Investing in cryptocurrency requires careful consideration. Assess your risk tolerance and allocate a portion of your portfolio that you're comfortable losing. Understand the market, research coins and their teams, and prioritize security with reputable exchanges and hardware wallets. Diversify your investments and be prepared for the high volatility of cryptocurrencies, whether you're in for short-term gains or a long-term journey.
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“I’ve got a mindset that it was better to do it say 20 years ago… Is it worth buying? If so – for what kind of minimum period? Or amount?”
(Original question on Reddit)
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The decision to invest in cryptocurrency depends on your financial goals, risk tolerance, and your understanding of the crypto market.
Risk Tolerance & Capacity
Cryptocurrency investments are inherently risky due to their volatility. You should only invest money you can afford to lose because there’s a real possibility of losing your entire investment. If you decide to invest in cryptocurrency, it’s wise to only allocate a small amount of your portfolio towards it, an amount you are comfortable with. You don’t want to have your entire portfolio in cryptocurrency as it would be too risky. It’s worth remembering that some coins can drop in significant value rapidly, as we saw with Terra Luna. The coin went from $88.37 to basically worthless at $ 0.000118.
Investment Horizon
Determine your investment horizon. Are you looking for short-term gains or a long-term investment? Cryptocurrencies can be highly volatile in the short term, so if you’re thinking of a short timeframe, be prepared for rapid price fluctuations.
Research
With cryptocurrency, you want to ensure you do your due diligence as there are many fake coins and crypto “pump and dumps.” So, to avoid losing your money, research where exactly you are putting your money and only put in as much as you are willing to lose. With many scams in cryptocurrency, it’s essential not to invest solely based on hype or speculation, as you will likely lose your money to a scam. Before you invest in a coin, check the market trends, the investment team behind the coin and the technology behind the coin.
Security
Using trusted and reputable cryptocurrency exchanges or platforms for your investments is vital. With many fake crypto exchanges and scams happening nowadays, it’s worth doing your own research to ensure your exchange is reliable and you have access to your coins. Also, consider Implementing strong security practices, such as using hardware wallets or ledgers for long-term storage. This way, you can store your private keys in a secure, offline environment, giving you peace of mind and complete control over your assets and reducing the likelihood of hackers taking your coins.
Cryptocurrency investments offer the potential for significant gains, but they come with substantial risks. It’s wise to invest only what you’re comfortable losing and take the time to research your investment choices thoroughly. While cryptocurrency can produce life-changing returns, there are risks, and some coins have lost their entire value. Diversify your investments, and only allocate a small portion of your portfolio to high-risk assets like cryptocurrencies.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The information in this post is only general in nature and is not personalised financial advice. Please contact us if you want financial advice.
