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digital asset investment

Digital Assets Investing Might be Right for Your Retirement Strategy 

Digital assets investing has become a popular financial trend in recent years. As cryptocurrencies, non-fungible tokens (NFTs), and other similar virtual items increase in value, you might be wondering if they’re a wise option for your portfolio. 

As with any new investing trend, there are a few key questions to answer: 

  • Does this asset make sense for my portfolio? 
  • Is this a quick fad or something that will last? 
  • Is this specific market too volatile for my investment strategy? 
  • What are the best assets within this market to invest in? 

Today, we’re going to look at some popular digital assets that dominate financial media and compare their pros and cons in a simple guide. As always, we recommend consulting with a fiduciary financial advisor to help you make a sound decision that would make sense for your retirement strategy. 

Why Invest In Digital Assets? 

A diversified investment portfolio is a healthy one. Planting three seeds in the same hole triples the chances of a successful crop versus just one. With your retirement strategy, having multiple sources of revenue can help ensure more hedges against potential economic instability. 

Like real estate, stocks, and precious metals, a digital asset provides another vertical to invest in. As society relies more on digital products, the more power they have to shape economies and spending decisions. 

What Are the Risks to Digital Asset Investments? 

As with any type of investment, there are some risks to digital assets. Among them, the two most notable are: 

Market Variety 

Anyone with the proper resources and skills can create and market a digital asset. When the metaphorical gold rush happens, it can be difficult to determine which are the safest investments to bet on. 

Market Newness 

Unlike physical assets, digital assets are a recent investing trend. They do not have decades of  historical market data behind them like real estate or precious metals. Forecasting their long-term value can pose a challenge for some, and those with limited capital might hesitate to make speculative decisions. 

Should I Invest In Digital Assets? 

When you are deciding whether to invest in a digital asset or not, there are a few important factors to consider. These include: 

Current State of Your Portfolio

How diversified is your portfolio already? If you are still in the early stages of building it, you might want to opt for more historically stable assets to create a solid financial foundation before venturing into digital. 

Conversely, if you are a longtime investor with an expansive portfolio, digital assets could make more sense. You have already established multiple footprints in different verticals and want to expand your money’s reach into a new frontier. If a digital asset does not generate expected returns, your other investments can help mitigate some of the losses. 

Risk Comfort Level 

All investing requires accepting some degree of risk. If you are a risk-averse person and prefer verticals with a longer track record, you might want to wait on digital assets and observe the market’s growth over a period of time. 

Your Investment Budget

Not everyone has thousands of dollars in available investment capital. For some, the cost of building a digital asset section of their portfolio can prove too high. If it does not make financial sense to front the costs of acquiring a virtual property, then you should not feel pressured to do so. 

Cryptocurrencies 

Cryptocurrencies are digital currencies supported by blockchain technology. The blockchain records the chain of custody to prevent counterfeiting and assure the owner that their crypto is indeed authentic and usable. 

Major business entities have begun accepting crypto as a legitimate form of payment. Recently, the National Hockey League’s San Jose Sharks announced they now accept crypto payments at their home arena. 

Why is crypto so popular? This form of currency has gained prominence due to its decentralized nature. It is not regulated by a government entity and can be traded freely between individuals. For some, its unregulated status provides a sense of security because it will hold value regardless of economic conditions. 

The three greatest risks associated with crypto are the high costs of acquiring established currencies, high market saturation with many varieties of currencies, and potential government regulation. American investors can rest assured about the latter risk, however, as the US Government does not plan to ban cryptocurrencies. 

NFTs 

Like crypto, non-fungible tokens (NFTs) use blockchain to assure authenticity. Instead of cash, however, NFTs are forms of digital artwork that are released in limited quantities that can be purchased and stored in a virtual wallet. 

The best way to explain how NFTs work is to picture them as a digital form of high-value physical collectibles. Instead of buying a LeBron James rookie card or a Rolling Stones autographed guitar, you purchase a digital piece of art that bears a unique signature. 

However, NFTs do carry some potential risks, including:

Intellectual Property 

When you purchase an NFT, you often do not also purchase the intellectual property rights. This can create some confusion in the resale process. Can the author of the token claim compensation for future transactions? The legal system has yet to provide a definitive answer. 

Market Newness 

NFTs are a new trend. With that, there implies a notable degree of market volatility. Will trading these tokens remain popular enough long-term that investors should start stockpiling their portfolios with them? 

In a volatile market like this, it makes the most sense to invest conservatively in ones that are surer bets. The NFT version of a star NBA player’s rookie card could prove a higher value later as it is tied to an established brand (the NBA) and personality (the athlete). 

Variety and Desirability 

Anyone who wants to release an NFT can do so. From major celebrities to your next-door neighbor, if a person wants to sell their digital art, it is possible. 

If you are considering an NFT investment, consider how desirable it might be on the resale market. For example, Neighbor Joe’s NFT will likely hold less long-term value than one released by Bruce Springsteen. 

Want to Invest in Digital Assets? Get Fiduciary Financial Advice in Idaho 

If you are an Idaho investor considering adding digital assets to your portfolio, let our fiduciary team help you make a sound financial decision. We want to help you prepare for your retirement with confidence. To get started, take our free financial audit or contact us anytime.