If there is anything about investing in cryptocurrency that you have to understand, it’s that it could be quite similar to riding a roller coaster with lots of ups and downs. There will eventually be various highs and lows when prices fluctuate by the minute. This can be affected by a variety of different factors that could range from speculation, hype, or even social media comments. A handful of people have been lucky with their investments but a large majority of people have been burned with losses.
If you’re investing your money with the goal of slowly and steadily building wealth for your retirement, cryptocurrency could be something you could get into. Because cryptocurrencies are built around blockchains, a digital ledger of transactions, toughing out crypto’s short-term risks might just be worth the potential long-term rewards. This should be the case as long as it isn’t holding you back from your basic financial responsibilities.
Because cryptocurrencies are riskier than traditional investments, you should prioritize having your financial bases covered. Let’s start with some cryptocurrency ground rules:
- There are thousands of different cryptocurrencies out there, but Bitcoin is the first and most well-established cryptocurrency. It has repeatedly shown itself to be a better fit for holding and increasing in value.
- Cryptocurrency is still widely viewed with scepticism, even by financial advisors. Some would even compare it to gambling or buying lottery tickets.
- Cryptocurrencies are decentralised, meaning they are not regulated by any central government or authority.
Cryptocurrencies are nothing like the stock market, where there are lengthy records of increase in value over time. It requires you to have a high-risk tolerance since it is still so unknown. However, as the cryptocurrency market’s track record grows and gains, it attracts investors who fear missing out on something that could potentially pay off in terms of long-term value.
Investors who see crypto as a long-term investment point to the blockchain technology behind it. It is believed to have the potential to drive innovation in traditional finance and other industries and eventually change the way that we do things.
If you’re still young and still have lots of years ahead before you plan on retiring, cryptocurrency should be considered an aggressive and risky investment. But if you have decided to allocate a portion of your portfolio to more aggressive investments, cryptocurrency might be your thing.
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That being said, there are also a lot of bases you need to cover before you start putting your money into crypto since it’s still very unpredictable and volatile.
Setup an emergency fund first
The general rule of thumb is not to buy cryptocurrency if you don’t have a solid emergency fund in place. There is a lot of debate around how much you should save for an emergency fund, but generally, you should have enough to cover at least 3 months’ worth of expenses. It should also be liquid cash that is stored in a highly accessible savings account.
If your employment situation isn’t the most stable, then an emergency fund is even more necessary. You should have 9 to 12 months’ worth of expenses to have something you can fall back on.
Cover your financial bases
Aside from the very essential emergency fund, experts also recommend that you have a retirement savings strategy in place. It would also be great to not carry any form of high-interest debt before you start buying any cryptocurrency.
One should also take into consideration their budget. It is necessary to have a budget that can comfortably accommodate your fixed monthly expenses, mortgage or rent, retirement savings and still leaves enough room for flexible spending.
Now, evaluate yourself and your finances. If you have decided that you are indeed in the position to invest in crypto, it’s highly suggested by experts to only invest an amount that you are comfortable with losing. Be cautious of all the hype from the media, and do not take more risks that you can’t afford.
