Before You Buy Crypto, Make These Financial Moves


Does it seem like more and more people you know are talking about cryptocurrency these days? You’re not imagining things.

In a recent survey, more than 50 million Americans are likely to buy cryptocurrency in the next year. And if you have money to spare, you may be thinking of expanding your investments beyond the world of stocks and dabbling in cryptocurrency yourself. But before you do, here are three important moves to make.

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1. Have a full emergency fund

Cryptocurrency is a volatile investment — more so than stocks. The value of your digital coins can fluctuate tremendously not just from week to week, but from day to day. That’s why it’s really important to put yourself in a position where you’re not at all reliant on that money. That way, if the value of your crypto investment goes down but you need cash in a pinch, you won’t have to sell your cryptocurrency at a loss.

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In fact, ideally, before you buy any cryptocurrency at all, you should have a fully loaded emergency fund with enough money in it to cover three to six months’ worth of living expenses. If you have that money on hand in a savings account when a financial emergency strikes, you won’t need to sell any digital coins — or liquidate any other investment, for that matter — to cover it.

2. Research different currencies

You may be familiar with digital currencies like Bitcoin and Dogecoin. But did you know that there are thousands of cryptocurrencies you can invest in? Rather than assume that the coins that get the most press are the best investment choices for you, do some research. Read up on different types of cryptocurrency and see if there’s a better choice.

Of course, the upside of choosing a coin like Bitcoin is that it’s been around longer than other digital currencies, so this isn’t to say that popular currencies are the wrong choice. But it does pay to see what other options are available to you.

3. Have a strategy rather than go in blindly

Some people make the decision to buy cryptocurrency, and boom — they sink thousands of dollars into it on a whim. Instead of doing that, decide how cryptocurrency will fit into your overall investing strategy.

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Will you buy digital coins as a short-term investment rather than plan to hold them for a long time? For every dollar you have to invest, will you put 75% into stocks and 25% into cryptocurrency, or will you aim for a different percentage? These are the questions you’ll need to answer before diving in.

There’s money to be made in cryptocurrency, but it’s also important to approach it wisely. In fact, a good rule of thumb, whether you’re buying cryptocurrency for the first time or something more common like stocks, is to have a plan and do your research ahead of time. There’s always risk when you put your money into a brokerage account instead of a bank, so knowing what you’re getting into should be an essential first step in the process.


View more information: https://www.fool.com/the-ascent/cryptocurrency/articles/before-you-buy-crypto-make-these-financial-moves/

Articles in category: Stocks

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