- Stocks are plummeting as inflation surges, but a pair of leaders at Carson Group aren’t panicking.
- Bitcoin may one day be “obsolete” because of a feature that most believe is its greatest strength.
- Investors should keep a level head and avoid three common mistakes during the bear market.
A recent stock market meltdown has investors looking for guidance on how to protect their hard-earned savings.
Times like these are why wealth adviser Ron Carson founded the eponymous wealth solutions firm Carson Group in 1983. The company manages about $20 billion of clients’ assets, and also offers a coaching service for financial advisers looking to navigate market volatility .
A pair of high-ranking leaders at the firm — Jamie Hopkins, managing partner of wealth solutions, and Nick Engelbart, chief financial officer — recently spoke with Insider about inflation’s impact on investors, why bitcoin’s transformative potential is overhyped, and the three biggest mistakes that investors could make right now.
A smarter way to think about inflation investing
One key reason why stocks have taken a turn for the worse in 2022 is the ever-worrisome issue of 41-year-high inflation.
Price surges, which only were worsened by Russia’s invasion of Ukraine in late February, have weighed on consumer spending and economic growth while forcing the Federal Reserve to aggressively raise interest rates, which some economists fear will push the US into a recession.
But amid all the buzz about multi-decade-high inflation, it’s easy to forget a few key facts about higher prices, Hopkins told Insider. First, price growth is largely caused by supply-chain issues that will eventually get resolved; second, inflation varies dramatically across cities, counties, and states; and third, higher prices disproportionately hurt retirees and others who are out of work.
Those last two points are especially important for financial advisers and retail investors to keep in mind as they grapple with price surges. People most affected by inflation — whether they’re living in a city where prices are surging or are retired and have seen their pricing power decline — may want to consider prioritizing income investing and taking fewer risks in the stock market.
Ideally, investors can limit inflation’s effect on their wallet by continuing to work, Engelbart said, though those out of the workforce can stay afloat by investing in stocks that pay dividends or can protect their profit margins by raising prices without destroying demand.
“The best protection that you can have is your true earning power — your ability to earn additional wages and earn more over time based on your talents and abilities,” Engelbart said. “And make sure you’re invested in securities that have pricing power.”
Bitcoin won’t be revolutionary — but not for the reason you think
When Carson Group advisers work with their clients, their role is to educate and provide investing recommendations, Hopkins said, adding that no asset class is ever off the table.
However, Hopkins said that it would be hard for him to recommend more than a 1% to 2% allocation in cryptocurrencies, even though he said he’s a “big believer” in digital assets and blockchain technology.
The managing director currently has two big gripes with the nascent asset class: crypto funds tend to have high fees, and he doesn’t buy the notion that cryptos like bitcoin will be an effective inflation hedge in the long term.
“I have yet to believe that crypto has a long-enough track record to demonstrate whether it can be a hedge against inflation,” Hopkins said. “It’s never existed during a high-inflationary period, so I think it’s very hard to say how it would perform.”
Bitcoin’s performance over the past six months would suggest that Hopkins is right, though the mind behind a top-performing inflation fund recently told Insider that bitcoin is a key part of his portfolio, and noted that the price of the cryptocurrency is four times higher than it was before the pandemic.
But besides his doubts that bitcoin can be a hedge against higher prices, Hopkins has another, more outside-the-box reason for why he doesn’t believe the original crypto can ever replace the dollar: its capped supply. While many analysts argue bitcoin’s limited supply is a great strength that makes the digital asset similar to gold, Hopkins instead sees the feature as a liability.
“Eventually, it means it will be obsolete,” Hopkins said, referring to bitcoin’s fixed supply. “Because every time somebody dies and loses their key and that becomes stuck, it means that, at some point, you will have too many people that are no longer able to transact.”
Hopkins continued: “Now that’s not a short period of time. But if you just talk about a technology and you’re like, ‘Well, this is it — this is the new currency of the future,’ that’s actually a huge issue. It’s the same thing as if we printed a finite amount of dollar bills today. We would eventually have to print more because they get worn down, they get destroyed, they get lost.”
Though Hopkins believes that the inevitable decline in bitcoin’s supply as people lose their keys will keep the digital currency from upending the world of global payments, that doesn’t mean he’s a bitcoin bear. In fact, Hopkins said he has 2% of his personal portfolio in cryptos, including bitcoin — even though he believes the “best coding and iteration” of crypto is yet to arrive.
“Adopting a single coin — even though the bitcoin people hate it when I say this — is like, tell me a single piece of technology where the first iteration of it became the final use of that technology,” Hopkins said. “It would be like saying, ‘Well, the Wright brothers created the plane, and that’s as good as the plane is ever going to get.'”
3 big investing mistakes to avoid
While remembering the time-tested rules for successful investing is easy, following them — especially during periods of high market volatility — is far more difficult.
To help keep new and experienced investors on the right track, Hopkins shared three of the most-common investing missteps he sees, while Engelbart added some words of wisdom.
The easiest way to get into trouble when investing is by trying to time the market, Hopkins said. No one has ever developed a proven market-timing strategy, the managing director said, and the issue with selling stocks in hopes of buying them back later at a lower price is that usually by the time investors are comfortable investing again, stocks have already rebounded.
“People tend to do the wrong things at the wrong time,” Engelbart said, adding that missing even a handful of the biggest up days for stocks can be devastating for an investor’s returns.
Hopkins also said that while there can be a place for strategic large-scale selling — like if an investor is close to retirement and is willing to sacrifice gains for the safety of cash — he said there’s almost never a justification for overtrading. This strategy, which includes daytrading, is essentially market timing on steroids, and Hopkins said it tends to end poorly.
Investors should refrain from market timing and overtrading, in Engelbart’s view, because history shows that “the market will do whatever it has to do to prove the most amount of people wrong at any point in time.”
The final investing mistake that Hopkins warned about is not understanding asset allocation. It’s common knowledge that diversification is one of the keys to the long-term success of a portfolio, but Hopkins said that investors can make the mistake of believing that all they need to do to diversify is own lots of different stocks, exchange-traded funds (ETFs), or mutual funds.
But simply owning a wide variety of stocks or funds with exposure to the same sectors or industries tends to create a “super inefficient portfolio,” Hopkins said. He advises that investors know what they own and carefully examine what’s in a fund before deciding to invest in it.
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