Introduction to investments: from principles to tools like crypto

5 min readAug 7, 2022

I was going home by taxi from the city center of Istanbul, explaining to my English teacher the basics of cryptocurrencies. When we arrived, the taxi driver, Ramazan, asked me to share recommendations on investment in crypto to secure a future for his daughter. This is how I decided to write this article.

I will share personal experiences and recommend one of the best articles, tweets, and videos for further research. The article will be structured as follows: disclaimers, before-any-investment principles, investing principles, investing principles in crypto, and earning principles.

Disclaimers

This is my subjective opinion. This is not a financial recommendation.
The guide covers principles of investment. All investment instruments are mentioned as an example and don’t imply recommendations.
There are no easy ways of making money. If someone earns easy money, this is luck (there are four types of luck, and I highly recommend reading this article to understand these types) or the result of huge work standing behind which we don’t see.
If I make somewhere mistake or you don’t agree with me, I will highly appreciate your feedback.

I. BEFORE-ANY-INVESTMENT PRINCIPLES

Before you decide to invest, make sure that you:

Have at least 6 monthly your family expenses in money you can withdraw fast, e.g., bank deposit, or cash. Why? You want to make sure that you don’t need to take money out of your investments urgently to cover your monthly expenses because of losing a job. Why? Urgent sales frequently decrease your profits.
Have good medical insurance for you and the people who depend on you. Why? This is important because you want to make sure that you don’t need urgently to take money out of your investments because of needed expensive treatment for you or your family member)
Consider investing some part of your money in yourself to feel better, be more qualified, acquire expertise, etc. Why? If you can increase your personal potential to bring value to the world, do this. There are two important dimensions: competencies and health. Invest in growing competencies (e.g., improve English, learn to code, learn product management — whatever might help you be more qualified) and supporting your health (e.g., consider consultations with a personal trainer and nutritionist, buy good food, do regular training). The more value you bring, the more money you can earn money, and the more money you can invest.

By far, the best investment you can make is in yourself — Warren Buffett.

Continue reading further if these requirements are met. If you have a highly secure job, you might consider going to the next steps before finishing this stage, but I don’t recommend it.

II. INVESTING PRINCIPLES

As you start investing, it is important to understand the principles of how to structure an investment portfolio.

One of the best books on investment principles is Intelligent Investor by B. Graham — if you really want to make a great investment, invest time in reading it.

Below I will share some investment principles, that are essential from my viewpoint:

80–90% of your savings should be in standard instruments: stock, and bonds (and the older you are, the more money is in bonds to secure your income stream).
I would consider not choosing stocks and bonds on my own but investing in stock & bonds indexes, e.g., FXIT ETF, FXCN ETF, etc. I would also consider real estate indexes (REITs ETF)
10–20% of your savings (not more) you can invest in risky things (cryptocurrency, own projects, someone’s startup)
Investment is a long-term activity. Remember, that 3 years investment horizon is considered short term, 5 years as a middle term, and 10 years as long term. Be ready to keep your money in investment for years.
Before some amount of capital (e.g., 5–10k$), it doesn’t make sense to invest in the market. Keep growing your savings and invest money in your skills & character to increase your own market price.
It is important to understand the economics of the markets you invest in. I would consider watching this video (44 min) to understand what is likely to happen during the next 10–25 years (the video is made by one of the best macro investors in the world, Ray Dalio, included in the top 100 influential people by TIMES in 2021)

III. INVESTMENT PRINCIPLES IN CRYPTO

If you go for investment in cryptocurrencies, there are several things to remember:

Don’t keep your crypto on centralized exchanges (e.g., Binance, Coinbase). You don’t own your crypto, storing them on platforms controlled by a legal entity or government. Use decentralization exchanges (list of the decentralized exchanges) or own wallets: a) only software-based wallets like Exodus, Trust Wallet, Metamask, or b) software and hardware-based wallets like SafePal, Tangem, Ledger.
Use truly decentralized cryptocurrencies for long term investment (e.g. USDT and BNB are centralized and in opposite BTC and ETH are decentralized)
Within cryptocurrencies, I would consider investing 80% in the least risky coins like BTC and ETH and 20% in the more riskiest like … I suggest you choose them. The right choice depends on so many factors like domain knowledge, investment horizon, personal goals, current life situation, and sources of income, so, I don’t feel okay recommending something. There is no silver bullet.
If you decide to choose coins for investment or want to check someone’s recommendations, I would suggest paying attention to three following factors at first: the speed of project development (e.g. number of commits on GitHub for BTC), size of the community, check the background of project founders. This information could be found on the official project website, CoinMarketCap.com, and Coingeckocap.com

IV. EARNING PRINCIPLES

On 30 years horizon average annual income from S&P 500 adjusted for inflation is 8.29% (source). This means if you invested 1k$ in 1991, you would have only 7.4k$ in 2020. You need to earn a lot, to invest a lot. And if you invest wisely, you can get huge returns. But, firstly, you should be able to invest a lot of effort and money.

It is almost impossible to earn big money by investment if you haven’t earned big money from your job/business before.

Naval Ravikant, entrepreneur, co-founder of AngelList, and thinker, wrote on Twitter in 2018 a list of principles on how to become rich without being lucky. That Twitter thread became viral and I will enumerate three principles I love most:

“You can’t earn non-linearly when you’re renting out your time. You must own equity, a piece of the business to gain your financial freedom”
“You will get rich by giving society what it wants, but does not yet know how to get at scale”
“Play long-term games with long-term people. All returns in life come from compound interest in long-term games”

I highly recommend reading his tweets to know more principles and listening to the podcast / reading its transcription from 2019: https://nav.al/rich.

BEYOND THIS ARTICLE

I do not cover how to buy crypto, where to store crypto, top trends, and challenges in the blockchain in this article not to make it long. If this is interesting, let me know in the comments.

My name is Dmitrii Eliseev. I work in a startup. Prior to that, I was responsible for business development at Microsoft and curated the early-in-career community. Before Microsoft, I developed a voice digital assistant while being a part of the engineering team. I write a blog on Telegram about self-realization, building relationships, and productivity.