Is Cryptocurrency a Good Investment?
Cryptocurrency is one of the most talked about investments, but it’s also the most confusing for some people. Some investors seem very confident and optimistic about the future of the digital coins. Others remain skeptical.
So, which is it? Is cryptocurrency a risky investment? Here’s what you need to know.
How safe is cryptocurrency?
Simply put, cryptocurrency is in the “high risk, high reward” category of investments. It’s considered much riskier than investing in traditional stocks because the sector is still highly speculative at this point.
The future of cryptocurrency, its success in becoming a currency of the future, is uncertain. Nobody knows for certain if it will eventually have real uses in society. As such, the price of digital coins rises and falls constantly.
Stocks, unlike cryptocurrency, have a long history of growth over time. Sure, stock prices will ebb and flow, but they typically trend upward over the long term.
If you’re risk-averse, or have very little funds to invest, cryptocurrency is probably a bad investment for you. The sector is highly volatile, so you have a much greater risk of losing all of the money you invest.
However, if you’re comfortable taking on the amount of risk inherent in cryptocurrency, and can afford to potentially lose your funds, crypto could be a good investment.
Still, there are some things to consider if you do choose to buy.
How to invest safely.
If you decide that cryptocurrency is something that you want to invest in, it’s important to be strategic about it. Here are some things to consider:
- Only invest money you can afford to lose. There are never any guarantees with any investment, be it stocks or crypto. But because crypto is so new and uncertain, it carries more risk than your traditional investment. The smartest path would be to invest only what you can afford to lose.
- Have an emergency fund. Before you start investing in any sector, make sure you have a healthy emergency savings fund. This would typically mean three to six months’ worth of savings. If you’re hit with an unexpected expense, you might want to dip into those savings instead of selling off your crypto, especially if prices are low.
- Do your research. There are an estimated 10,000 cryptocurrencies currently on the market. And not all are created equal. Some have a stronger footing with consumers and investors, while others are just getting started. Make sure you do your research before you pick a digital coin.
The best investments are the ones that will grow over the long-term, so be sure to keep that in mind when looking at cryptocurrencies.
As with any investment, make sure you do your research and are financially stable. Have a solid budget in place and an emergency savings fund before you risk your money on the market.
Want to learn more about investments or money-management? We have a lot of helpful articles here in our Learning Center.