It is invested with “play money” and then played with fire.
As a Coinbase, the Cryptocurrency exchange, goes public on Wednesday, financial advisors want you to remember the difference.
As the number of retail investors grows, there is a growing attraction to find and benefit from the next new thing.
An obvious investment considering the expert’s assumption that cryptocurrency plays a role “Turning point” Law?
Not necessarily. Do this with caution, say financial advisers.
Experts say it is has always been risky investing in companies the way they go public.
For example, with no track record, stock prices can be speculative Retail investors who believe they understand the brand may not appreciate it as much as institutional investors do.
Mix that with the cryptocurrency now volatilityand consider the skepticism of some who say Coinbase’s valuation is “Ridiculously high.” That number ranges from $ 50 billion to $ 150 billion, and even bullish experts say the stock is “not for the faint of heart.”
(A Coinbase spokeswoman declined to comment ahead of the IPO.)
The idea is to invest in an IPO with a small portion of the money that you may lose. The question is how much? Here are a few different answers.
The numbers game
A common refrain is to use between 5% and 10% of investable wealth for speculative investments or stocks. Others say the amount you are okay with shouldn’t be more than 1% of an investor portfolio, if that’s not an overly plain word.
Ron Guay of Rivermark Wealth Management in Sunnyvale, Calif., Urges clients to limit their “play money” to 10% – and that’s the same rule he follows himself.
“The less your net worth, the smaller the percentage of the game money you should lose.”
Daniel Johnson from RE | Focus Financial Planning of Winston Salem, NC says it’s all for people who put money into the companies they care about because the investment often affects companies they know and understand.
But he’s also everything for diversification. Keeping your investment in a company below 5% is a good bet, he said.
However, according to Theresa Morrison, founding partner of the Beckett Collective in Tucson, Arizona, not all of them fit the same numbers.
“If you don’t want to lose your ‘play money’ then don’t play,” she said. The money could be 1% to 2% of the assets invested, she said.
“The less your net worth, the smaller the percentage of the game money you should lose,” she said. “Conversely, the more flushes you have, the more percent of the game money you can allocate, but only up to a point.”
The no-numbers approach
Ahead of Coinbase’s direct listing, Chris Struckhoff, founder of Lionheart Capital Management in Orange County, Calif., Said he had spoken to a few customers looking to buy Coinbase stock.
“You have those dollar signs in your eyes,” he said.
These people view Coinbase stocks as rocket fuel to help them meet their financial goals, but “as with anything, the faster you try to go, the more likely you’ll trip yourself,” he said.
Struckhoff does not ask its customers to buy the stock or to wait. He’s contemplating the idea of playing money without using fixed numbers. He does this by thinking backwards with customers.
You start out by remembering a person’s financial goals – a house, a boat, a nest egg, or something else. Then they look at the financial leeway that someone has to devote to something like a Coinbase piece.
What about buying cryptocurrency?
Given the surge in cryptocurrencies like Bitcoin and Ethereum
ETHUSD, + 3.61%,
Some say it’s worth going straight to the source and buying virtual currency instead. But again they say not to go overboard.
“You can either look for gold (your own crypto) or sell shovels (your own Coinbase share).”
For example, Vrishin Subramaniam, the founder of CapitalWe, a financial planning firm focused on millennial and younger investors, recommends investing between 2% and 5% of net assets in cryptocurrency.
If anyone is looking to buy into Coinbase, Subramaniam recommends putting that investment in the 5% cryptocurrency investment basket. Going forward, “we can increase this allocation for listed securities after a few quarters once we have more information in the public domain,” he said.
“Since Coinbase and other platforms have made it convenient to own cryptocurrency, I think the best way to get the word out about cryptocurrency is through direct cryptocurrency ownership,” said Graciano Rubio of Infinity Financial Planning in Los Banos, California.
There is a metaphor for the moment that includes the mid-19th century California gold rush. “You can either look for gold (your own crypto) or sell shovels (your own Coinbase share). They each have unique risks and benefits, but both can be a successful strategy for capitalizing on cryptocurrency, ”he said.