matter said.
The investment was born of a partnership the two companies unveiled Aug. 9. They said at the time that they were discussing a potential investment but hadn’t signed a definitive agreement.
A spokesman for Cushman said the company was pleased with the progress of the WeWork partnership but declined to comment on the investment. A spokesperson for WeWork also declined to comment on the investment. WeWork is preparing to go public via a $9 billion blank-check merger in late October.
The companies cited the effects of the Covid-19 pandemic as a catalyst for their accord. For many businesses, the return to the office has been a stilted process. Widespread vaccines in the U.S. brought some workers back, but the return stalled, along with vaccination rates, and outbreaks of new variants played a role.
“The partnership we announced with Cushman & Wakefield in August is a testament to WeWork’s long-term value proposition and we remain incredibly excited about the opportunities that lie ahead as we team up with one of the leading real estate firms in the world,” WeWork said in a statement Sunday.
The deal represents a marriage of old real estate and new. Cushman & Wakefied is more than a century old and one of the largest commercial real estate services companies in the world. WeWork is barely a decade old.
©2021 Bloomberg L.P.
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