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11 Nov 2020

Econ Digest

Factors to be considered in new investment era Must be beyond risks and returns


In 2020, we have seen fluctuations in asset prices around the world, including gold, stock and alternative assets such as Bitcoin. Although all assets have faced heavy selloffs from investors seeking liquidity during the COVID-19 pandemic, the prices of various assets have gradually recovered after the easing of lockdown measures around midyear. Gold prices surged to a record high in August, while Bitcoin prices rose to their highest level in two years and 10 months in the wake of the US presidential election held in early November.   


The rise of asset prices after falling to their lowest point of the year during the COVID-19 pandemic reflects the volatility or risk that may exist for returns on investments. The more volatile the assets, the more important the timing of buying and selling assets becomes. If statistical methods are used to calculate price volatility for each type of asset, it is found that the prices of Bitcoin, stock and gold are highly volatile compared to last year, with Bitcoin more volatile than stock and gold.     


As to new investors, diversification in terms of returns and risks may not be sufficient, because there are a wide variety of alternative assets in the modern financial world. Taking Bitcoin as an example, besides the understanding of Bitcoin’s characteristics, investors must also consider other factors as well, in particular, governance and legal issues that differ in many countries, reliability of the platform, investment fees and investment conditions, as well as lower liquidity. Moreover, investors need to know their costs and risk limits, to always keep in mind that there are no shortcuts for making profits from investment and to not let greed and emotions cloud investment decisions.      


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Econ Digest