Mark JP Sanchez Follow Mar 26
· 9 min read
Investing can be a very daunting task especially if you know nothing about it.Unfortunately, it is a very important task that everyone should at least be aware of.Especially with the mainstream attention new asset classes like cryptocurrency and nfts are getting, investing is at the forefront of everyone’s minds.With the multitudes of different asset classes that exist, it is important to know what each different type offers and their benefits.
Some popular asset classes are stocks, real estate, forex, bonds and cryptocurrency.
Here I will go through the pros and cons of 2 very popular asset classes, stocks and cryptocurrency, and my personal reasonings as to why my portfolio consists of mostly stocks.Obviously, these are all just my opinion and you should take into account your own financial position when making your decision.
What Are Stocks? First, we need to go over what our different asset classes actually are.
Stocks (or equities) are assets that represent a portion of a corporation.So, if you own a Microsoft stock, then you own a percentage of the company and are known as a shareholder.
The percentage you own is equal to the fraction of the total number of stocks you own in that company.For example, if there are a total of 100 Microsoft stocks that exist and you own 10 of these stocks, you own 15% of the company.
As a shareholder you have power over some of the decisions that occur at the company.You will be invited to shareholder meetings where you can vote for things such as directors and company policies.Don’t fear though as the amount of votes you get is proportional to the percentage of ownership you have so your votes are unlikely to make much of a difference unless you are a large stakeholder.
If you do have enough money to own a sizeable portion of corporation then I suggest you contact a financial advisor rather than reading articles off of the internet.As a shareholder you may also get other benefits such as coupons and shares of the company’s profit paid out to you as a dividend.
Lastly, there are things called Exchange Traded Funds (ETFs).
Each etf is tied to an index, sector or industry and is kind of like a portfolio run by an investment company.By owning etfs, you own a part of that investment companies portfolio.These are really useful when you want to invest in an industry but don’t really know specific players in that industry.For example, you believe that car manufacturing is a booming industry but you don’t really know any specific good car manufacturing companies.
In this example you can buy the CARZ etf which is issued by First Trust.That etf tracks the automotive vehicles industry and has holdings in Tesla and Toyota.
One thing to know is that all etfs have a management fee which ranges from usually 0.03% to 0.1% of the price of the shares that you own.
What Is Crypto? Crypto is a term that describes any asset utilizing blockchain technology.Here all the assets and trading are kept track using a de-centralized ledger.You can imagine a ledger as a piece of paper that keeps track of transactions.For example, if Lucy gave Jack 2 Bitcoins, then the ledger would have this transaction written down somewhere.
The reason this ledger is de-centralized is that instead of one large corporation or government storing and updating this ledger, this piece of data is updated and kept track by tens of thousands of different unrelated machines.Any machine can become a part of this network and using your machine to help facilitate this network is known as crypto mining.In return for helping sustain the network, you are rewarded with cryptocurrency.This de-centralization is done so that no central power can alter or unfairly give benefits to a party.
There are multiple different types of cryptocurrencies, each with their own unique spin on the blockchain.For example, bitcoin is first cryptocurrency and so it is always used as the standard and is considered as a store of money.Ethereum allows developers to create smart contracts so that they can utilize the blockchain for their own applications.Solana positions itself as a faster and more eco-friendly alternative to Etherium.USD Coin positions itself as a stable coin and ensures that its value will always be at least $1 USD.
Each cryptocurrency has their own network fee price which you pay for every transaction.
Lastly, there are non-fungible tokens (NFTs).NFTs are another type of asset built off of blockchain like Ethereum.NFTs are a new type of technology and people are still trying to find use for them.
Effectively though, an NFT is a token that is attached to you and can only be attached you.This ownership is stored on the blockchain and so intuitively it can not be revoked or incorrectly attributed to someone else without your permission.Currently, the main popular use for this token is as a certificate of authentication for a piece of art.So your token would be attached to a piece of art and anyone who owned that token technically has ownership of that piece of art.But there are other uses for NFTs.
For example, the Bitmon Project is a Pokemon-like game that only allow those who own their NFTs to play their game.
Pros of Stocks Over Crypto So now that we know a general idea of what the two asset classes are.Let’s get into the pros and cons starting with stocks.
1.Stocks Are Regulated One big thing you might be hearing a lot about in the news with regards to crypto are crypto scams.Due to the infancy of cryptocurrency and the anonymity it provides, the crypto industry is way less regulated than the stock market.This is slowly changing but, as of this article, there is still a long road ahead.
Due to the unregulated nature of the crypto markets, a lot of people are able to make promises about their projects which they don’t need to keep effectively scamming their user base.Some famous cases are Bitconnect and Save The Kids Coin.
Since stocks are more regulated, scammers are more likely to face punishment and scams are less likely all together.That’s not to say that scams can’t occur but just that scammers are more likely to utilize assets that are less regulated.
2.
They Can Just as Lucrative as Crypto One main draw of crypto currency is how volatile the market is and due to the volatility, there is a lot of money to be made.A person can easily Google stories of people who 5x their money in a couple of weeks by investing into cryptocurrency.People usually assume that stocks are the safer but less lucrative asset when compared to cryptocurrency but, if you are willing to take on the risk, you can definitely see these types of games by investing in stocks.
Here are 3 very risky ways you can get large gains in the stock market quickly:
Penny stocks are companies whose stocks are worth intuitively a couple of pennies.These are usually small unknown companies.Here small changes in price equate to large percent gains and losses.Leveraged ETFs are etfs that attempt to add a multiplier to an underlying asset.For example, the SQQQ is a 3x leveraged inverse etf that is tied to the Nasdaq-100 index.So if the index goes down by 10%, the value of SQQQ should go up by 30%.
But if the index goes up by 34% then the etf would go to 0.Options are contracts which you can buy and sell that allow you to effectively make money if you know how a stock will behave.For example, if you think a stock will be worth more than $200 within 3 months then you can buy a call option at the strike price.After paying a premium you will then pocket the difference between the stocks current price and $200.Due to the cheap (relative to the stock price) nature of options, they allow you to have a lot of leverage within your trades.A quick look at r/wallstreetbets can show you the insane gains and losses options provide.I would like to preface that the 3 listed methods of increasing stock gains are very risky.You should do your own research and potentially speak with a financial advisor before delving into them.
3.
A Stocks Value Is Tied To Something While both are technically speculative assets, stocks are tied to tangible use cases.There are many things that give stocks value but some those things include real tangible assets such as real estate, income, patents and physical resources.
Crypto projects on the other hand don’t really have any tangible things to tie their price to.The price of crypto projects are usually tied to hype, speculation and trust in the team behind it.
Since I am studying Data Science, I can more easily utilize the tangible data stocks are tied to, to create models.
4.You Can Use Your Knowledge About Things You Enjoy This is the largest reason as to why I prefer stocks over crypto.Information is very important.Knowing a lot about the variables and events that affect your portfolio is very powerful as you will be able to know when your assets will rise or lower in price.My main problem with focusing on investing in the crypto market is that you need to be aware of the crypto markets.
While blockchain technology is personally very interesting, I wouldn’t keep up with it if I wasn’t invested in crypto.On the other hand, with stocks I can invest in corporations and industries I already actively keep up with.I already keep up with Google and Nvidia’s technical advancements on my free time and now I can use that knowledge to make some money.It adds very little extra stress to my everyday life and I actually enjoy the stuff I am researching.With the crypto markets, you are studying crypto and only crypto.
With stocks you can find that many industries like video games, energy, sports and cars all have stocks.
Pros of Crypto Over Stocks It would be unfair for me to just show the benefit of stocks.Here are some reasons as to why I might have decided to invest in crypto.
1.De-Centralization One of the biggest reasons to crypto is popular in the first place is the promise of de-centralization.No central power will be able to affect or unfairly favour certain parties.No central power can artificially print more currency to bail out their friends and families.No central power can take away any currency you have as well.There is also a level of anonymity which the blockchain gives you.
If you believe in the technology, then why wouldn’t you invest in it.
2.Smaller Number of Big Institutions Actively participating and making moves on the stock market requires you to participate in an intense battle between investors.The stock market is a zero sum game and so your gains are usually due to someone else’s either actual losses or future loss.The crypto market is also treated as a zero sum game.
The difference between the stock market and the crypto markets is that due to the new nature of the crypto markets, large institution are either not yet a part of it or are slowly and carefully getting into it.On the other hand, multiple large institutions are heavily invested and are participating in the stock market with a lot of proprietary knowledge, practice and technologies.So, intuitively the skill level of the average investor in the crypto market might be lower than the average level of the investor in the stock market.The crypto markets are not fully optimized yet and where there are inefficiencies, money can be made.
3.Larger Number of Applications As previously spoken before, the utility of cryptocurrency and more specifically NFTs are up to the people creating the project.You have NFTs that give you access to video games, restaurants, concerts and ownership on pieces of art.The benefits you get from stocks are mostly dividends and voting power.Some crypto projects market themselves as ways to make income.
There is a whole new genre of games known as “Play-To-Earn” which claims to give you a viable income for playing their game.As you can see, there are no limits to utility of crypto projects.
There are also cool new practices such as staking and crypto lending which are tools you can use to generate a steady income.
Conclusion and Diversity So those are my reasons for choosing to decide to focus on stocks.That is not to say that I won’t/don’t invest in the crypto markets but a majority of my portfolio and focus will be spent on stocks.
Definitely do some more research on your own in stocks, crypto and the different kind of asset classes.Also make sure you take into account your own personal financial situation and risk tolerance.But I hope this article has helped you make your decisions or confirm and biases you have.Who knows maybe my opinions will change in the future.But for now I wish you and me luck in our investing careers!
Originally published at https://www.markjps.com on March 26, 2022..