Don’t end up rushing into a crypto investment you will regret.
- Cryptocurrency is a volatile asset that comes with risks that some other asset classes do not.
- Before investing in cryptocurrency, make sure you have a strong emergency fund and retirement account.
- Do your research and develop a crypto investment strategy before jumping in.
Investing in cryptocurrency is becoming increasingly popular among Americans. Many cryptocurrencies have caught the public eye this year, with some coins even turning investors into millionaires.
But if you’re considering jumping on the bandwagon and adding cryptocurrencies to your portfolio, there are four key steps you must first follow. Here is what they are.
1. Make sure you have an emergency fund
Crypto investments are volatile; the price can go up and down quickly and dramatically. Therefore, it is especially crucial that you have an emergency fund to cover unexpected costs before investing in crypto assets.
Saving money for emergencies before buying any type of investment where there is a risk of incurring losses is a good idea. This is true even for stocks or exchange-traded funds (ETFs). Without emergency savings, you might be forced to sell your assets at a time when they’re temporarily down if unexpected expenses arise and you don’t want to borrow for them or can’t get credit approval.
Since crypto prices tend to fluctuate more dramatically and frequently than the prices of most assets, having emergency savings is even more important. This will help ensure that you don’t have to sell at the wrong time and lock in any losses that you could have recovered from if you could have waited.
2. Maximize your retirement investment accounts first
Preparing for retirement is crucial because you need money to support yourself. Retirement accounts also come with tax benefits that make it easier for you to contribute. And your employer can match your contributions for at least some of the money you invest if you have a workplace 401(k).
It is more important to put money into these retirement accounts – because of both the benefits they provide and the crucial role they will play in supporting you later in life – than to make a speculative investment in cryptocurrency with the hope of getting rich. Responsible retirement investing helps ensure that you have enough money to support yourself later in life, when it is far from certain that any investment in crypto will be profitable.
3. Assess how crypto will fit into your overall portfolio
Cryptocurrency can play a role in a diversified portfolio, but you’ll want to understand how it fits in with your other investments. Having the right asset allocation that exposes you to an appropriate level of risk can help you avoid outsized losses.
If you don’t have many other risky investments, crypto can be a good addition to your portfolio because you can take more risk with some of your money in exchange for potentially higher returns. But if you already have a lot of high-risk investments, it might be worth putting some of your money into safer bets.
Not only do you need to make sure you have a good mix of low and high risk investments, but you also want to make sure you’re not overexposed to any particular industry or asset class. If you already have a lot of crypto investments but no stocks, bonds, or real estate, investing in these other types of assets may make more sense than buying more crypto in 2022.
4. Develop a solid strategy for investing in cryptocurrencies
Finally, you want to make sure you understand how to evaluate cryptocurrency investments and choose one based on its fundamentals, rather than just investing in the latest coins discussed on social media or endorsed by a celebrity. You will also want to commit to making long-term investments.
If you do your research, invest in a crypto with solid potential, and don’t plan on trying to get rich quick, then investing in crypto in 2022 may make sense as long as you have other key financial tasks checked off. on your to-list first.
Buy and sell cryptos on an exchange selected by experts
There are hundreds of platforms around the world waiting to give you access to thousands of cryptocurrencies. And to find the right one for you, you’ll need to decide which features appeal to you the most.
To help you get started, our independent experts have sifted through the options to bring you some of our best cryptocurrency exchanges for 2021. Check out the list here and start your crypto journey today.