Over the past couple of years several online investing platforms and apps specifically targeting millennials have been launched. They tend to focus on online only and app only formats, have low or no fees when users buy and sell shares or funds and promote micro-investing so smaller sums of money than mainstream investment platforms would process can be drip-fed into accounts. Encouraging millennials who see traditional stockbrokers as expensive and old fashioned to begin investing for their future early, even if the sums are small, is the philosophy of these investment tech start-ups.
The investment industry niche focused on millennials might, however, be concerned to hear the results of a recent survey conducted by cryptocurrencies and blockchain-facing venture capital firm Blockchain Capital. The survey found that 30% of 18-34 year-olds would prefer $1000 in bitcoin as an investment as compared to $1000 in traditional investments such as shares, funds or bonds.
While many of those used to investing online in more mainstream assets might scoff at the idea of investing in a highly volatile asset class with a far from guaranteed future, a $1000 investment made in Bitcoin a year ago would today be worth over $10,000. The cryptocurrencies-enthused millennial would have had the last laugh. Of course, there is also a not insignificant chance that $1000 invested in Bitcoin today will be worth $10 a couple of years from now.
Another recent survey also showed that the search term ‘buy bitcoin’ is currently more popular on Google than the term ‘buy gold’. The New York Times also reported that this year the number of hedge funds focusing on cryptocurrencies and the cryptocurrencies market has spiked from 30 to 130. The Chicago Mercantile Exchange also recently announced that, pending approval by regulators, it would start offering futures contracts on Bitcoin’s price.
Investing online only in Bitcoin is obviously a bad idea given its hugely risky status. For millennials with an interest in cryptocurrencies, there is nothing inherently wrong with investing in Bitcoin or other crypto-peers as long as the risk is fully understood. However, a smart investment portfolio is always diversified. Whether $100, $1000 or $10,000 is invested, putting it all on Bitcoin shouldn’t be the approach. Investment portfolios usually have around 70% exposure to lower return ‘safe’ investments that are relatively low risk. Another 20% would then be expected to be allocated to slightly higher risk investments chasing higher returns and a maximum of 10% in more speculative, potentially high return assets.
Millenials or anyone else considering investing in Bitcoin, why not start micro-investing in less risky assets through one of the great new apps or services on the market and set 10% aside to speculate on Bitcoin? If it takes off, this will still be a hugely profitable investment. And if it doesn’t, the whole investment portfolio should hopefully still be able to generate positive overall returns even if the 10% in cryptocurrencies bombs.