Are get rich schemes worth the risk?

There are many reasons to look at so-called “get rich schemes” during the current climate.  We are only just coming out of a national lockdown and the future of the UK economy looks bleak with short-term inflation and recession fears to name but a few.  Many people have had more time on their hands, and others are fed up with getting almost no interest on their deposit investments.

With many of the major indices fluctuating and some disposable income to spare, people have been looking at alternative ways to make money.  Many have gravitated towards cryptocurrencies, most particularly Bitcoin, although a plethora of these currencies have been ‘created over the last couple of years.

With the rise of social media in recent years, it is impossible to miss some self-titled expert talking about how decentralised currency is the future and to invest now before you miss the boat, but is it worth it?

The major drawback with Bitcoin is just how volatile it is.  There is no knowing if it will go up or down and by how much.  It is literally on the flick of a coin.  In the 24 hours prior to the time of writing, the price of Bitcoin increased 13.73%, but earlier this year it fell by over 50% in a 3-month period.

Bitcoin crashed in a similarly spectacular fashion in 2018, and what is to stop it from happening again when a simple tweet from Elon Musk can shift the market?  These seismic movements mimic earlier bubbles, such as the South Sea Bubble of the 18th century and Tulip Mania in the 17th century.

There is no doubt that anyone who got in early would have done extremely well, providing their wallet did not get hacked and they had not forgotten the password to their account, but it is easy to get carried away looking at the potential return based on past performance.  One maxim that is almost always true is that if you can see the bandwagon coming into town, then you have already missed it.

Indeed, the Financial Conduct Authority recently warned people to be prepared to lose all their money when investing in cryptocurrencies, because there is literally nothing backing them up.  So, are these schemes anything more than a gamble and can they be considered a rational investment?

Unfortunately, only time will tell – but the signs are that the world’s Central Banks will not want there to be unregulated, untaxed, uncontrolled, and uncontrollable flows of capital around the world.  Cryptocurrencies are probably here to stay, but will they be controlled by the Central Banks which the originators of these currencies are trying to get away from?

But what is the alternative? Unfortunately, the honest answer is that there is no certain, simple solution to getting rich quick.  The boring but reliable answer is that traditional investments, held over a long period of time have almost always proved to be a certain get rich slow scheme.  Not quite as exciting, but boringly predictable. As Warren Buffet said, “If you are not thinking about holding your portfolio or stock for 10 years, don’t even think about holding it for 10 minutes!”.

If you would like a down-to-earth, realistic view of your investments, then please contact us and one of our expert Wealth Strategists will be pleased to run through your investment options with you.