These tips can help you create long-term wealth.
- If you only invest the money you can afford to lose and make sure that cryptography is only a small percentage of your portfolio, a cryptocurrency accident is less likely to derail your finances.
- Keep a long-term perspective on your investments and take the time to research any cryptocurrencies before you buy.
Last year, it looked like cryptocurrency prices would only go in one direction and investors could do no harm. Even a commercial hamster was able to pick winning crypts. But today, many cryptocurrencies are down 80% or more from their all-time highs. This is a clear reminder that these are risky investments that can go up and down.
Many of the golden rules of cryptocurrency investing focus on the idea of minimizing risk. If you’re going to buy cryptocurrency, the ideal scenario is for you to benefit if the prices of cryptocurrencies skyrocket, but don’t face a financial disaster if the market collapses. These five rules will help you do just that.
1. Only invest the money you can afford to lose
When you see predictions that Bitcoin (BTC) could reach $ 1 million, the temptation is to put every penny available into the king of cryptography in hopes of big profits. The problem? You could lose all that money. If you only invest the money you are comfortable losing, you will not face financial ruin if the industry goes awry.
Investing in cryptography is risky. There is a possibility that the blockchain will revolutionize the way we manage money or even become the future currency of the internet. But maybe not. Many projects will fail and the whole industry could collapse completely. Whether regulation, the introduction of digital currencies by central banks (also known as government currencies) or the evolution of an even newer technology, has a number of major hurdles to overcome.
2. Cover other financial bases first
If you want to invest in cryptography, it is important to build a solid financial foundation. This means having an emergency fund to cover three to six months of living costs, in addition to being above your retirement contributions. If you’re trying to pay off debt, prioritize this over any cryptocurrency investment.
If you face a financial emergency next week, an emergency fund will help you cover it without incurring debt or having to sell assets, potentially at a loss. Imagine spending $ 2,000 on Bitcoin last November instead of putting it in an emergency fund. Today it could be worth just $ 600. While it may be a long-term recovery, it would be useless if you were forced to sell today. How would you feel if you lost your job this week or faced a medical crisis and your financial mattress was in Bitcoin instead of a bank?
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3. Diversify your investments
Diversification takes many forms: the types of assets you buy and the individual assets within each class. Most experts recommend putting only a small amount of your total portfolio into cryptography. The rest should be in lower risk assets such as real estate or assets. Which depends exactly on your risk tolerance, belief in cryptography, and financial situation. If you have decades ahead of you before you retire, you may be more willing to take on more exposure to cryptocurrencies as you would have more time to recover if things went wrong.
It’s also good to diversify within your cryptocurrency portfolio. Some people choose to invest only in Bitcoin and Ethereum (ETH), which makes sense as they are the most established cryptocurrencies and have the best chance of surviving in the long run. But if you want to buy smaller altcoins, don’t go all in one or two.
Consider a mix of cryptographic sectors depending on which ones you think are promising. For example, my portfolio is highly weighted for smart contract cryptocurrencies, because it is an area in which I have researched a lot and I like that many other cryptocurrencies are built into these blockchains. I have some exposure to game tokens and metaverses, and all around it from privacy tokens. Other investors will likely have different priorities and areas of knowledge.
4. Think long term
One way to survive the volatility of cryptography is to invest in a 10-20 year old mindset. Trying to time the market through short-term trading is almost impossible, and many investors lose money this way. Instead, look for projects with strong leadership and good utility that can work well in the coming decades.
It’s not always easy to think long-term because the industry is in its infancy and there are many things we don’t know about how it will evolve. But it is an approach that will help keep even prolonged falls in perspective and avoid making emotional decisions. For example, if you bought each of the top 50 cryptocurrencies five years ago, you would see an increase of about 700%, even though many projects did not survive the cryptographic winter of 2018.
Never buy a cryptocurrency that you don’t research in depth. We all live busy lives, and it can be tempting to put a small amount of money into an altcoin that reads online. But it is your money and there is a lot of misinformation. Only you know your investment strategies and goals. Research does not guarantee success, but it does significantly reduce the chances of being scammed or buying a cryptocurrency that does not have good long-term potential.
Crypto is a relatively new asset class. Last year, some people felt pressured to buy crypto so they could get into the next big thing soon. They bought crypto for fear of losing, in some cases with the money they needed in the short term, at the expense of other financial goals. If you are thinking of buying cryptocurrencies, it is crucial that you save your finances and research the industry first. This way, a new cryptographic crash will be disappointing but not devastating.
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