How to invest, 3 mistakes to avoid in a bear market: Carson Group
- Stocks fall as inflation rises, but two Carson Group executives aren’t panicking.
- Bitcoin may one day be “deprecated” due to a feature that most believe is its greatest strength.
- Investors should keep a cool head and avoid three common mistakes during the bear market.
A recent stock market crash has investors seeking advice on how to protect their hard-earned savings.
Moments like these are why wealth advisor Ron Carson founded the eponymous wealth solutions company Carson Group in 1983. The company manages approximately $20 billion in client assets and also offers a coaching for financial advisors looking to navigate the market.
A pair of the firm’s top executives — Jamie Hopkins, managing partner of wealth management solutions, and Nick Engelbart, chief financial officer — recently spoke with Insider about the impact of inflation on investors, why the potential bitcoin transformation is overrated and the three biggest mistakes investors could make right now.
A smarter way to think about inflation investing
One of the main reasons equities have deteriorated in 2022 is the ever-worrisome issue of inflation at a 41-year high.
The price spikes, only aggravated by Russia’s invasion of Ukraine in late February, have weighed on consumer spending and economic growth while forcing
to aggressively raise interest rates, which some economists believe will push the United States into a recession.
But amid all the hype about decades-long high inflation, it’s easy to overlook a few key facts about rising prices, Hopkins told Insider. First, the price growth is largely caused by supply chain issues that will eventually be resolved; second, inflation varies widely from city to city, county to county, and state to state; and third, higher prices disproportionately hurt retirees and other unemployed people.
These last two points are particularly important to keep in mind for financial advisors and retail investors as they grapple with price spikes. Those most affected by inflation – whether they live in a city where prices are rising or are retired and have seen their pricing power diminish – may consider favoring income investments and take less risk in the stock market.
Ideally, investors can limit the effect of inflation on their portfolio by continuing to work, Engelbart said, although those who aren’t working can stay afloat by investing in stocks that pay dividends or can protect their margins. beneficiaries by raising prices without destroying demand.
“The best protection you can have is your true earning power — your ability to earn extra pay and earn more over time based on your talents and abilities,” Engelbart said. “And be sure to invest in stocks 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 investment recommendations, Hopkins said, adding that no asset class is ever excluded.
However, Hopkins said it would be difficult for him to recommend more than a 1% to 2% allocation in cryptocurrencies, even though he said he was a “big fan” of digital assets and blockchain technology.
The CEO currently has two big issues with the nascent asset class: Crypto funds tend to have high fees, and he doesn’t buy into the idea that cryptos like bitcoin will be an effective inflation hedge. long-term.
“I haven’t yet believed that crypto has a long enough track record to demonstrate if it can be an inflation hedge,” Hopkins said. “It never existed during a period of high inflation, so I think it’s very difficult to say how it would work.”
Bitcoin’s performance over the past six months suggests that Hopkins is right, although the mind behind a highly successful inflation fund recently told Insider that bitcoin is a key part of his portfolio, and noted that the cryptocurrency price is four times higher than it was before the pandemic.
But in addition to his doubts that bitcoin could be a hedge against rising prices, Hopkins has another, more original reason why he doesn’t think the original crypto can ever replace the dollar: his capped offer. While many analysts argue that Bitcoin’s limited supply is a great strength that makes the digital asset similar to gold, Hopkins instead sees this feature as a liability.
“Ultimately, that means it will be obsolete,” Hopkins said, referring to bitcoin’s fixed supply. “Because every time someone dies and loses their key and it gets stuck, that means at some point you’ll have too many people who won’t be able to transact.”
Hopkins continued, “Now that’s not a short time. But if you’re just talking about a technology and you’re like, ‘Well, this is it – this is the new currency of the future,’ it’s actually a huge problem. It’s the same as if we were printing a finite amount of dollar bills today. We would eventually have to print more of them because they wear out, destroy, lose.
Although Hopkins thinks the inevitable decline in bitcoin supply as people lose their keys will prevent the digital currency from shaking up the world of global payments, that doesn’t mean he’s a bitcoin bear. In fact, Hopkins said he holds 2% of his personal portfolio in cryptos, including bitcoin – even though he thinks the “best coding and iteration” of crypto has yet to happen.
“Adopting a single coin – even though the bitcoin people hate it when I say that – it’s like, tell me a single technology where the first iteration of it became the end use of that technology,” said said Hopkins. “That would be like saying, ‘Well, the Wright brothers created the airplane, and that’s as good as the airplane will ever get. “”
3 big investment mistakes to avoid
While it’s easy to remember the proven rules for successful investing, it’s much more difficult to follow them, especially during times of high market volatility.
To help keep new and experienced investors on track, Hopkins shared three of the most common investing mistakes he sees, while Engelbart added some words of wisdom.
The easiest way to get into trouble when investing is to try to time the market, said Hopkins. No one has ever developed a proven market-timing strategy, the chief executive said, and the problem with selling stocks in the hope of buying them back later at a lower price is that usually, by the time the investors feel comfortable investing again, stocks have already rebounded. .
“People tend to do the wrong things at the wrong times,” Engelbart said, adding that missing even a handful of the most bullish days for stocks can be devastating to an investor’s returns.
Hopkins also said that while there may be a place for large-scale strategic selling – as if an investor is close to retirement and is willing to sacrifice earnings for the safety of money – he said that ‘there is almost never any justification for overtrade. This strategy, which includes daytrading, is essentially market timing on steroids, and Hopkins said it tends to end badly.
According to Engelbart, investors should refrain from market timing and excessive trading because history shows that “the market will do whatever it needs to do to prove as many people wrong as possible.” any time”.
The final investment mistake that Hopkins warned about is not understanding asset allocation. It’s common knowledge that diversification is one of the keys to a portfolio’s long-term success, but Hopkins said investors can make the mistake of thinking that all they need to do to diversify is to own many 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 investors to know what they own and to carefully consider the contents of a fund before deciding to invest in it.