How the Responsible Investor Approaches Crypto

How the Responsible Investor Approaches Crypto

It’s been in the headlines. It held up the Infrastructure Bill. It’s continually picking up in popularity. It’s here, and if you’ve found yourself wondering if you should be investing in cryptocurrency, you’re one of many. In fact, 49% of millennials and 38% of Gen Xers reported owning bitcoin.*

Here are five questions you should ask yourself before deciding to allocate money toward cryptocurrencies: 

1. “HAVE I TAKEN CARE OF THE BASICS?” 

Cryptocurrency is far from a “traditional” investment. Some view it as an alternative investment, and some consider it as strictly speculation. Whichever side you fall on, it’s always essential to have the basics of your finances under control first, including maxing out retirement accounts, having a fully-funded emergency fund, having appropriate insurance coverage, and being on track for life goals. 

2. “CAN I AFFORD TO LOSE THIS MONEY?” 

The cryptocurrency markets are highly volatile. Although bitcoin has had an upward trajectory over the past decade, there have been countless crashes in price along the way. Double-digit price swings on any given day are expected, and if you’re not comfortable with risk, the constant volatility may be tough. Generally, it’s recommended to only invest money in cryptocurrency that you can afford to lose. That makes it easier to accept the imminent risk and helps reduce the impact of the volatility. 

3. “DO I UNDERSTAND WHAT I’M INVESTING IN?” 

Age-old advice says to invest only in what you understand, and when it comes to cryptocurrency, this phrase couldn’t ring truer. There are plenty of 

legitimate cryptocurrencies out there. Still, over the past year, there’s also been an increase in illegitimate cryptocurrencies, which has created an even greater need for education before allocating your money. 

4. “WHY DO I WANT TO DO THIS?” 

You should ask this question before making any investment because it helps you define your purpose. Do you want to invest to make a quick dollar or because you believe in the movement and direction it’s heading? 

5. “WHAT’S MY EXIT STRATEGY?” 

Just like with any investment, you need to have an exit strategy. This will help you build a plan around the investments so that if your asset doubles or gets cut in half, you know what actions to take. There are many nuances within the cryptocurrency world compared to the stock market, making it even more challenging to invest safely. 

THE TAKEAWAY 

Cryptocurrency has increased in popularity over the past two years, however, where there’s popularity, there are people trying to make a quick dollar—from both sides of the table. If you believe this is the right direction for you, make sure you’ve asked yourself these questions before making any investments to help protect yourself and your money. 

 

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The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA.

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