After the crypto calamity, here’s where not to put your money in 2023
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I am sorry if you bought one in 2022, but personally I was glad when the market in NFTs plunged by 99pc.
First, I never have to explain again what a Non-Fungible Token is. Or answer the follow up question “why are they worth anything?” Now many are not.
Second, I saved myself a great deal of money by not buying one. So here is my not to do list for 2023 which can leave you wealthier or at least no poorer when this new year comes to its end.
At their peak, in March 2021 an NFT of a collage of 500 pictures by an artist called Beeple fetched £58m ($69.4m) at a Christie’s New York auction. The unnamed buyer got a long string of letters and numbers which established them as the sole owner of the image.
The string that proves title is stored on something called a blockchain. But over the last 12 months nonfungible.com says sales have plummeted by 90pc from £118 million a day in January 2022 while average prices languish well under £1,000.
Many NFTs are worth nothing. Firms have sprung up to buy them for one penny each so owners can establish a loss to offset against any real gains they have made and cut their Capital Gains Tax bill. Not much use in the UK where barely a third of a million people pay CGT anyway.
The blockchain is also where cryptocurrencies like bitcoin are stored. They are another thing (I used the word to include the ephemeral and non-corporeal) which has no actual existence or value. True, a single bitcoin is, as I write, priced at £13,875. So in theory that is the price you can sell for.
But even if you can that is barely a third of its price a year ago. A loss of more than £20,000 in a year.
And that is if you are lucky. Because buying and selling cryptocurrencies is often done on a crypto exchange. And in 2022 five went bust – the biggest, FTX, lost an estimated £1 billion of client money. Its founder Sam Bankman-Fried has been extradited to the USA where he could face decades in jail.
If crypto is a gamble (some tell me it is speculation which they claim is different) then the casino is at best surrounded by thieves and at worst run by them.
So should you get your feet on the more solid ground of property? Maybe. But the homes offered to investors are never on the ground. They are many metres up usually in a northern city, overlooking a canal or river, and close to public transport and offices (the places where people used to work).
At least they will be when they are built. Because the 8pc returns are only promised to those who pay a hefty deposit now for something that is only an artist’s impression of an architect’s dream on someone else’s land. Sometimes the building is never started but even if it is finished the 100 cubic metre volume of air surrounded by glass and concrete you get for your £150,000 comes with no guarantee that the demand for rented properties is sufficient to ensure the rent you charge will produce any return at all after agent’s fees, maintenance, voids, service charges, and cleaning are subtracted. Someone will make money. But it won’t be you.
Shares are at least liquid and well understood. But never pay for managed funds as all the research shows that in the long term they make less in the good times and lose more in the bad than the market overall. Trackers of course follow those markets. The MSCI All-Country World Index of stocks showed £15 trillion (20pc) wiped off share values worldwide in 2022.
Nevertheless, over the long-term, the markets the fund managers cannot beat do provide solid returns. Maximise what you keep by finding the lowest charges. Then forget about it for twenty years.
You might have missed October’s 5.05pc guaranteed five-year return on cash. But you can still get 4.6pc which is £3910 a year guaranteed income on £85,000 – capital not at risk thanks to the Financial Services Compensation Scheme.
If you want professional, regulated advice, always go for a chartered or certified independent financial adviser who charges in pounds for the work they do rather than taking an annual wealth tax off your money come what may.
If you don’t have enough money to interest an IFA then moneyhelper.org.uk is government sponsored and approved but don’t let that put you off – it can be excellent.
Make 2023 a year of caution and evidence. Not hope and loss.
Paul Lewis is a financial journalist and author of Money Box: a guide to your finances from age 0 to99, just published by Penguin Random House and BBC Books.