Cryptocurrency has become an increasingly popular investment in recent years. If you don't own crypto, you may be thinking of adding it to your portfolio -- or opening a brokerage account and kicking off your investing career with some type of digital currency.
But if you're going to invest in crypto, it's important to do so under the right conditions. Here are four signs you may not be quite ready to take that leap.
1. You think all crypto is the same
It's easy to put cryptocurrency into a single category. But the reality is that there are thousands of different digital coins you could add to your portfolio. If you haven't done any research into specific coins, then you may want to steer clear of crypto until you're able to spend some time doing that legwork.
2. You don't have a full emergency fund
When you invest in crypto (or pretty much anything, for that matter), you take on the risk that you might lose money. This especially applies to crypto, since the digital currency market can be extremely volatile (even more so than the stock market).
You really shouldn't invest in crypto until you have a fully loaded emergency fund -- enough money in your savings account to cover three to six months of essential living expenses. That way, if a need for money arises, you won't have to risk a scenario where your only option for accessing it is to unload some crypto at a time when your investments are down.
3. You haven't read up on the risks
There's no such thing as a risk-free investment. But crypto carries unique risks. For one thing, it hasn't been around that long, so it's tough to predict how much staying power it really has. If you're investing for the purpose of building a retirement nest egg, you may want to be really careful about relying on crypto.
Also, lawmakers could impose added regulations on crypto that make it more difficult to use or trade. That could impact its value. It's really important to be aware of these and other risks so you don't make a decision you end up regretting.
4. You haven't established a general investing strategy
Many people find that crypto has a place within their personal investing strategies. But if you haven't yet taken the time to develop a strategy of your own, you should probably wait on crypto and figure out what you're saving for and what mix of investments is likely to help you reach your goals.
While there could be a lot of money to be made with crypto, there are also risks and drawbacks associated with buying it. So if you're going to invest in digital currencies, make sure you've done your research, learned about the risks, and put together a strategy first. Just as importantly, make sure you have ample cash reserves so you don't end up having to liquidate your crypto in a pinch and take a loss as a result.
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Tags: 4 signs you're not ready to buy crypto
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