It’s been a rough year so far for investors. Global stocks have entered bear market territory down more than 20%. The Barclay’s U.S. Aggregate Bond Index has lost more than 10% so far this year. And a host of less traditional investment options have plummeted, including crypto currencies. Bitcoin’s decline is approaching 70%.
When asset prices fall, smart investors think about buying in at depressed levels. It’s like buying something on sale – you’d always prefer to pay less than full price if given the chance. But when it comes to crypto currencies like Bitcoin, what is the fair price? And while it might be tempting to buy in now, how do you know if today’s price represents a discount?
Think Before You Act
Before jumping into Bitcoin or other crypto currencies just because they have suffered heavy losses, you need to do your homework. The reality of these investments is that their value isn’t based on any fundamental factor that can be assessed. This comment from Schwab says it all:
Bitcoin’s dramatic volatility is driven primarily by supply and demand, not inherent value. Bitcoin doesn’t have earnings or revenues. It doesn’t have a price-to-earnings ratio, price-to-sales ratio, or book value. Traditional value metrics don’t apply, so there are no methods for assessing its value that we endorse or find persuasive.
Over the past few years, we’ve shared a variety of resources to help investors assess the role of crypto currency in their portfolio. At Heritage Financial, our investment, financial planning, and wealth management professionals aren’t recommending an allocation to crypto in our globally diversified portfolios at this time. To help you better understand the risk and reward potential for this type of investment, check out the resources we’ve gathered here. And if you’d like to talk about how other less traditional asset classes can add value in your investment portfolio in the current environment, contact us.