Writing a year later, their much-derided volatility chasing has proven a revelation: Goldman Sachs now operates a crypto desk; long-established auction house Sotheby’s is selling NFTs; GameStop reached $150 after a period of steady growth, according to Bloomberg data.
But, while the young investor need not fear volatility, they should know how to harness it effectively. First, one needs to manage downside risk across their whole portfolio, which, despite the hype, should not be entirely composed of meme stocks and NFTs. Instead, one can think about allocating the bulk of the portfolio the vast majority of their capital to conventional investments.
With the remaining amount, perhaps in the 10-20 per cent range, there is potentially room for some folk to look at newer areas such as within the crypto currency space. . Ethereum, being built upon a technologically advanced interpretation of blockchain, and Bitcoin, with its name recognition and burgeoning uptake in a number of developing nations, have the potential to offer much stronger long-term prospects than the lesser established or well known products in the cryptocurrency universe.
The overall picture is that, while fearing or avoiding volatility means potentially missing out on investment returns, one must still build the bulk of their portfolio on solid foundations.
For example, assets such as Ethereum, being built upon a technologically advanced interpretation of blockchain, and Bitcoin, with its name recognition and burgeoning uptake in a number of developing nations, have the potential to offer much stronger long-term prospects than the alternatives in the same sphere.
Its also worth remembering that, even in these more nascent areas of potential investment, such as NFT and crypto, not all assets are created equal, quality still counts in the end, buying poorer quality assets means at least as much volatility as buying good assets, but with the former there is a much higher risk of permanent loss of capital, and no amount of activity on an internet forum can remedy that.
Tiernan Quantrill is an intern at FT Specialist
