How many times have we witnessed millennials boasting about having put their hard-earned money in new-age investment options like cryptocurrencies, non-fungible tokens (NFTs) and others? To many, parking money in these instruments may seem impossible, but the fact is that technology now drives the investment landscape, thus, allowing many people to diversify their investment options and earn from multiple sources. While these investment avenues may look good on the outside, what matters is if these are worth the risk. Many of these “hot” asset classes have failed, thus, causing many people to lose their hard-earned money.
Let us take up some asset classes to understand their underlying risks, the scope of their benefits and the extent to which they may be included under safe money-making options.
Remember when Bitcoin first stormed into the market promising people humongous returns and a corpus big enough to finance their big-ticket dreams? Dubbed as the foremost among all the new-age asset classes, cryptocurrencies also called digital currencies works on blockchain technology that facilitates the recording of transactions and tracking of assets in a business network.
Cryptocurrencies vouch for their safety by explaining how the underlying technology eliminates the chances of fraud as opposed to other asset classes that are frequently under the scanner for abeyance of government-sponsored regulations. Though investors can choose between 12-15 crypto exchanges operating in India alone, news of many blockchain companies shutting down their exchanges has caused many investors to feel unsafe and withdraw their investments in a huff.
Most countries do not have specific guidelines to regulate the working of crypto exchanges. This explains the difficulty in regulating their operations. The high volatility is not only inexplicable but also too frequent for the investors to trust their working and include them in their investment portfolios. Curious onlookers may invest a little amount of money to just have a taste of this new investment option that is yet to gain repute unlike mutual funds, government securities, bonds and other income opportunities.
Non-fungible tokens (NFTs)
These digital representations of unique assets are backed by underlying blockchain technology and can be transferred using digital data stored in a blockchain. From celebrity stars to sportspersons, many people have earned millions by simply launching their own NFTs claiming how the availability of multiple options allows artists to showcase their talent. The prices of these NFTs are dictated by creativity and innovation, thus, letting every investor own a unique piece of art not available to any other.
However, like cryptocurrencies, NFTs are equally volatile and are not subject to any regulations. The NFT data, just like their crypto counterparts, are stored on the blockchain’s digital ledger to validate ownership and authenticity. The prices of NFTs are subject to speculation as most people are unaware of the factors affecting them. The difficulty in redeeming this asset class is another reason for many people to not invest in it.
Regular instances of flooding and climate changes have raised the conscience of many people causing them to subject businesses to environmental, social and governance (ESG) guidelines. This explains why many investors are now preferring to park their funds in ESG portfolios that put money in sustainable businesses adhering to ESG certification. The companies included in these portfolios must undergo stringent compliance checks to satisfy regulatory benchmarks.
Investors putting money in them earn from the dividends during the investment tenure. More than the returns, investors show satisfaction by participating in ethical and socially conscious businesses. These companies gain value with time with changes in regulatory protocols, thus, lending them the opportunity to grab a greater market share and generate shareholder value.
This investment opportunity suits best those with a long-term investment horizon extending beyond five years and more. This investment opportunity is relatively new compared to others but has still gained precedence over most other new money-making instruments.