Q. My father is 78 and has about US$1mil in his retirement accounts. He’s now talking about buying bitcoin and chasing stocks he reads about on social media. How can I get him to stick with mutual funds?

- Concerned

A. Cryptocurrency has been pretty hot lately, as have stocks pumped up by interest on social media boards.

But before investing in these or any investment, there are some basic fundamentals to consider.

First, said Jeanne Kane, a certified financial planner with JFL Total Wealth Management in Boonton, you need to understand where an investment gets its value.

Apple, for example, is a technology company that sells computers, phones and watches.

Next, understand how the investment may increase or decrease in value, she said. Apple, for example, had revenue of US$89.6bil in second quarter of 2021, up 54% year over year with earnings per share of US$1.40

For stocks, bonds, and mutual funds, you can research and get the answers to these questions, she said.

“Investments like bitcoin should be held to the same standard,” Kane said. “Where does bitcoin get its value and why does it increase? If your dad can’t answer those questions for bitcoin or any other investment, he shouldn’t be investing in it.”

In talking to your dad, Kane recommends you don’t try to steer him in a totally different direction. She said that generally that does not work, especially when it sounds like he’s getting emotionally caught up in the excitement created around certain investments.

“Maybe suggest that he set up a separate account and put in US$100,000 or less and ‘play’ with that. Limit the exposure,” she said. “It is his money, and he will do what he wants - which is his right. To tell him he can’t will only make him want to do it more.”

That’s why it’s probably your best option to give him an opportunity to do what he wants while limiting the downside.

“Emotion runs high with investing, especially in an up market, really since 2008, with only one negative year - 2018, ” she said. “Logic generally does not work well with emotional responses so the best you can do is really to limit the downside.”

 - TNS