The younger generation should not invest in the latest trends like cryptocurrencies and SPAC (Special Purpose Acquisition Company). Instead, they should stick to safer investments, advised financial professionals.
Dan Keady, chief financial planner at the Teacher Insurance and Annuity Association of America (TIAA), said young investors are very much attracted to the above-mentioned investments because they think they have plenty of time to recover from a bad investment decision. They forget that safe investments are better because it takes as long as 30-40 years before those could take off.
But if investors really feel compelled to participate in such markets, Keady said they should consider it as a form of entertainment and limit their investments to how much they can afford to lose.
"If you are investing enough money to negate your long-term goals, do not confuse this with a financial plan. Oftentimes, when you have something extremely speculative, it ends badly," Keady said.
Meanwhile, Clark Kendall, CEO of Kendall Capital, said the future of cryptocurrencies is too unpredictable and SPACs are simply too risky for the average investor. He argued that the two rallied only because during the pandemic, people had extra money and time to monitor what was happening online.
To put it simply, this is why investors should avoid cryptocurrencies and SPAC:
1. Cryptocurrencies - Bitcoin and other cryptic assets have recently come under increased scrutiny due to environmental concerns associated with the vast amounts of electricity required to mine certain types of coins, not to mention they are the preferred payment method for ransomware attacks. They also fluctuate a lot in price, making them too risky for retirees. Bitcoin, for example, has ranged from $ 9,088 to $ 64,863 over the past two years. It recently traded around $ 30,000 and fell below that level last week.
"The technology is impressive, but we also know it's hard to predict what will happen in the future," Keady said.
2. SPAC - It starts with no assets or an operating business, and raises money through an initial public offering. It uses funds to buy another business. After an IPO, the SPAC management team typically has two years to complete the acquisition, which must be approved by SPAC shareholders. If management fails to complete the acquisition within two years, it must return the SPAC funds to the investors. When the acquisition is complete, the management team usually receives 20% of the company's capital through "founder shares".
Kendall said SPAC investors are worried because there is a chance that if management runs out of time to complete the acquisition, it may agree to a deal that is not in the interest of shareholders.
