It is invested with “money game” and then it is played with fire.
As Coinbase, the cryptocurrency exchange, goes public on Wednesday, financial advisors want you to remember the difference.
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With the rise of retail investors, there is a growing attraction in finding and taking advantage of the next new thing.
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Join Coinbase, a platform with 56 million verified users that allows you to buy and sell cryptocurrencies such as Bitcoin BTCUSD,
and Ethereum, which seem to continue to grow in value.
An obvious investment, given the expert believes that the cryptocurrency is in a “tipping point”, right?
Not necessarily. Do this with caution, say financial advisors.
Experts say it has always been risky to invest in companies as they become public.
For example, without a working history, stock prices can be speculative, and retail investors who think they understand the brand may not appreciate it as institutional investors do.
Now mix this with the volatility of cryptocurrencies and consider the skepticism of some who say that the Coinbase valuation is “ridiculously high”. That number ranges from $ 50 billion to $ 150 billion, and even experts who are upset say the stock is “not for the faint of heart.”
(A Coinbase spokeswoman declined to comment before the IPO.)
The idea is to invest in an IPO with a small part of the money you can lose. The question is, how much? Here are some different answers.
The numbers game
A common refrain is to allocate somewhere between 5% and 10% of investable assets to speculative investments or stocks. Others say you are OK, if not a word too weak, seeing that potentially evaporates should not account for more than 1% of the investor portfolio.
Ron Guay of Rivermark Wealth Management in Sunnyvale, Calif., Tells customers to limit their “gambling money” to 10% – and that’s the same rule he follows.
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“The lower the net worth, the lower the percentage of gambling money should be.”
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Daniel Johnson of the RE | Focus Financial Planning in Winston Salem, NC, says it’s all for people who put money into companies they care about, because they often invest in companies they know and understand.
But he is also for diversification. Keeping the investment in any company below 5% is a good bet, he said.
But the same numbers don’t suit everyone, according to Theresa Morrison, a founding partner at Beckett Collective in Tucson, Ariz.
“If you don’t want to lose your ‘money game,’ then don’t gamble,” she said. That money could account for 1 percent to 2 percent of assets invested, she said.
“The lower the net worth, the lower the percentage of money for games should be,” she said. “On the contrary, the lower your net worth, the higher the percentage of your game money, but up to a point.”
The numberless approach
Prior to Coinbase’s direct listing, Chris Struckhoff, founder of Lionheart Capital Management in Orange County, California, said he had spoken to some customers who wanted to buy Coinbase shares.
“They have these dollar signs in their eyes,” he said.
These people see the Coinbase stock as rocket fuel to meet their financial goals, but “like anything, the faster you try to go, the more likely you are to stumble,” he said.
Struckhoff does not tell customers to buy stock or wait. Think of the idea of playing money without applying heavy and fast numbers. He does this by thinking back with the customers.
They start by remembering the financial goals that a person has – a house, a boat, a nest egg or something else. Then he looks at the financial room that someone has to dedicate something like a Coinbase game piece.
How about buying only cryptocurrencies?
Given the rise in prices in cryptocurrencies such as Bitcoin and Ethereum ETHUSD,
some say it’s worth going straight to the source and buying virtual currency instead. But again, I say don’t go overboard.
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“You can either look for gold (your own crypto) or sell shovels (your own Coinbase stock).”
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For example, Vrishin Subramaniam, founder of CapitalWe, a financial planning firm focused on millennial and younger investors, recommends investing somewhere between 2% and 5% of net worth in cryptocurrency.
If someone wants to buy in Coinbase, Subramaniam will advise you to fold this investment in the investment basket with 5% cryptocurrency. In the future, “we can increase that allocation for listed securities after a few 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 think the best way to gain exposure to cryptocurrencies is to directly own cryptocurrencies,” said Graciano Rubio of Infinity Financial Planning in Los Banos, California.
There is a metaphor for the moment that wrapped up California’s own gold rush in the mid-1800s. You can either look for gold (your own crypto) or sell shovels (your own Coinbase stock). Each has unique risks and benefits, but both can be a successful strategy to take advantage of cryptocurrencies, ”he said.