Investing

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Bitcoin Products and Pyramid Schemes

Pyramid schemes share one overriding characteristic, according to Debra Valentine, former general counsel of the Federal Trade Commission (FTC): They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public. Bitcoin products and pyramid scheme share this description, according to Jonathan Harris. He offers a cautionary view in a recent opinion piece for the CFA Institute.

“Bitcoin is too inefficient to be a currency. Certainly, no government has any plans to use it as one,” he wrote. Harris is a chartered financial analyst and vice president, manager of nonretail credit analytics for TD-Bank. “Thus, the sole way most promoters will realize value from their bitcoin holdings is through new entrants into the market.”

Some proponents of bitcoin equate it to investing in gold. This may be a reasonable analogy. Still, even in the best case scenario, both bitcoin and gold share the characteristics of being volatile investments with poor long-term returns. While gold has other uses (e.g. jewelry or art), Harris points out that bitcoin does not. Furthermore, after the supply of new bitcoin buyers is exhausted, final investors will find themselves with assets that decline in value as early investors sell off.

“If it looks like a pyramid scheme and sounds like a pyramid scheme, we should treat it like a pyramid scheme until proven otherwise,” Harris stresses.

Creating Diversified and Balanced Portfolios

At Perspective, our time-tested investment strategy focuses on building a well-diversified portfolio of stocks and other securities. The Perspective Investment Committee meets quarterly to review and fine-tune the list of funds our advisors utilize to build balanced client portfolios. It is part of the firm’s strategic process. Funds are selected based on several criteria. Considerations include factors such as cost and the fund manager’s tenure. It also includes overall performance and risk vs. return (both of which we compare to peer funds and other benchmarks).

For Harris’ full article on the CFA Institute website, click here.

By |January 7th, 2019|Current Affairs, Investing|

Maintaining Perspective

Patrick Eng addresses maintaining perspective.When the Dow Jones Industrial Average climbed above 22,000 in August 2017 (an all-time high) I wrote an article titled “Managing Expectations.” In early October 2018, the Dow reached a record-breaking 26,800 points. In the four weeks that followed, it dropped by 2,000 points. By mid-November, the it was back near 26,000. As I write today, and the Dow is hovering at roughly 25,000, the new mantra is “maintaining perspective.”

After seeing these numbers, I felt compelled to share once again the points from my summer 2017 article. As we traverse the landscape of volatile financial markets – experiencing both the euphoric highs and the inevitable declines – it’s important to remember the following:

  • Stay diversified; even if it doesn’t feel right, history shows this strategy works.
  • Avoid jumping in and out of the market; it is virtually impossible to time market movement.
  • Invest regularly, in both good times and in bad times; the potential to buy investments at discount prices can only happen if you are involved when things look the bleakest.
  • Market corrections, no matter how painful, are a natural part of the economic cycle.

These long-term fundamental principles of investing will serve you well and set you up for long-term investment success. It also helps to stay in communication with your advisor as changes take place in your life or if you just want to get some perspective on market movement.  An important role we play in our clients’ lives is being an “emotional surge protector” when unavoidable declines take place.

By |November 19th, 2018|Current Affairs, Investing, Uncategorized|

Exponential Growth of ETFs

Patrick Eng addresses the exponential growth of ETFs.

The advent of Exchange Traded Funds (ETFs) took place a little more than 25 years ago with the creation of the SPDR S&P 500 Trust (SPY) in January 1993.  Yet, ETFs remained an obscure and little noticed trading vehicle for many years before it was embraced as a widely accepted investment choice by retail investors. An emphasis on passive investing and low-cost investment products in the past 10 years has driven the exponential growth of ETFs.

In the early 2000s, there was less than $100 billion in assets under management in ETF form. Today, that figure approaches $5 trillion. By comparison, the mutual fund industry now has about $19 trillion in assets, according to Investment Company Institute.

ETFs trade like stocks and are primarily passive investments that endeavor to replicate the performance of an index. In the case of the SPY, it is the S&P 500 index with 500 stocks bundled into a trust that trades on the exchange as if it was just one stock. ETFs are generally more tax-efficient than stocks, because they tend not to distribute a lot of capital gains and passive tracking of an index usually doesn’t require frequent trading.

There is plenty of room for the ETF market to continue to grow. In fact, ETFs have eclipsed the hedge fund market, which grew to $3.22 trillion globally in 2018, according to a report by Hedge Fund Research. Projections by BlackRock estimate ETF assets will grow to $12 trillion in the next five years.

As a potential investor in ETFs, knowing what resources you currently have and what resources you still need to reach a specific financial planning goal is critical. Picking the investment product that will help you reach that goal is the last step in the process – a step with which your advisor can assist.

Along with mutual funds and hedge funds, ETFs are investment vehicles that may help you get where you want to go.

By |August 27th, 2018|Investing|

Risks to Being Risk Averse

David Davodi explains the risks to being risk averseWhile waiting at a favorite Greek restaurant recently, I struck up a conversation with two other young men in line. We started talking about investing, and both said the stock market terrifies them.  As teenagers during the 2008 financial crises, they had witnessed their parents’ losses. As young adults today, they don’t want to lose their own money. Many young adults share their aversion to investing, according to a recent CNBC report by Sean Carter. Unfortunately, there can be financial risks to being risk averse.

Only 37 percent of Americans 35 years of age and younger invest in the stock market, according to Carter, compared to 61 percent of those older than 35. Having such little exposure to stocks at a young age can be detrimental to one’s financial future. Saving in “safer” vehicles does not always bring the growth needed to maintain the quality of life you will want or need in retirement.

While there are risks associated with investing in stocks, there also are proven strategies which help mitigate that risk. The market only does one of three things every day – go up, go down or stay the same. Investors who employ asset allocation with a diverse group of investments and maintain a long-term investment horizon typically see their investments grow over time. Having a proper financial plan also reduces stress and helps you decipher how much risk you should be taking.

It is our duty as parents, relatives and friends to help educate the young adults in our lives. Taking the time to have such conversations can be the positive impact they need to become financially successful.

By |August 13th, 2018|Current Affairs, Investing|