The cryptocurrency risk

By Dale Gillham. Published at Jan 24, 2020, in Market Wrap

Earlier this week I was reading a newsletter produced by a business in the financial services industry and was shocked to see the results of a survey completed by financial advisers in the USA in regards to cryptocurrency. The results from the survey indicated that 6 per cent of advisors had an allocation of crypto assets in their client’s portfolio. What was even more staggering is that 45 per cent of the advisers were open to the idea of placing cryptocurrencies in their client’s portfolio in the next year.

While these statistics are from the USA, it is very common for Australia to follow the trends unfolding in the States. Call me old fashioned, but these figures really concern me because cryptocurrencies are largely unregulated and are certainly not an investment grade asset. Given this, it surprises me to hear that financial advisers are recommending these products when they are supposed to be the voice of reason by ensuring clients invest wisely and safely.

In my experience, those who invest in cryptocurrencies are chasing potential high returns that may eventuate with this type of product. However, as we all know, with high returns comes high risk, and the majority do not do well managing this risk. That’s because those who do invest are largely unaware of the risks they are taking and, therefore, tend to make emotional decisions, which results in poor outcomes. If you decide you want to delve into the world of cryptocurrencies, it pays to be well researched and educated.

While some of you will disagree with me about investing in cryptocurrencies, right now there are not enough safeguards to protect consumers if they do invest, which is why advisers should be steering clients into safe traditional assets rather than bowing down to client demands.

What were the best and worst performing sectors this week?

It has been a week of indecision on the market, however Consumer Staples has been the standout performer as it is up over 3 per cent so far. Healthcare is not too far behind, given that several stocks in the sector have been doing well. Materials and Information Technology are also up, rising nearly 1 per cent. As for the worst performers, Industrials is down nearly 2.5 per cent while Energy and Utilities are both down over 1 per cent so far this week.

Looking at the top 100 stocks, the best performers include Fortescue up nearly 10 per cent, Mirvac up over 5 per cent followed by Woolworths, which is up nearly 5 per cent. The worst performers so far include CIMIC, which is down over 20 per cent on news of a $1.8 billion write off, however, forecasts are in line with expectations. Downer EDI was also hit heavily down over 18 per cent so far with Qantas and Star Entertainment down over 6 per cent.

So what's next for the Australian share market?

Last week I was indicating that the market would rise up over the next two to three weeks, and while it is still possible that it will rise another one or two weeks, there is a possibility that the market is making its next short term high. Given that it is bullish right now, I expect it will remain bullish for the next few weeks unless it tells me otherwise. That said, investors should exercise caution in buying any stocks in the short term.

Given the market has reached the bottom end of my target of 7,200 points in the current rise, it is likely that the peak will happen any time soon although if it continues to rise over the next one to two weeks, then the peak is likely to occur at around 7,600 points.

As I have been saying lately, I believe the market will be bullish in 2020 and anyone willing to put in a bit of effort will find some very good opportunities to buy during the year, which is why I am encouraging investors take advantage of the strong market conditions.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au

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