Private investor Ali Rizvi has never been averse to a risky investment but two years ago he decided to ramp up his exposure to cryptocurrencies in a bid to boost returns.
Cryptocurrencies such as Bitcoin have captured the imagination of many investors over recent years. They are a form of digital currency, which some people believe will replace cash in years to come. But this is an incredibly volatile asset class which is not for the faint-hearted.
Ali’s decision has paid off in the short-term, however, and his holding in Bitcoin is up 200% over the past couple of years. “The gains are certainly more attractive than those of traditional stocks and bonds,” he says.
Ali, 31, used to focus on more traditional holdings such as equities and bonds but admits he was enticed by how “exciting” the cryptocurrency market seemed. He also bought another currency – Altcoins – which has soared 2,800% in just nine months.
Investors should be wary of such gains of course. Bitcoin attracted legions of investors when its price hit a record of $10,000 in January 2018, but by the end of the year it had fallen to around $2,500 leaving many people nursing heavy losses.
Ramping up the Risk
Ali, who works in construction and property development, still holds some gold and this is another asset which has enjoyed a strong run in recent months, partly in response to the wider economic disruption being caused by the coronavirus pandemic.
He says: “Gold still has a place in my portfolio but it’s physical nature makes it a more cumbersome investment in comparison to cryptocurrency; if I want to trade, the transaction takes time and then there are storage costs involved to protect it.”
Ali has also been tempted to invest in silver this year, which has seen its price go up as with other precious metals. “But I was told by the silver bullion dealers I contacted that I needed to register on a waiting list as they’re currently struggling to fill orders,” he says.
Ali, who lives in London, also still invests in equities but has reduced his exposure over the last year or so and remains concerned that another market correction is on the way. He says: “A lot of companies have been badly affected by the Covid-19 situation and I believe it’s still too early to see what the longer-term effects of this will be.”
As a result, he is keeping some cash to hand in case opportunities arise to invest in strong companies trading at discounts in the event of another stock market sell-off. In the meantime, he still holds the Vanguard US 500 Stock Index fund, which gives him exposure to some of the largest US companies.
The fund has a Gold Morningstar Analyst Rating, reflecting its low fee and low tracking error. Morningstar analyst Briegel Leitao says: “This fund offers passive exposure to a broad and diversified index of US equities in a category where index strategies have built a strong investment case over its active peers.”
Looking for Opportunities
Ali also has holdings in the retail sector, which has been one the sectors hardest hit by the Covid fall out. He says: “Boohoo.com (BOO) is still one of my favourite stocks. The recent scandal around its use of sweatshops was very damaging but the company has taken all the right steps to put things right, and it has seen a good recovery since.”
Indeed, the online retailer has enjoyed strong growth in recent years delivering annualised returns of 63.63% over five years. Its share price accelerated at the start of lockdown, with many non-essential clothing shops and high streets closed. However, the firm was struck by scandal in July, causing a sharp sell-off in the shares.
Elsewhere, Ali is keeping a watchful eye on certain sectors — such as online retail, IT services providers and healthcare — and may buy if entry prices look more attractive.
“Tesla is one company I have had my eye on for some time,” he says. “The speed with which they introduce innovation to the market is exciting and I’d invest in this company as part of my portfolio, but I feel at the moment it is currently overpriced.”
And while Ali is comfortable holding higher risk assets such as cryptocurrency he is aware that the general guidance is not to have more than 1% of your portfolio in such volatile holdings.
He adds: “With political unrest, economic uncertainty, currency instability and a global pandemic I’m looking for a hedge against the traditional legacy markets. For thousands of years gold used to be the best safe haven asset, and it will service as a store for value - along with silver - for many years yet. But I also think more investors will start to see crypto currency as a viable alternative.”
