Sigh. I get it.
It’s new. It’s sexy. Game-changing.
Become a bitcoin millionaire overnight.
What’s not sexy about that headline? We all want a piece of the action; especially when it sounds like easy money.
So all I have to do is buy a couple of coins, invest in a couple of ICOs, wait a couple of months and I’m rich?
Maybe that was true in 2017.
This year, unsurprisingly, the bubble has burst and the market looks very different. Despite the change of events, the crypto frenzy remains. Stories are still circulating of people claiming to be making thousands off their coin purchases. I recently heard someone say they were making a fortune out of XRP. In this January economy? Are you sure?
The downturn in itself is not a problem. A long-term approach to investing is always encouraged and generally preferred. Who knows what the value of your coins will be in 5 to 10 years. What is concerning is the type of advice circulating for investing in crypto and the fact that the risks are not being emphasised enough. I don’t claim to know it all but two things to note:
- If cryptocurrency is your first and only dip in the investment pond, you’re probably doing investing wrong
- Buying with a credit card is a little crazy and definitely ironic (and no, there is no payment protection for cryptocurrency).
I’ve seen advice encouraging both of these.
But this isn’t a “don’t invest in crypto because all crypto is dangerous and you’ll lose all your money” blog post. I acknowledge that there is no reward without risk. If you’re well researched and financially protected in the ways I detail below, go for it. (For an introduction into the crypto world, I recommend listening to this Disunomics Podcast).
However, research shows that people’s first encounter with investing often moulds their future attitudes to risk. So in an effort to minimise the likelihood of creating risk averse people as a result of getting burnt from crypto investing, I’ve offered four relatively safer options you should consider having before you dive into crypto-land.
Returns: Negative to Low
Having cash stashed away for an emergency is always a good idea. It is recommended that you have an emergency fund that can cover at least 3 to 6 months of bills and expenses. However, if you leave your cash in an account with a low interest rate, although the risk of losing your money is low, your savings technically still depreciates thanks to inflation. At the time of writing this, the UK inflation rate was at 3% which in very basic terms means the price of goods and services will rise by 3%. This also means that the amount you can buy with your savings will decrease by 3%. So in order to avoid inflation eroding your cash, try to keep your cash earning more than inflation by looking for an account with an interest rate of 3% or more.
- National Savings & Investment Financial Products
Risk: Low to None
Good ol’ NS&I. People do not talk about NS&I products enough. These are state-owned savings and investment products, usually tax free and 100% guaranteed by the HM Treasury. My dad started me off with Premium Bonds -old school. The risk of you losing your money is nil, but the rates offered on the products are usually low; currently ranging from 0.70% to 2.20%. If you are looking for a safe haven to put some of your cash in over a short period of time, NS&I bonds are a very good bet.
- Stocks & Shares
Returns: Medium to High – depending on risk level
Although the risk can be high, it is certainly not as volatile as cryptocurrency has proven to be. Plus, risk is dispersed over a long-term period and there is a greater opportunity to expose your investment to economic growth. Think of this as a good pension pot. If you want to manually build a portfolio, you can buy and hold shares on platforms like Hargreaves Lansdown but if you don’t want to get involved in the detail, you can get an active fund or get a robo-investment platform like Wealthify or Nutmeg. You can manage your risk profile to suit you. The likelihood is that if you’re a lower risk investor, your portfolio will consist of bonds such as fixed income bonds, corporate bonds or retail bonds and if you’re a higher risk investor you’re more likely to be investing in foreign stocks, emerging markets and equities.
- Crowdfunding & Start Ups
Returns: High – depending on how well the company fares
Gone are the days of needing thousands of pounds to invest in a company. Crowdfunding has become a popular way for entrepreneurs to raise finance, and allows you to very easily back businesses you think have the potential to succeed. The risk here is that the company never takes off and you never see your money again; but you could also be potentially funding the next Uber. I’m still pissed that I missed the initial Monzo crowdfund. Golden rules for crowdfunding: always think very long term; try to invest in things you understand; and always invest money you can afford to lose. Some crowdfunding websites like Kickstarter do not offer equity, but Crowdcube and Seedrs do. If you’re prepared to risk an ICO, consider investing in this way first as it is less likely to be fraudulent, hacked or swapped for a meaningless token. I’m sure that within a year or two, ICOs will be a norm and will be listed on more mainstream websites; i.e. Indiegogo has already started listing ICOs and Blockchain investments. But until then, equity crowdfunding is arguably a safer route.
Once you have the above in place and you still have disposable income for digital currency, you can go wild in crypto land and sleep well knowing no matter how long you HODL, you will always have money in the bank.
This post was written by Josy