So, you want to invest in cryptocurrency? The blockchain-based, encrypted digital assets are taking the world of finance by storm. Bitcoin, Ethereum and Litecoin have all seen huge gains over the couple of years, and they’re not alone. There are now more than 1,500 different cryptocurrencies out there — and many of them are skyrocketing in value right now.
But before you gamble with your savings on a new form of “digital gold” that may or may not pay off as an investment, consider a few factors. While it’s possible to make a fortune from cryptocurrency investing, it’s extremely risky. You can also lose a lot of money. Generally speaking, you should only invest money that you can afford to lose.
Learn About Cryptocurrency
Cryptocurrency is a new and exciting asset class. Before you buy cryptocurrency, make sure you’re familiar with the basics. You’ll want to understand how blockchain technology works and the reasons behind the mining of cryptocurrencies. Before you start trading, you’ll want to understand how different cryptocurrencies work and how to avoid the most common pitfalls. Explore your options.
Put Safeguards in Place to Protect Yourself from Financial Setbacks
Before you buy crypto, ensure to have a plan for what to do if the value of your crypto falls to zero. There is a good chance that will happen. Even if Bitcoin is not a bubble, bubbles can form in individual altcoins. The risk of losing everything is real. It’s not just that some people might have been so unlucky as to buy near a peak and then sell near a valley; more likely, it’s that many people will have bought near a peak and then lost the password or lost interest or lost their ability to remember the keys.
There are risks even if you don’t lose your keys or sell your coins. If you leave your coins on an exchange, there’s always the risk of theft by hackers. If you hold your coins in software on your computer or phone, there’s always the risk of forgetting your keys or getting rid of your computer without remembering to take out the wallet file. There has been at least one spectacular case where someone dumped a drive with keys worth over $100 million in Bitcoins.
Make Saving for Future plans a Priority
You may be new to cryptocurrency, but you’re not new to saving and investing. Before buying crypto, it’s important to know the basics of building a portfolio that is balanced and diversified.
When you save for something, you want to achieve in the future, you usually make regular deposits over time into an account that earns interest (like an online savings account). When you invest money, your goal is usually to earn more than you would in an account that only pays interest. Investing can be riskier than saving because there is the potential to lose some or all of your initial investment. But it can also be more rewarding since investments have the potential to grow faster than savings accounts.
To get started on building a well-balanced portfolio, start by setting clear financial goals and breaking them down into short-term, medium-term and long-term goals. Then determine what kinds of accounts make sense for each one of those goals.
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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
