“As the ranks of retail investors rise, the appeal of finding and capitalizing on the next new thing grows. ”
Enter Coinbase, a platform with 56 million verified users that allows the purchase and sale of cryptocurrencies such as Bitcoin, BTCUSD, + 1.59%, and Ethereum, which appear to continue to increase in value. An obvious investment, considering the opinion of the experts that the cryptocurrency is at a “tipping point”, right? Not necessarily. Do it wisely, say financial advisers. Experts say it has always been risky to invest in companies just as they go public. For example, without a track record to work on, stock prices can be speculative, and retail investors who think they understand the brand might not value it the way institutional investors do. Now mix that up with the volatility of the cryptocurrency and consider the skepticism of some who say that Coinbase’s valuation is “ridiculously high.” That number ranges from $ 50 billion to $ 150 billion and even experts who are optimistic say the stocks “are not for the faint of heart.” (A Coinbase spokeswoman declined to comment before the initial public offering.) The idea is to invest in an initial public offering with a small chunk of money that you can potentially lose. The question is how much? Here are a couple of different answers. The numbers game A common refrain is to dedicate between 5% and 10% of your investable assets to speculative investments or stocks. Others say that the amount that is okay, if not an overly simplistic word, see potentially evaporate shouldn’t be more than 1% of a 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.
Daniel Johnson of RE | Focus Financial Planning in Winston Salem, NC, says it is in favor of people investing money in companies they care about, because investment often works in companies they know and understand. But he is also in favor of diversification. Keeping investment in any company below 5% is a good bet, he said. But the same numbers don’t fit all, according to Theresa Morrison, a founding partner of the Beckett Collective in Tucson, Arizona. “If you don’t want to lose your ‘play money,’ then don’t gamble,” he said. That money could be 1% to 2% of invested assets, he said. “The lower your net worth, the lower the percentage of play money you have to drop,” he said. “On the contrary, the more profitable your net worth, the greater the percentage of play money you can allocate, but only up to a point.” The No-Numbers Approach In the run-up to Coinbase’s direct listing, Chris Struckhoff, founder of Lionheart Capital Management in Orange County, California, said he has been talking to some clients who want to buy Coinbase stock. “They have these dollar signs in their eyes,” he said. These people view Coinbase stock as rocket fuel to reach their financial goals, but “as with anything, the faster you try to go, the more likely you are to stumble,” he said. Struckhoff doesn’t tell his clients to buy the stock or wait. Think about the idea of play money without applying strict numbers. He does this by thinking backwards with customers. They start by remembering the financial goals that a person has: a house, a boat, a nest of savings or something else. Then they look at the financial leeway someone has to put into something like a Coinbase move. How about just buying cryptocurrencies? Given the price increase in cryptocurrencies such as Bitcoin and Ethereum ETHUSD, + 3.10%, some say it is worth going straight to the source and buying virtual currency instead. But again, they say don’t overdo it.
“‘You can search for gold (your own crypto), or you can sell shovels (own Coinbase stock).’ ”- Graciano Rubio from Infinity Financial Planning in Los Banos, California.
For example, Vrishin Subramaniam, the founder of CapitalWe, a financial planning company focused on millennial and younger investors, recommends putting between 2% and 5% of net worth in cryptocurrencies. If someone wants to buy from Coinbase, Subramaniam would recommend incorporating this investment into the 5% cryptocurrency investment basket. Going forward, “we may increase that allocation for listed securities after a couple of quarters once we have more information in the public domain,” he said. “Because Coinbase and other platforms have made it convenient to own cryptocurrencies, I believe that the best way to gain exposure to cryptocurrencies is through direct ownership of the cryptocurrency,” said Graciano Rubio of Infinity Financial Planning in Los Banos, California. There is a metaphor for the moment. that ended California’s own gold rush in the mid-1800s. “You can go for gold (own crypto) or you can sell shovels (Coinbase own shares). Each has unique risks and advantages, but both can be a successful strategy for profiting from cryptocurrencies, ”he said.