Investing in Bitcoin or any other cryptocurrency is usually a good step to expand your portfolio, but with a few conditions that you have to keep in mind.
Like any traditional investment, it should be a part of your portfolio as long as you only put in money that you can afford to lose. This is because if you want to see returns with your investment, you’re going to be keeping it for a seriously long period of time.
At first, doing your research on crypto might be a completely daunting task, given how complicated some of the cryptocurrency exchanges seem to be. This is not yet including other prospects like crypto wallet storage and security too.
But in spite of the consistent crypto market fluctuation and other uncertainties about potential regulation and cybersecurity concerns in the future, experts still have an optimistic outlook.
But how do you invest in Bitcoin or other cryptos?
For starters, if you are an absolute beginner, then experts recommend sticking to the most popular and established cryptocurrencies: Bitcoin and Ethereum are nice examples. Of course, you should only be investing if it won’t get in the way of other important things like setting up an emergency fund, setting aside a budget to pay off debt, and investing in a traditional retirement savings plan.
Crypto would be considered a high-risk asset class within your portfolio when added, and many experts would advise that it shouldn’t exceed more than 5% of your portfolio. The value of Bitcoin and any crypto can vary wildly by the day (or even by the hour), so you should first come to terms with the volatility and uncertainty that comes with it.
Alternatively, there’s an even simpler way to determine how much of your portfolio should be in crypto assets: experts say that it can depend on how much money you are willing to lose.
Currently, Bitcoin is often compared and even likened to gold. It is even starting to be considered as a long-term investment and store of value, despite this new asset class being plagued with uncertainty and unpredictability. But if you are in the right financial position to set aside a portion of your money to put into Bitcoin, treat it like any investment and take a long-term approach. Stay away from meme stocks and other get-rich-quick gambits that seem too good to be true. If you’re going in, go into it for the long haul.
Set aside time to think and determine how much of your money you are comfortable investing. Once you arrive at an amount you are satisfied with, stretch it out over the course of the year by making smaller, incremental deposits. Do this until you reach the total investment you had in mind.
And if you’ve already made up your mind and have set aside money to invest in crypto, you can start by clicking here to gain access to a beginner-friendly trading site that can help you start investing.
How does Bitcoin compare to Index Funds?
Index funds have been in existence for nearly 50 years, while Bitcoin, the first cryptocurrency, was only established 10 years ago. Because of the decades of steady growth behind index funds, they offer a more predictable method of accumulating wealth for the long term. On the other hand, while some people have lucked out with Bitcoin, countless others have ended up with nothing. Since this is such a new investment class, Bitcoin is less predictable and much more volatile. However, its inherent volatility can give way to high returns of investment once the prices fluctuate.
Financial experts have long praised the benefits of index funds because they are low-cost portfolio investments that allow you to purchase shares of a wide selection of companies representing a fraction of the stock market. In the case of index funds, eventually, you are guaranteed to make money no matter what. You’re going to be just fine as long as you have at least 5 to 15 years or longer until you need the money.
That’s quite a contrast to Bitcoin, where your investment should come with the knowledge and preparedness that you could lose it all.
Nobody knows the future of cryptocurrency for sure, but many financial experts have seen enough to believe it will stay for many years. If nothing else, experts say the underlying blockchain technology is the driver for transformational innovation not only for cryptocurrency but in finance and beyond.
Even in the U.S., The Federal Reserve also seems to be researching the potential of a national digital currency. It is still unclear what effects of which decisions will be to Bitcoin and other cryptocurrencies, but for an investment class that’s still very young, influence from robust government regulation is thought to be significant.