Archive for February, 2022

Investment: Bitcoin versus the Stock Market

It seems Bitcoin pundits are hellbent on proving the naysayers wrong. Despite a rollercoaster ride of almost violent swings in value, Bitcoin investors remain plugged in. It seems the reserve of young, adventure-minded fast-buck seekers with high risk tolerance.

For the more cautious and traditional stock investor, it presents a conundrum because it is beginning to look as though it should be an integral part of a financial portfolio, or at the very least a wary step into potentially useful territory. Or not. It’s a puzzle. So while many sit on the fence watching the show with their ‘I told you so’ comments at the ready, Bitcoin continues to bounce, bumble and leap its way to ever new highs.

So is adding cryptocurrency to your portfolio the right thing to do?

All investments carry risk – and weighing this risk is a crucial part of investment strategy. The more you analyse the market, the more canny your judgement may become. But the market also carries the potential to lose pace at any time, and for a host of reasons. So while there are those that claim investment in either sphere may carry the similar risk, the market does have certain assurance and advantage in the characteristics underpinning companies.

The argument for stocks

  • Taking volatility into account, stocks have the stability of history and verifiable long-term track records.
  • The value of stocks is based on profit, and therefore assure a more stable investment environment due to underlying supports.
  • One can reasonably assume that companies will continue to exist in the future, and therefore provide ongoing stability.
  • Shares mean part-ownership in a business. And business is backed by a company’s assets and cash flow to which your investment may give you legal claim – whereas cryptocurrency is not backed by anything at all.
  • With stocks, you know what you are investing in. You are able to evaluate risks and returns, and what may drive success. Without this kind of information, engagement becomes a gamble.
  • A stock price depends on the company’s ability to grow its profits over time. And success depends on authentic underlying factors. As a result, stocks tend to rise over the long-term.
  • In truth, volatility can be high with stocks, and many stocks can rise 100 percent or more in a year, and may fall just as quickly, but they tend to be less volatile than crypto. Generally, the longer you can leave your money invested, the better.
  • Taking all these aspects into account, a diversified collection of stocks invested on a long-term basis, should make up the majority of your portfolio.

 

Considering cryptocurrency

  • There’s no doubt that cryptocurrency investment has taken the world by storm. The ever popular Bitcoin is now worth in the region of one trillion dollars.
  • However, as a newcomer, Bitcoin is still not widely adopted, and therefore could be replaced by more innovative and efficient digital currencies. On the other hand, should governments and banks get more involved, it could be regulated out of existence.
  • But Bitcoin does provide alternatives, and could add extra diversity to your portfolio. But there is still a strong sense that it should never become the main focus of your strategy.
  • Is it too late to invest in Bitcoin? Bitcoin may be pricing itself out of the market for the average investor. There may be a limit as to how much one might be prepared to pay for something that exists on an ever-shrinking shared scale. However, if you think it will gain ground in the future as a result of continued popularity, and considering the limits placed on production, it could be worth investigation as an addition to your asset spread.
  • A danger is that Bitcoin does not undergo the same scrutiny that regulated securities markets like the stock exchange do.
  • Always keep an eye on how Bitcoin compares to traditional investments such as stocks, which have a solid long-term track record.
  • Because cryptocurrency is not backed by assets or cash flow, the only thing moving crypto prices is speculation driven by sentiment. In fact, you have to hope that someone will want to buy your investment in the future for more than you paid. And that’s all there is – hope that your investment will ultimately be worth more as time goes by.
  • Keep in mind that China has banned cryptocurrencies in 2021, and other countries may follow suit.
  • Volatility is still the bane of Bitcoin, so you need to consider your risk tolerance. Relying only on sentiment for value is somewhat scary. So gains and losses are always going to keep one anxious. Cryptocurrencies rising or falling 50 percent or more in a year is commonplace.
  • The volatility is certainly not for the fainthearted. During 2021, Bitcoin lost more than half its value in a few months, but later gained it back. Therefore consider your crypto investment as long-term – and as something you can afford to lose.

 

All of these factors mentioned regarding Bitcoin and cryptocurrencies create a dangerous level of risk. Always thoroughly research before you invest, and analyse your own risk aversion before making decisions. And then decide whether Bitcoin or stocks are the better – or bigger – investment for your portfolio.  

 

Foster Wealth: steering business, driving wealth

 

At Foster Wealth innovation, agility and in-depth market acumen are our daily fare. The volatility of markets, unexpected events and fluctuating values continually take us to new levels of interest and possibility. Constant re-assessment and evaluation are how we keep ahead of the curve – but our hard work, professionalism, attention to detail and personal attention are the hallmarks of our business and will never change.   

 

Find out more about us at: www.fosterwealth.co.za    

 

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A thousand lightbulbs: Investments in technology

“Technology has always enabled people and companies to be more productive, but not everyone embraced it. Now they have no choice.” ~ Narasin.

Investment is the key that turns economies. A good investment climate means that business can operate with confidence, provide opportunities to expand, and stimulate job creation. Along with these positives comes the introduction of new technologies that further increase the potential for production and motivation for the market.

Investment obviously has a positive effect on the development of technology. Whether it is private domestic investment or foreign direct investment, it is input that drives greater know-how, efficiency, and competitiveness. Greater knowledge and development of improved  information technology contributes vitally to the growth of domestic business, and this in turn improves the overall local investment climate.

The evolution of technology has grabbed the interest of both the general public and investors alike as tech innovation continues to move forward at a remarkable speed. During the milestone year of 2000 the S&P 500’s technology index rose exponentially, while the NASDAQ reached an all-time high. More than 20 years later, the technology market still dominates with the success of giants like Facebook, Google, Apple, Amazon and Netflix.

Worldwide technological advancement is responsible for changing our society at a rapid rate. It is continuing to disrupt and reshape operations across a range of industries such as finance, property, transportation and healthcare. And it is this global impact that makes investing in tech so exciting. 

The phenomenal growth of technology investing

Music: The evolution of the music industry is one example of the hurry and hustle of technology. The industry has gone from vinyl to cassettes to compact discs to streaming in a relatively short space of time. The most notable streaming company emerging from this trend has been Spotify, which only made its entrance in 2018 and is now used by millions of subscribers.

Video-streaming: Video-streaming company Netflix has expanded to over 190 countries worldwide, and is expected to grow its subscriber base to over 260 million by 2025.

Amazon’s streaming services have also exploded in recent years, and are projected to reach 120 million to 150 million subscribers by 2025. Apple, with the platform Disney Plus, recently joined the ranks, launching video-streaming services with original content in late 2019. It is projected to reach over 170 million by 2025.

Cybersecurity: Along with the growth in technology, comes growth in cybersecurity technology; companies will need to create broader security awareness, and ensure proactive security systems are continually embedded into operations.

Blockchain: This is another tech disrupter, and already has millions of investors. It is set to hit nearly 30 billion US dollars in the next 5 years. Blockchain is believed by some to have the potential to transform payment systems.

Messaging: WhatsApp, the world’s largest messaging app, has connected millions around the globe, and now boasts over 2 billion users. Smartphones and e-sports round out further tech potential. In fact the potential in this arena is limitless. Who knows what the future will bring?

Changes and challenges

The Internet of Things: The McKinsey Global Institute has forecast that the Internet of Things will have a financial impact running to a trillion dollars by 2025. This will impact several industries such as manufacturing and the energy industry, as well as healthcare. With regard to the latter, IoT devices are used for data and analysis collection in medical research, tracking electronic health records, and monitoring patients.  

Artificial Intelligence: The adoption of AI is gaining momentum and many companies across a spectrum of industries are expected to make major investments; AI, augmented/virtual reality, blockchain, drones, IoT, robotics, 3D printing and autonomous vehicles, are all relatively new developments set to see massive returns in revenue.

  • Even with the ups and downs of the market, there is no doubt the technology sector is a high-performing choice. Aggressive growth in consumer spending in technology products has driven stock prices to new highs. The push for digitisation has resulted in aggressive technology business growth and consumer adoption and retention.
  • Market volatility may be a reason to continually re-evaluate tech positioning, and investors will need to appreciate that the sector may come with some radical market changes. If investors choose highly volatile companies, they need the tenacity to ride out those periods.
  • The overarching theme for technology investors in the months ahead: keep an eye open for new trends. There are always new innovators – and the big players like Apple and Amazon, Netflix and Facebook may be soon challenged by new champions. Keeping abreast of the momentum of changes and trends in this sector, is pivotal to successful investment in the long term.

Foster Wealth: steering business, driving wealth

At Foster Wealth innovation, agility and in-depth market acumen are our daily fare. The volatility of markets, unexpected events and fluctuating values continually take us to new levels of interest and possibility. Constant re-assessment and evaluation are how we keep ahead of the curve – but our hard work, professionalism, attention to detail and personal attention are the hallmarks of our business and will never change.   

Find out more about us at: www.fosterwealth.co.za    

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