If I had a bitcoin for every time someone told me they were “all in for crypto,” I’d be …not as wealthy as you’d think.
“Crypto” is short for cryptocurrency. It’s the mother-term for digital currencies like bitcoin, which became a popular investment in 2017. Watching the bitcoin investing craze cycle up and down over the past year or so has been illuminating. It underscores four critical reminders about how most of us should approach investing.
1. MOVING MONEY TO BITCOIN IS MORE SPECULATION THAN IT IS “INVESTING.”
Speculation means that there are too many uncertain factors to be sure about how an asset will grow in value, with a risk of total loss. Alternatively, an investment, such as a Vanguard index fund, has decades of performance data, tracks similarly with the stock market and adheres to certain patterns. Sure, index funds fluctuate in value, but over a 10-year period, it’s possible to make a measured estimate of overall returns. Compare that with speculating in cryptocurrency, which is like angel investing in someone’s startup — you hope for significant returns, but could also lose everything.
2. PAST GROWTH DOESN’T MEAN FUTURE GROWTH.
You’ve probably heard folks praise Apple stock, New York City apartments, gold, Airbnb rental properties, and now …cryptocurrency. But don’t always believe the hype. Sure, many of these investments were great at one time, or at least they earned well for lucky people who like to brag a lot. But there are no permanent and absolute sure things. Past performance is not necessarily an indication of future growth. Still, if you really want to try and “get in on the action,” that’s understandable. Remember to make sure you consider all the factors influencing an investment’s future performance — and please, know how much risk you can really afford take.
3. DIVERSITY STRENGTHENS OUR WORLD, AND YOUR PORTFOLIO.
Last year, when I heard how many people were divesting of their mutual funds and moving that money into cryptocurrency, my stomach turned to knots. I’ve taught thousands of women the things they need to do to ensure that their money grows safely and steadily — how to factor in the market’s normal ebbs and flows. Rule No. 1: Diversify. Buy equity in many, many different types of investments: stocks, bonds, mutual funds, ETFs, real estate, etc. Even some bitcoin is OK. Just don’t bet your life on only ONE THING.
4. DON’T BLINDLY TRUST ANY FINANCIAL EXPERT, EVEN PROFESSIONALS.
Throughout last year’s bitcoin frenzy, my Facebook feed was chock full of friends asking friends about whether to invest in bitcoin. It amazed me how many so-called “investing experts” were giving factually incorrect information. To be clear: No one, not even most financial advisors, can tell you with certainty whether an investment will increase or decrease in value. If they claim otherwise, run the other way. Then, get clarity on the fundamentals, tune out the hype and make the decision that’s best for you and your money.