In our previous article, we asked Girish Ramachandra, a senior manager in the technology consulting division of our affiliate, Wipfli LLP, six questions about blockchain. If you’re unfamiliar with what blockchain is, how it’s being used and what some common misconceptions about this developing technology are, click here to read his Q&A article.
A seventh question we had about blockchain relates to investing in it: What should the average person know? Wipfli Financial Advisors’ Chief Investment Officer Rafia Hasan lent her knowledge and experience to speak on this increasingly popular topic. Here’s what she had to say:
Q: What should the average person know about investing in blockchain?
A: Blockchain technology is still in its early stages and, as Girish noted, there are a multitude of potential applications that make it very exciting. This may tempt investors to want to pile into “blockchain” stocks with the hope of reaping big returns.
What investors may not realize is that a well-diversified portfolio that owns stocks that make up the total global stock market is already benefiting from exposure to blockchain technology. Many companies in the financial, health care, manufacturing and retail industries have made investments into blockchain technology. However, it’s impossible to know which company or group of companies within an industry will pioneer the best approach to utilizing blockchain and unlock its potential. By staying diversified, investors ensure their portfolios benefit from the companies that do succeed while minimizing the risk associated with the companies that fail in their endeavors.
As a firm, Wipfli Financial Advisors takes a disciplined, long-term approach to investing. Over the years, we have observed the advent of many technologies and their impact on equity markets. Perhaps the most relevant example would be the tech boom of the late 90s. The prospect of the internet transforming the economy had investors putting their money into any stock with “.com” in its name. In fact, some companies even changed their name to include the word “.com” to attract investment and drive up their stock price. But the subsequent tech-bust wiped out the gains. Almost 20 years later, the stock market has long since recovered and surpassed the peaks reached at the height of the tech boom, but we recognize that, while the internet changed the global economy and the way we do business, many of the technology stocks people invested in at the height of the tech boom did not survive.
The lesson, of course, is the importance of staying diversified. While we think it makes sense to be excited by the potential for blockchain to propel the global economy forward, it should not sway you from a well-diversified approach to investing.
Did you catch the first installment of our two-part blog series on blockchain? Blockchain Q&A: Applications, Misconceptions and Why Everyone Is So Excited About It.