Investing in Cryptocurrency
Why Investing in Cryptocurrency. Even though cryptocurrency is a highly volatile asset, it can help investors build wealth, especially if they invest over the long term.
It’s a portfolio play that’s gained traction in recent months and is catching up to stock trading as something that Americans are looking at for growing wealth.
Part of a Larger Portfolio and Plan
To be sure, investing in cryptocurrencies should be second to having a solid financial plan that includes emergency savings and solid retirement planning, according to Ross.
“Have a financial plan first and figure out where crypto fits into that,” said Ross. “If you don’t have a plan, what are you doing?”
Once that’s in place, however, it can make sense for investors to consider crypto as a key part of their long-term portfolio.
Financial experts generally recommend it for technologically inclined investors who are dedicated to learning about the asset and have a lot of time to ride the ups and downs. This is because of the volatile nature of cryptocurrencies.
Then make sure you use some of the rules of the stock market namely, don’t make emotional decisions or sell on a downswing.
This might be even more difficult and take more discipline, for cryptocurrency investors. Ross suggests not checking the price often, and certainly not every day.
“If you pay attention to that, you’ll have tremendous stomach acid and you’ll Gray very quickly,” he said.
Allocation – Investing in Cryptocurrency
According to financial experts, it is only safe to invest only the amount of money you can freely lose — in other words, it shouldn’t be all of your nest egg.
Typically, having 5% of your portfolio in a high-risk asset such as bitcoin — or other coins — is a safe rule of thumb. For some investors, although, it may make sense to put even more into crypto.
“I would say 5% to 15% of digital assets in general, and that is up from 2% to 5%,” Alex Mashinsky, co-founder and CEO of Celsius, a cryptocurrency lender that pays high yields and supplies loans using crypto as collateral.
Higher allocations are generally for younger investors who really believe in the technology behind cryptocurrency, who think it will be more widely adopted in the future and have time to wait.
“If you are 69 and you’re retiring next year and you’re going to need this money, obviously that is not a good idea,” said Mashinsky. “But if you’re in your 20s and you’re projecting 20 or 30 years forward, then you should have a bigger allocation.”
Also recommended by financial experts is to buy crypto using strategies similar to those used for stocks, such as dollar-cost averaging — basically, putting in small amounts of money consistently, instead of buying all at one time. This helps combat some of the price volatility.
“It’s not about ‘I’m going to make 10 times my money, I’m going to be rich,’” said Mashinsky. Instead, investing in cryptocurrencies should be viewed as another path towards financial independence that can help people beat inflation over time.
Appeals to Younger and More Diverse Investors
Cryptocurrency has a wider appeal to investors who have traditionally had trouble building long-term wealth, including people of color, women, and those with lower incomes.
According to the NORC survey, 40% of cryptocurrency traders are women as opposed to the stock market which has 38%.
The people of color and those with lower incomes surveyed by NORC were also more likely to invest in cryptocurrency than stocks. People of color make up 44% of crypto traders compared to 35% that hold stocks. And, those making less than $60,000 annually make up 35% of cryptocurrency traders, while only 27% of those investing in stocks had similar annual incomes.
In addition, the average age of crypto traders was 38, compared to 47 for those holding stocks.
I think there’s a lot of potentially perceived barriers to traditional retail stock investing that have made some of these historically underrepresented groups less likely to invest,” said Angela Fontes, vice president in the economics, justice, and society department at NORC at the University of Chicago.
On the flip side, the growing accessibility of cryptocurrency has appealed to those same groups, she said.
In conclusion, investing in cryptocurrency is a very good movie if you want a very financial future but you have to be very careful with it. Invest wisely.