TORONTO -- If there is one question I'm being asked right now it is: should I invest in Bitcoin?
Maybe, but my answer is always: proceed with caution. And here is why.
The believers -- and there are many, including Carolina Panthers offensive lineman Russell Okung, who has become the first NFL player reportedly to have half of his compensation ultimately converted to Bitcoin -- believe cryptocurrencies have become an alternative investment supported by central banks pumping out money to prop up economies and along the way devaluing their currency.
It also helped that PayPal helped to legitimize things when it began to accept it as legal tender.
It is fair to consider Bitcoin or other cryptocurrencies as an investment but remember that it is volatile and still relatively new with many hurdles to overcome before it really becomes a mainstream stream asset class.
My belief is you shouldn't abandon your investment strategy and throw caution to the wind because there is a new kid on the block. Even with a 300% increase over the past year, driven in part by speculation by both retail and institutional investors. No question some will have made money, others plan to hold their investment for a really long time and other will lose by selling at the wrong time.
There is a tendency to have a herd mentality seen in the past with the tulip craze, early hot stocks on the Nasdaq, biotech, cannabis just to name a few. In others words if everyone is investing in it, so should I.
Before you decide to invest, proceed with caution and ask yourself: am I investing or speculating? It is ok to take a gamble with a small portion of your portfolio. And you might even get it right and make some money.
The challenge is not to start believing in your predictive powers. Studies have shown time and time again it is almost impossible even for the experts to predict when a bubble might pop.
Investors may be looking for alternatives to the conventional markets but I would argue this might just be another sign risk is taking hold while long-term investing is being abandoned for potential short-term gains.
For now I'm sticking with the basics and still believe slow and steady wins the race.
My investing fundamentals include:
- Diversification works - don't put all of your investments into one stock, one sector, one country or one currency
- Know what you are investing and do your research
- Do not try to time the market. It is impossible to know which sectors or even markets will outperform consistently over time.
- Stick to quality investments and think longer-term over short-term
Don't be fooled by high frequency traders also known as Robin Hood investors, who make buying and selling in the markets a sport. There is a lot of speculation going on. That sort of activity can skew the markets and falsely lead to a fear of missing out.
When it comes to investing my mantra is: boring is beautiful. I want a boring portfolio that makes money over time. I'm not looking for excitement when it comes to my investments.
And remember not everyone should go to the party, it is OK to take a pass. But if you do it is never a good sign if you are the last to leave.
