There is investment with “play money” and then play with fire.
Like Coinbase, cryptocurrency exchange, publicly on Wednesday, the financial advisors want you to remember the difference.
With retail investor ratings rising, there is more and more appeal in finding and earning money from the next new thing.
and Ethereum, seems to only continue to increase in value.
An investment that is clear, considering the experts that the cryptocurrency is at its level “tipping point,” it’s correct?
Unnecessary. Do so with caution, the financial advisers say.
Experts say it always risky to invest in companies as soon as they’re going public.
For example, without a track record to work on, share prices can be speculated and retail investors who think they understand a brand may not value it as much as institutional investors do.
Now mix it with crypto unstableand considering the skepticism of some who said Coinbase’s valuation was “Ridiculously tall.” That number ranges from $ 50 billion to $ 150 billion, and even optimists say stocks “Not for the faint of heart.”
(A Coinbase spokesperson declined to comment before the IPO.)
The idea is to invest in an IPO with a fraction of the money you could lose. The question is how much? Here are a few different answers.
A common practice is to spend between 5% and 10% of your assets invested in speculations or stocks. Others say that the amount you are fine with, if that is not a very obvious word, then seeing the volatility should not be more than 1% of the portfolio for investors.
Ron Guay of Rivermark Wealth Management in Sunnyvale, California tells his clients to limit their “play money” to 10% – and that’s the same rule he follows himself.
‘The less your net worth, the lower the percentage of play money you should have.’
Daniel Johnson of RE | Focus Financial Planning in Winston Salem, NC says he’s all about people putting money into companies they care about, because sometimes investments are made in companies they know and understand.
But he also wants to diversify. Keeping an investment in any company below 5% is a good bet, he said.
But the same numbers are not right for everyone, according to Theresa Morrison, founding partner at Beckett Collective in Tucson, Ariz.
“If you don’t want to lose your ‘play money’, don’t play,” she said. That amount could be 1% to 2% of the invested wealth, she said.
“The lower your net worth, the lower the percentage of play money you should cut,” she said. “Conversely, the larger your net worth, the higher the percentage of play money you can allocate, but only up to one point.”
Method without number
Prior to Coinbase’s live listing, Chris Struckhoff, founder of Lionheart Capital Management in Orange County, California, said he was talking to several customers who wanted to buy Coinbase shares.
“They have these dollar signs in their eyes,” he said.
These people view Coinbase shares as rocket fuel to meet their financial goals, but “like anything, the faster you try to go, the more likely you are to go up on your own”, he said.
Struckhoff doesn’t tell his clients to buy stocks or to wait. He thought of the idea of playing money without applying difficult and fast numbers. He does this by thinking against the customer.
They start by remembering the financial goals a person has – a house, a boat, an egg or something else. Then they look at the financial wobble room someone has to dedicate to something like a Coinbase game.
What about just buying cryptocurrency?
With the rise in the price of cryptocurrencies like Bitcoin and Ethereum
Some say that you should go straight to the source and buy virtual currency instead. But again, they say don’t go overboard.
‘You can either look for gold (your own cryptocurrency) or you can sell a shovel (your own Coinbase stock).’
For example, Vrishin Subramaniam, the founder of CapitalWe, a financial planning firm focused on younger and younger investors, recommends putting between 2% and 5% of their net worth in cryptocurrencies .
If someone wants to buy into Coinbase, Subramaniam would recommend folding this investment into a 5% crypto investment basket. Going forward, “we may increase that allocation to listed securities after a few quarters as we have more information in the public domain,” he said.
“Because Coinbase and other platforms have facilitated the ownership of cryptocurrencies, I think the best way to access cryptocurrencies is through direct ownership of cryptocurrencies,” Graciano Rubio of Infinity Financial Planning in Los Banos, Calif.
There’s a metaphor for the end of California’s own Gold Rush in the mid-1800s. “You can search for gold (your own cryptocurrency), or you can sell a shovel (your own Coinbase stock. me). Each has its own risks and advantages, but both can be a successful strategy to profit from cryptocurrencies, ”he said.