Is it time to get off the cyber investment train?
With Fintech thriving and more than $1bin (£760m) already been ploughed into technology firms by venture capital investors hoping to disrupt finance this year (more than double the amount this time last year) fintech continues to look strong as a market for investors. However, is our love of all things new and shiny making us forget some of those investments that have stood the test of time?
Daniel Marburger, Director of www.coininvest.com, questions whether investing in virtual reality is really the future and whether those who are continuing to invest in those assets with a finite supply – eg. gold coins, property, jewellery – are the ones who will be laughing all the way to the bank?
We all know that technology has changed our lives forever. From waking up in the morning and reaching for our phones to find out the global news, to checking the stock price before we hit the pillow, technology has driven accessibility and information to the masses.
The world of finance too has been changed beyond recognition with fintech start-ups popping up every day. The recent Global FinTech Report by PWC claims that 82% of incumbents expect to increase FinTech partnerships in the next 3-5 years and there is a 20% expected annual ROI on FinTech related projects.
However, just stop for a minute. Let’s get off this tech roundabout and switch off the Internet for one moment.
We are already seeing a movement that is rejecting tech. With Artificial Intelligence becoming more and more integral to our daily lives and tech platforms such as Facebook overtaking their original purpose of a social media network to become the biggest surveillance company in the world, having now passed the 2bn user mark, how much longer will we be in love with tech? And will these cyber investments continue to be in demand and retain their value?
Finite v infinite investments
Fintech exploded officially in 2008 with global investment increasing more than twelvefold from $ 930 million in 2008 to more than $ 12billion in 2014. That’s not bad going in terms of a ROI. However, let’s compare a finite investment such as gold and precious metals. Comparing the price of gold to 16 years ago, investors will have seen a 400% return on investment, 10-fold the return from a FTSE 100 investment and a staggering increase compared to the 20% expected fintech yield quoted by PWC. In addition, British gold investment coins such as the Gold Sovereign and the Gold Britannia have legal tender status and therefore they are exempt from VAT and Capital Gains Tax.
The price of gold continues to be robust with US Gold Futures for delivery in December 2017 trading at $1291,50 which is an increase of 12,5% year to date.
There’s more good news. The golden halo continues to shine with the next 16 years looking strong. Gold is a finite investment meaning that there is a maximum amount that can be sold, so if demand continues as it is, then the price will rise as demand outperforms the supply.
Future Proofing: gold and Bitcoin
These returns on investment have been noted by those savvy enough to look beyond the allure of the new. Those who invested in bitcoin only to have traded this currency into cash and back to gold to maximise their investment have seen a ten-fold between when bitcoin started its crazy ride from GBP 1,000 in May 2017 to its high of GBP 6,063.17 at present.
Although no longer a daily transactional commodity, there is reason why gold remains integral to the global economy. Take a look at the reserve balance sheets of the largest financial organisations and central banks, and you will see that they hold about 20% of the world’s supply of mined gold.
Investors of all levels are attracted to gold because of its unique properties as an asset class. The precious metal is a solid, tangible and long-term store of value that historically, has moved independently of other assets. Indeed, custodians of the world’s largest investment portfolios, use gold to mitigate portfolio risk and have been net buyers of the precious metal since 2010.
Gold is a highly effective vehicle of diversification and risk management because it is independent from other asset classes. Gold enhances portfolio performance while reducing losses in times of economic turmoil. For example, during periods of financial uncertainty when equity indices fall sharply and volatility increases, gold’s volatility remains much lower than that of equities. In general, therefore, it consistently exhibits low to negative correlation with mainstream assets as well as alternative asset classes. Economic growth boosts demand for gold in the form of jewellery while recessions promote buying the precious metal as a share of value. It is this balance that drives gold’s lack of correlation to other assets and enhances its appeal of part of an investment portfolio.
This validation that gold preserves wealth even in fluctuating economic markets is even more relevant when investors are faced with a declining US dollar and rising inflation, where gold typically inflates in price. Historically used as a hedge against both these scenarios, investors traditionally will turn to a hard asset to maintain their values.
As with any new toy, we often get our head turned forgetting those things that we held dear to us previously. However, maybe the time is coming for us to realise that those things that have weathered the test of time have done so as they have real value and are ones that will always remain a safe and robust investment.