The Basic Reasons to Invest
To be perfectly clear, there are various ways to handle your personal finances, and you shouldn’t do anything with which you feel uncomfortable. That being said, keeping your money under your mattress is wasting it. And unfortunately, having a checking or savings account alone is preventing you from being able to unlock your full earning potential.
This blog is certainly not in an indictment of savings accounts; they’re a key financial tool that everyone should utilize, and they’re the typical starting point when you first begin to earn income. To further expand your financial goals beyond a basic savings account, however, the logical next step is investing. Investing, unlike saving, experiences a much higher risk/reward ratio and much lower liquidity (ability to turn into cash or cash equivalents). So while you don’t have access to investments to withdraw cash the way you might with a savings/checking account, they will provide a much higher potential for returns.
Right now, a typical savings account will offer an interest rate of roughly 2.3%. While this isn’t extraordinary, it’s a lot better than hiding money in your mattress. Investing in the stock market, however, allows investors unlimited return potential. The average trader enjoys roughly 10% returns and the most skilled investors able to profit even more. Government-issued bonds, on the other hand, offer returns of about 2.7% annually. So what do these interest rates mean for a new investor? Let’s break it down simply. If you allocate $100 to each of these three methods, savings, investing, and bonds, over a ten-year period, what would you end up with? Given the above return rates, you would have $125 in savings, $131 in bonds, and $260 in investments. With such incredible potential for profit, the value of investing cannot be overstated. Many of the most wealthy individuals in the world got there through savvy investment strategies. And even if your goals don’t involve Warren Buffett's levels of financial success, investing can be a fantastic tool. Investing can help jumpstart your retirement plan and allow you to quickly save for large expenses, giving you far more financial freedom than saving alone.
The Importance of being Diversified
If investing offers far better returns than saving, why do we save at all? Because savings accounts offer guaranteed returns, insured by the bank or financial institution offering them. Investing, on the other hand, offers no guaranteed returns, and losing money is a realistic risk. Thus, the higher risk/reward ratio. As a result, the best financial strategies involve diversification. Diversification entails allocating capital in various different ways to reduce exposure to one specific type of risk. Essentially, this means that you should both save and invest your money, and within your portfolio, you should allocate capital across many different investments. A financially savvy individual will have checkings and savings accounts, bonds, and a portfolio of various stocks. Having a diverse portfolio, rather than all of your eggs in one basket, both mitigates risk and gives you more opportunities to profit. Intuitively, this makes sense; a diversified portfolio means more opportunities to succeed and less devastation if one single investment fails.
Can you Invest Safely with Cryptocurrency?
The short answer is yes. However, this doesn’t mean that you should move all of your money to Bitcoin and call it a day. That’s not exactly an investment strategy, as cryptocurrencies offer some of the most volatile investments available, and managing the risks requires care. To successfully invest in crypto, you want to utilize the same diversification strategy discussed above, allocating your assets across multiple cryptocurrencies in varying amounts. Additionally, you’ll want to implement an exit strategy to curtail some of the added risks involved. For most, this means marking a clear cutoff point where you’ll cut your losses and liquidate your cryptocurrency. For some, this means slowly allocating funds into your portfolio and constantly monitoring its movement. All this hassle that comes with managing the risks of crypto investments is made worth it by the incredible potential for return.
Now that you understand the importance of having a diversified investment portfolio, it’s time to think about investing in crypto. How will you know which cryptocurrencies represent the best investments? How will you know when and how much to allocate to your portfolio? How will you ensure that you have a swift and effective exit strategy? The short answer: Coinmatic. At Coinmatic, we do all of the work involved with setting up and optimizing your cryptocurrency investment portfolio. We work with you to decide upon a strategy tailored to your investment goals, then we take care of the rest. If you don’t have time to do extensive research or formulate your own investing strategy, Coinmatic may be the perfect fit for you.