QUESTIONS I’M HEARING
What is the craze about digital assets?
Should I be investing in these alternative assets?
Are they secure, speculative, or “flat-out stupid/scary investments”?
What do I do next to make sure I’m not missing the boat but also not taking too much risk?
I’m going to answer all these questions. But first, I want to set the landscape for the readers that are confused by all the noise.
THE WORLD IS CHANGING
In the last few years, we have seen an incredible evolution in the investment universe. When the technology sector started expanding, the increase of demand for tech stocks was easy to see coming. What many investors did not see coming was how technology would change the way we invest altogether.
Today technology is completely changing the way we invest instead of investing being influenced by the tech sector. Think about it this way, investors used to be swayed into technology stocks. Now technology is philosophically swaying investors away from stocks by introducing alternative assets to consumers. While this may seem cannibalistic, it is actually an organic adaptation that we have seen in the financial industry many times over.
TIMELINE OF INVESTMENTS
In the 90’s we started investing in technology companies. Shortly after, tech companies started their foray into the investment industry by introducing algorithm portfolios and robo-advisors. Fast forward to present day and technology is redefining investments altogether with additions like crypto-currency and, most recently, NFTs. If you look at the transition, it seems like a rational evolution for the financial industry. However, if you think about investing in railroads or oil companies compared to investing in digital assets or clean energy, the transition feels dramatic. It’s important to remember this has taken decades to change (even if it doesn’t feel that long).
WHERE ARE WE NOW
The millennial generation represents one of the largest populations in the United States since the Baby Boomers. Many previous generations discount millennials as lazy or uninspired. I respectfully disagree. There are definitely millennials that don’t care about money or investing. But it is statistically improbable for a demographic that size to not produce a significant amount of income and investing power (especially with their savvy in tech). Even Baby Boomers had lazy, non-productive members. But as a whole, they were a generation that provided a high level of economic stimulus.
WHAT ARE NFTs
I think that first step in learning about this investment class is understanding the vocabulary. If it is a fungible asset class (F in NFT), that means that it is not unique and there are other comparable assets (bitcoin, gold, etc.). Here is an example. If I own a rare car or currency but there is something interchangeable or extremely comparable, that’s fungible. But if I own a piece of art (digital or physical), that is one of a kind, that would be considered non-fungible (NF in NFT).
Now you understand the first two letters of NFT. So, what is the T? That T stands for token or digital currency. This is where the tech industry was able to offer a demonstrable value in terms of financial tracking and authenticity verification.
With blockchain tech being involved, we are able to assign trackable values and validate ownership. This creates value in digital assets, but also increases authentication in physical assets (which helps increase the value).
If you own one-of-kind valuables (digital or physical), NFTs are something you need to look for to protect and valuate that asset. If you are a new investor looking to get involved in this asset class, NFTs might be a new way to access this alternative.
This can seem like a speculative or scary asset class with more volatility. It all depends on how you mange risk and diversify your allocations. Whether you are looking at crypto currency, NFTs, genomics, or algorithm portfolios, I think it’s important to know what’s available in the investment world. And today, the options are expanding.
NEXT STEPS
1.) Get an analysis of where you are at in your financial life.
2.) Get a proposal of what you should do (NFT, Crypto, Tax, Investments, etc.).
3.) Make an educated decision based on analytics.
Q&A
What is the craze about digital assets?
Everybody is scurrying to understand what is going on here. It’s important to get educated and involved. This is a highly speculative asset class, and that has created a lot of media exposure.
Should I be investing in these alternative assets?
This depends on your personal financial situation. That is why it is so important to look at everything holistically in your financial plan.
Are they secure, speculative, or “flat-out stupid/scary investments”?
Nobody knows the answer to this question. That is why diversification is so important. If you have some limited exposure in digital assets, you’ll be happy if their values increase, but you won’t be disappointed if their values decrease. The question is, “how much”?
What do I do next to make sure I’m not missing the boat but also not taking too much risk?
You really need to do a complete analysis of your current situations and all your available options. If you haven’t done a financial checkup or gotten a second perspective in the last year, it’s probably time to do so.
