- Milad Taghehchian, CPA, CFP(R)
Bitcoin, AI, CRSPR, Robots, Oh My.
If you keep your eyes and ears open to the technology or investment world, you may have heard about the various technologies above. As wealth management advisors we run across all sorts of amazing investment opportunities at least weekly. Some times these are global trends such as Bitcoin, and other times they are more localized investment opportunities such as the next restaurant of that really successful chef or that new craft brewery or distillery that will "definitely" be the next billion dollar company to come out of Texas. So how do you decide what to invest in?
There are tons of articles and news reports out there about the history and future of bitcoin as well as the wonderful potential uses of blockchain technology in multiple industries. Therefore, we wont go into those details here. The bigger key here is the question of bitcoin as an investment. The fundamental value of bitcoin is only in its use as a currency as it was originally intended. The idea behind a currency that is not manipulated by a central bank and is a global means of trade is wonderful. The fact that moving cash to bitcoin can potentially avoid local countries regulations is also fascinating as a source of demand. However, the crazy fluctuations in the value makes it a terrible form of exchange. You could be offered a transaction at 10,000 bitcoin today which may equal $1 and by the time you get to the transaction $1 may equal 5,000 bitcoin and one party to this transaction has lost 50% value on the transaction.
With that said, at best Bitcoin is a means of exchange, but not a very good one. In no way is it a good investment vehicle. You can always buy a little as a fun gamble, but it would be akin to betting it all on black on the roulette wheel.
CRSPR, Robots, Autonomous Driving, Etc
There are some really cool technologies that folks are working on these days. Really at most points in human history there have always been some really cool technologies smart folks are tinkering with that may revolutionize the world. So should we invest in these things. A good investment portfolio will always include a mixture of investments in well established businesses spread out among industries and global regions that provide a stability to your portfolio along with smaller companies focused on emerging businesses to provide long term growth potential. The key to investing in these growth technologies is to spread out risk among hundreds if not thousands of companies. For example, most of our client's portfolios will include investments in small US companies which are generally those tinkering with new businesses and technologies. However, we like to invest in indexes that own thousands of small US companies in order to spread out risk.
If you recall the exciting technological opportunities that the late 1990's provided you may recall wonderful companies such as TheGlobe.com, Webvan, Pets.com, or DrKoop. While some of these had great ideas and at one point soaring stock prices, the business concepts didnt fully pan out at that time. However, at that same time a young Amazon.com existed as well. When investing in these kinds of young companies you have to be ok knowing 500-1000 of the exciting companies may disappear for every 1-5 that last and become tremendously successful. Spreading out your money via an index among a bunch of small growing companies is the only safe way to make a bet on these.
More Local Small Businesses
Small businesses are the engines of economic growth in our country. Without people taking the risks to follow their passions and create, we wouldn't have most almost any of the amazing companies that have made the US what it is. It is very tempting when presented with the passionate pitch of a hardworking small business entrepreneur to want to join their ride.
The unfortunate reality, however, is that a very small portion of small businesses survive let alone become as successful as those glossy business plans project. Even if everything goes right in the business, life changes of the owners or key employees can derail a business. If you want to bet on a small business venture you have to be ready to think about the investment as a mini venture capitalist. Know that 90% of the businesses you invest in will not be huge successes but 10% may be. Therefore, you have to pretty much be ready to never see the money you invest in those ventures ever again.
So What To Do?
So as unexciting as it may sound, unless you just like playing roulette, a diversified portfolio of investments based on assets that create real value is the only good way to bet on any of these things.
As always, keep in mind these are very general comments and you will want to talk to your financial planners and investment advisors for details that apply to your particular situation.