A lot of investors are having success with cryptocurrency these days. But that doesn’t mean you’re comfortable with the idea.
Cryptocurrency can be very volatile — more so than stocks. So it’s easy to see why it’s not the most suitable investment for everyone.
Still, there are steps you can take to make it a safer prospect. Here are a few to check off your list if you think you’ll be buying cryptocurrency.
1. Know the risks
When you buy stocks, there are different reasons why their value might decline. For one thing, the stock market itself could crash or undergo a correction. Or a company might put out poor earnings or have a product recalled.
But there are different factors that could cause cryptocurrency values to plummet. New regulations, for example, could result in a world of upheaval, and it’s hard to know when those will come down the pike. Furthermore, if merchants that accept cryptocurrency as payment start halting that practice, that, too, could impact the value of those investments.
This isn’t to say that you shouldn’t buy cryptocurrency due to these risks. But it’s important that you know they exist.
2. Start small
Because cryptocurrency values can swing wildly, you may want to ease into that specific asset class. That means starting off with just a small portion of your money in crypto and seeing how that goes before buying more.
3. Have full emergency fund
When investment values tank, you don’t automatically lose money. That’s because what you’re seeing are losses on paper (or more accurately, on screen). It’s when you unload investments at a lower price than what you paid for them that actual losses occur.
To avoid a scenario where you’re forced to cash out cryptocurrency holdings when they’re down, aim to have a fully loaded emergency fund before dabbling in them. That generally means having enough cash in your savings to pay for three to six months of essential living expenses.
4. Do your research
Some digital coins tend to get more press than others. But publicity shouldn’t serve as the basis for your investing decisions.
Rather than aim to buy those “in the news” currencies, do your research. Figure out what makes one cryptocurrency option more viable or potentially profitable than another, rather than automatically assume that the names you know are the right ones for your portfolio.
Work within your comfort level
Investing in cryptocurrency isn’t for the faint of heart. If you have your reservations, know that there are ways to make investing in digital coins a less scary prospect.
That said, don’t feel like you’re missing out if you decide you’re just not ready to take that plunge. While it’s true that some investors are doing very well within the digital currency space, there are plenty of ways to grow a lot of wealth outside of cryptocurrency. And if sticking to assets like stocks and bonds better aligns with your strategy and risk tolerance, then there’s nothing wrong with going that route and seeing where it takes you.