There are no small sums for a good investor and a spare $1,000 can yield some impressive results if the right tools are applied. Below are the two ways to invest - an innovational (more risky) and the conservative and found out what $1,000 can turn into at the hands of an experienced investor.
An innovative direction: cryptocurrencies
How would a good investor spend $1,000?
Spend half of that on cryptocurrencies, in particular on the undervalued ethereum, but not neglecting the other cryptocurrencies.
Why this way?
To reveal this let’s take a look at what happened in the cryptocurrency market recently and take a close up of what is happening right now.
How the market changed?
2017: cryptocurrency boom. Many cryptocurrencies during this year went up in price several times over, and exactly 12 months ago there was a particularly favorable moment for investments: the cryptomarket with honor fended off the “Chinese strike” of September. In parallel with the growth of the crypto rates, the popularity of mining also grew, so did the shares of video card manufacturers, AMD and NVidia, rose in price. The question “Where to invest?” was not so difficult to answer: the crypto fever reached almost everyone, and for a good reason. The only problem was the question of how long the growth would last - a month, a year? As practice has shown, of the autumn investors, those who sold assets in December won the most, after which a catastrophic market downturn began.
2018: recession and stabilization. Over the winter, spring and summer of this year, bitcoin price (BTC) sank in price by around three times, the rate of ether (ETH) dropped by six times. The crypto market capitalization at the peak of the bubble in January exceeded $800 billion, and now fluctuates at around $200 billion. A particularly annoying change for professional traders is that cryptocurrency has not only sunk, but has also lost its former volatility. A conservative long-term investor is happy if the asset is constantly growing. For those who constantly keeps an eye on the market, this is not a necessity - but price hikes are very profitable. Unfortunately, in both instances, digital assets continue to disappoint traders.
What to expect now?
Despite all the differences, October 2018 also shares some important similarities with October 2017. There are good reasons to believe that the bottom of the fall has already been reached - or is at least very close. So if you want to bet on a new wave of growth, then do it right now. This is supported not only by the graphs, but also by some fundamental arguments.
We look at the trends, not bubbles. Throughout the history of the crypto market, there were a lot of bubbles, but due to the limited emission of coins, the influx of new users on long horizons creates a positive trend. Despite all the cataclysms, now the BTC is more expensive than a year ago: $6,000- $7,000 (although it’s close to the annual minimum) against the $4,000 (although it was not even the minimum).
Distressed economies come to the rescue. One of the surprises for the crypto market in 2018 is a massive influx of people from countries with problematic economies. Especially in the summer when crises in such countries as Turkey, Argentina, Venezuela worsened. According to a survey of the Dutch bank ING, 18% of population already owns cryptocurrency in Turkey, which is twice as high as the European average. And this is good, because the populations of those countries are usually is huge, and an increase in demand on their part can easily provide new growth.
Each currency has its own advantages. There are individual arguments which suggest that individual currencies will resume their growth. I case of an unprecedented fall of ETH, many analysts, including Tom Lee, related this to the panic sale of ICO-tokens and predict a quick reversal of the trend.
Secret cryptocurrency sales are already growing significantly. As shown in a recent study by Bloomberg, trading statistics on stock exchanges are just numbers for ‘the poor’. Reducing the volatility of crypto assets has frightened off the speculators, but attracted large investors to the market, who prefer not to announce their arrival on the stock exchanges and instead are buying coins by personal agreement from large sellers. For example from miners, the advantage of that is that nobody has ever used their coins to launder their money.
Therefore: Crypto likes the ‘roller coasters’ but potentially promises large gains; therefore because of that investors are being attracted - through the large sums, or even with the small ones.
Conservative direction: stock exchange
How would a good investor spend $1,000?
Invest the other half of the sum in stable and traditional assets which are surpassing the rate of inflation.
Why this way?
Among all that hope for improvement within the crypto market, it remains risky. Diversification is our everything. The main thing is to decide which investment tools to choose. Many investors in such situations choose the exchange-traded funds (ETF). What and why?
The classic choice here would be the ETF SPY and DIA - these are one of the most famous foundations in history. Their price is proportional to the U.S. indices S&P 500 and Dow Jones. Over the recent five years, these funds have yielded about 12% per year (in dollars). About the same was their average yield over much longer time horizons, if we take the statistics from the middle of the 20th century. On the way there were some failures - for example, in the 1970s and 2000s - but the subsequent growth each time has more than made up for them.
Rapid growth. There are even more profitable and fairly reliable ETFs, for example, Invesco S&P 500 Pure Growth ETF - a fund comprised of the most rapidly growing stocks within S&P 500. Its average annual yield over the recent 5 years was 15%. Over the years, it ranged from 2% to 24%. In total during the past 5 years, investors have doubled their deposits.
Not without its problems. The main thing that the investor should be afraid of is a global crisis like in 2008. But even such failures are local, and growth is global. Of course, even a doubling growth within 5 years looks modest in comparison with the ‘roller coaster’ cryptocurrency. Still, these ETFs make it possible to earn an income significantly higher than inflation, with a very low risk of issuer's ruin: the portfolio is very diverse.
Therefore - what will happen to $1,000?
With this small portfolio, a reasonable investor would behave the same way as with any other sum - by diversifying it. Part of it placed on fast, but risky, growth - and the other to be invested in conservative, but also profitable instruments. Here are the forecasts for 3 months, 12 months and 5 years. In the first case, we will consider the changes in the stock market as insignificant and estimate the yield on cryptocurrency only.
3 month away:
3 months, the pessimistic forecast. Suppose that cryptocurrency will continue to decline. Even with the same speed as in the first half of the year, by about two times in 3 months. The total investment will turn from $ 500 + 500 = $ 1000 to $ 500 + $ 250 = $ 750. However, if you do not sell cryptocurrency at this moment, then there is a high probability that in the future, it will still rise in price.
3 months, average forecast. Suppose that cryptocurrency will grow in accordance with the trends in the growth of the number of users: by two times a year, that is, 20% in 3 months. $1,000 will turn into $500 + $600 = $1,100. Not much, but definitely positive, and in such a short space of time.
3 months, optimistic forecast. Suppose, in the next 3 months, cryptocurrency will grow to the similar heights as in 2017. Presume that the investor only bought into bitcoin. Its price will rise again by 5 times over (back then from $4,000 to $20,000, and now from $6,500 to $32,000). $1,000 will triple: $500 + $ 2,500 = $ 3,000. In just 3 months!
12 months away:
12 months, the pessimistic forecast. Suppose that a catastrophic drawdown of cryptocurrency will continue, and they will fall in price by another 8 times. At the same time, ETF will suffer their worst year of the recent 5 years, giving a yield of just 2%. $1,000 will turn into $40 + $510 = $550. Sad, this is the very worst case scenario.
12 months, average forecast. Cryptocurrencies and ETFs will give an average annual 100% and 15%, respectively. $1,000 will turn into $575 + $1,000 = $1575. Income of 57.5% - and this is not an optimistic, but only an average scenario.
12 months, optimistic forecast. Predicting the behavior of cryptocurrency on such horizons is extremely difficult. I do not want to give an extremely overoptimistic assessments. But suppose that in the first 3 months they cryptocurrency will grow 5 times over, and for the remaining 9 months, will work out a multi-year scenario of 100% per annum - so 73% for 9 months. ETF will replicate the best of it’s five-year scenario - 24% per annum. $1,000 will turn into $560 + $4,325 = $4,885. Almost a fivefold growth in just a year!
5 years away:
5 years, the pessimistic forecast. Suppose that in the next 5 years the stock market crisis will repeat the 2008 scenario. At some point, the market will drop by half, but in 5 years it will recover to the initial level, giving a zero return. Suppose also that the cryptocurrency market expects a worldwide ban and the value of the coins will drop to 0. This is almost unbelievable, since the investors would usually take off with their savings in crypto - so at least it will stay alive underground. $1,000 will turn into $500. That is in the worst-case scenario, the investor will lose only half of the investment! Such is the power of diversification.
5 years, average forecast. ETFs will grow by 100%, and the cryptomarket will double in the first 2 years, attract more than 40% of global population, which will then cause a slow down (with such figures the continuation of exponential growth is unlikely) and eventually increase by, say, 7 times over during all those years. Suppose also that the contribution of bubbles to this process will be small. $1,000 will turn into $1,000 + $3,500 = $4,500.
5 years, optimistic forecast. Worldwide growth of the cryptocurrency market during the 5 years will keep over the 100% value due not only to the increased involvement of the global population, but also due to an increasing transition from Fiat to digital assets. That is, it will grow by 32 times. The best innovative companies, spurred by the growth of crypto-economics, will ensure the average annual growth of the best index funds by 20% per year, and that means it will grow by over 4 times. $1,000 will turn into $2,000 + $16,000 = $18,000!
It’s worth it: It turns out that in the worst case, the investor will lose about $500, and in the best - will win $17,000. And the most likely scenario is to win by $3,000- $4,000. A good argument is to start investing today - even without experience, simply by looking into the assets described above.
In reality those estimates are all conservative: All the above assumptions are made based on the fact that the investor is a novice and will not speculate witht the funds. But since it’s not forbidden, one can take advantage of market fluctuations.