Whether you’re a seasoned investor or someone with little to no knowledge of how stocks, shares and other similar assets function, you are undoubtedly aware of the hype surrounding cryptocurrency.
The popularity of these digital currencies has been unprecedented since they first came into prominence over 10 years ago. Others, not as interested in the long-term appeal, are driven by the prospect of making a lot of money in a short space of time while cryptocurrencies remain a trending asset.
Although there are certain similarities between investing in cryptocurrency and investing in other more traditional assets, it is in reality, a whole different ball game. With that, there are a number of factors you need to consider before deciding to take the plunge and invest your hard-earned cash.
How much you can safely invest
The most important weapon to have in your cryptocurrency arsenal is a pot of excess capital to play with. This is money you might have saved with no particular intention in mind; any cash set aside for pressing debts should never be used for investment purposes. Like any investment, there are risks associated with a foray into the cryptocurrency market – something that was hammered home very recently when the value of the world’s cryptocurrencies dipped by over $410 billion in the blink of an eye.
That said, if you do have some disposable income to play with, a good starting point is to create an investment portfolio with a lump sum, which can be added to each week or month or whenever works best for your financial situation. The amount of your portfolio you should initially invest is up for discussion, with experts advising anything between two and 10% to be considered a smart move.
What a cryptocurrency is and how it works
Navigating the cryptocurrency market is a minefield, especially for those starting out. From Bitcoin to Dogecoin and the “up-and-coming” Altcoin, knowing which digital currency to invest in can be a huge hurdle to overcome.
Put in the groundwork in advance so that you feel secure in your decision. Getting to grips with the technology and lingo is a good place to start. Blockchain technology, digital wallets, Initial Coin Offerings (ICOs) and more are all terms you should be au fait with before jumping on the cryptocurrency bandwagon. It’s hugely important to understand the asset you are investing in so that you can make educated, tactical moves.
Cryptocurrency scams are a serious problem
As with any investment, prior research is a must. This is particularly the case with cryptocurrencies, which are not only unregulated but are not safeguarded by EU investor protection. This – paired with the ‘get rich quick’ reputation that many novices associate with cryptocurrency investment – leaves investors open to exploitation at the hands of fraudsters, who are unfortunately in abundance.
In Ireland alone, it is estimated that consumers are losing as much as €50,000 through crypto-related scams. So, how do you decipher between what’s real and what’s fraudulent?
Firstly, if it seems too good to be true, it’s wise not to believe it. Anything offering a staggering return on investment should raise alarm bells. Secondly, sussing out a cryptocurrency’s credentials in advance by viewing its whitepaper is a prudent move. Whitepapers will give you detailed information on the background and projections for the project, along with info on the developers. If it seems like a flash-in-the-pan venture, it’s best to keep searching.
What are your goals and your limits?
Once you’ve made a decision to invest, resting on your laurels is not an option. You are dealing with a highly erratic market that will need to be continuously monitored, not only so you can decide the best moment to invest, but also so you can withdraw when the time is right. Having a plan in place will enable you to recognise these moments.
Firstly, ask yourself why you are investing. Is it for a retirement nest egg? Your first-born’s college fees? Once you know your reasons, you’ll be able to put a ballpark on how much you would ideally like to earn from your investments. This will allow you to set a profit and loss margin; when the going is good, you can call it a day and go home happy, or if things are not going to plan, you can retreat before too much damage is done.
It’s very easy to get caught up in the hype
When you’re on a successful run as an investor, it’s easy to get swept away by the excitement of making a significant profit. Particular when it comes to cryptocurrency, which has experienced record peaks and troughs over a short period of time. As a result, cryptocurrency has the potential to be over ten times more volatile than other asset classes. This calls for serious forward planning and strategising before making your next move.
One way to stay on track and not lose sight of why you invested in the first place, is to call on the services of a financial advisor. From assessing your current financial circumstances and evaluating risk and reward, to helping you make savvy decisions based on your personal goals, getting sound advice from professionals is a worthwhile investment in itself.
The team at Symmetry Financial specialise in the area of savings and investments and are on hand to help with your queries, ensuring you get the most from your money. Get in touch today to book a consultation for expert investment advice.