Avoid “digital assets” as pension investment, advise gurus
(PR News) The Securities and Exchange Commission (SEC) has said that digital assets carry high risk and therefore advised investors looking for long-term portfolios such as pension funds to avoid them while regulations are being reviewed to allow mutual funds and provident funds to invest in digital assets.
Meanwhile, investment gurus from Principal Asset Management Ltd and Chaloke Dot Com also agreed that digital assets are not suitable for long-term pension investment.
Nopnuanparn Pavasant, SEC’s director of financial technology promotion, said in the recent online seminar “7th Retirement Plan Symposium” that currently the SEC does not allow mutual funds and provident funds to invest in digital assets, as the commission believes digital assets have high risk.
“SEC is carefully considering regulations to allow both funds to invest in digital assets, whereas the suitable investment ratio must be set. SEC will also limit the types of eligible digital assets, as there are different types with different usages and risk levels,” she said.
Nopnuanparn added that several private companies and investors have asked SEC as to when the digital assets will be allowed as investment options. “This issue will need some time for studying and reviewing all the details. Digital assets are an innovation, and the commission must protect investors from all kinds of risks, while investors must possess a thorough understanding of each type of digital assets as well,” she said.
Supakorn Tulyathan, chief executive officer at Principal Asset Management Ltd, said that investing in digital assets is not a suitable option for long-term portfolios like pension funds, as they have high fluctuation compared to other assets.
“Since the start of 2022, prices of digital assets like Bitcoin and Ethereum have dropped 50 to 70 per cent, whereas Bitcoin has standard deviation value at 60 per cent and Ethereum at 88 per cent,” he said. “Comparing to Thai shares in the past 10 years, they have 19-20 per cent standard deviation and provide 5 per cent return on investment (ROI) on average. Target date portfolios designed for pension also provide 5 per cent ROI on average, and has only 8 per cent standard deviation.”
Supakorn added that the management of portfolios for pensions must consider both ROI and standard deviation, and must deploy strategies such as ‘stay and wait’ and DCA (Dollar-cost averaging) to ensure that investors get the highest return in long term.
“In the last 5 years before reaching the retirement age, investors should adjust their provident fund investment to focus on more stable assets to ensure a steady return,” he said. “For example, one might choose to invest 80 per cent in bonds, 10 per cent in shares and 10 per cent in other assets. This is likely to guarantee 5-6 per cent ROI, which is the same rate as an investment during the 40-year-old period in Thai shares at 25 per cent, foreign shares at 23 per cent, bonds at 50 per cent and trading at 2 per cent.”
Piriya Sambandaraksa, managing director at Chaloke Dot Com, added that Bitcoin is suitable for long-term investment, but not suitable for pension funds. “Pension investment is not about earning profit in long term alone, there is also the need to use the money in the future. This is why digital assets are not suitable for pension as they carry high fluctuation and uncertainty.”
“Although statistics indicate that no one who has been holding Bitcoin for more than five years ever suffers a loss. It is notable that Bitcoin is only 12 years old and there is no telling when the market will collapse,” he pointed out. “If you have invested in Bitcoin and will retire this year, you might be forced to sell your coins at the current market price which is on the downward trend.”
Piriya said he believed that bitcoin can retain its financial value in long term like lands, provided that it is still active for another decade or two. Furthermore, holders can opt to invest in Stablecoins, or cryptocurrencies that attempt to peg their market value to some external reference like a US dollar, to preserve the financial value of their assets and avoid risks from high fluctuation.
“Bitcoin has the least fluctuation among all cryptocurrencies, and their amount will not be increased drastically in a short period. Furthermore, any investors with adequate knowledge of technology can invest in Bitcoin without the need to go through financial institutes,” he said. “However, it is strongly advised that investors consider the risk of their portfolios carefully, and only invest in digital assets with money that you can afford to lose without major impact.”
