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What are your thoughts on Bitcoin (or other cryptocurrencies) as an investment?
Bitcoin and other forms of cryptocurrency are the new hotness when it comes to investing, but I urge you to be really cautious. Cryptocurrency isn’t tied to any markets, business, other form of currency, or anything else we can measure through metrics like company performance or economic performance. As we’ve seen, the value of cryptocurrency can go up or down dramatically.
The idea of a global currency is an interesting one, and I’m curious to see how it will develop as we move to a more global economy. For now, consider investing in cryptocurrency to be a form of gambling: DO NOT INVEST MORE THAN YOU CAN AFFORD TO LOSE.
I’d classify it under the “alternative assets” section of an investing portfolio, which also includes investments in real estate and precious metals. Alternative assets should make up around 10% of your total investing portfolio, of which cryptocurrency should be a small part (only 1-2% of your total portfolio).
Many people are excited to invest (which is great!), but there are lots of other financial goals to prioritize before investing in cryptocurrency, or any other individual stock. Start by:
- Building up an emergency fund of at least 3 months of living expenses
- Contributing enough to an employer-sponsored retirement amount to get a match
- Maxing out a Roth IRA if you qualify
- Continuing to contribute to the work retirement account until you max it out, to take advantage of the tax savings
- Setting aside cash for short- and mid-term savings goals (buying a home, replacing your car, travel, helping a relative, etc.) in a high-yield savings account or, if you have a time horizon of more than five years, investing money conservatively in a discount brokerage
If you have additional money leftover after all of this, and after paying your monthly bills, I highly encourage you to invest it through a taxable brokerage account rather than investing in cryptocurrency.
If you still have money to spare and you’re curious about cryptocurrency, understand that you are placing a speculative bet, and please don’t invest more than you can afford to lose. Remember how people were going nuts over gold a few years ago?