Of course, theres more than egos at stake: Theres real money, too. And youre not alone if cryptos ongoing shenanigans are making you nervous about your investments.
Financial advisors are divided on whether the average investor should keep their money in crypto. While the typical advice for a down stock market is to stay the course, the crypto market hasnt been around as long, and its hard to know when (or if) it will rebound.
My clients are retirees or close to it, so Id advise against it, says Nicholas Bunio, a Pennsylvania-based certified financial planner (CFP). And realistically, even someone young, shouldnt keep all their money there. Too much risk and potential for a crypto exchange to go bankrupt or get hacked.
But financial advisors agree on one thing: If you are invested in crypto, it should be a small percentage of your total portfolio.
I usually recommend limiting any investment in crypto to 1% of your risky investments, says Rick Nott, a CFP and senior wealth advisor at LourdMurray, or up to 5% if you have deep pockets and understand the risk.
All investments go through cycles, he notes. The stock market, too, has been in rough waters this year as well, although theres much more historical data to back up that its a sound investment for regular people. Crypto is more of a science experiment, Nott says. No one knows what its truly worth.
If that spooks you, thats okay. But dont invest.
I believe retail investors should understand what [crypto] is and does before even considering buying it, says Nott. Then expect that any money they may plan to invest it in may very well go to zero, so the amount you invest should be a very small portion of your portfolio dedicated to speculative investments.
The point of investing in crypto, he says, shouldnt be to strike it rich. Rather, to build wealth over the long term.
Wealth is better, but takes longer and requires the disciple to watch from the sidelines while you do your research, and then to be decisive when the world looks scary, he says.
This advice hasnt changed due to the recent headlinesretail investors should always heed caution when it comes to crypto or any untested investment.
For someone who has a sizable enough portfolio to warrant some allocation into alternative asset classesyou could do worse than cryptocurrency, says Ben Waterman, co-founder of Strabo, an investment app. There will undoubtedly be some outsized gains to be made on the upswing that follows the downturn, although when this can be expected no one truly knows. This is the exact reason you shouldnt be investing money that you dont have the capacity to lose.
Going forward, stick to the largest and most well-established cryptocurrency coinsBitcoin, EthereumWaterman says. Many of the smaller projects are the most speculative, and you run the risk that they may not exist in a few months.
If you have investments now, follow the traditional financial advice for a downturn, he says: Sit tight. This moment of investor panic is the worst possible time to sell.
Worst case, youll be selling up at the bottom. Dont try to catch a falling knife, as the saying goes, Waterman says. If you were sensible about the crypto coins you selected, these will likely persist through the downturn simply due to the amount of institutional capital that is now invested.
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