How to avoid getting burned from crypto euphoria – four rules to avoid disaster

The recent meteoric rise of crypto currency values has fueled a feverish demand to get in. The fear of missing out on this huge rise is profound, and some investors have chosen to plow all of their investment dollars into the emerging crypto market. Asset values never go straight up to the moon and beyond, even for crypto. If you’re considering investing all your money in crypto, here are four things to keep in mind when choosing your asset allocation.

Rule 1 – Don’t invest all your savings

Cash is king in the world of immediate needs. If something happens in your life where you need access to quick cash, a savings account is the perfect source of funds. Cryptocurrency is stored online, on computers, and in other locations where it might take a few days to convert it into spendable dollars. When your car needs a new battery, waiting a few days for a crypto conversion to dollars transferred into a useable account might leave you in a tough spot. Dollars in a savings account buys you that battery now so you can get to where you’re going.

Keep a few months’ worth of expenses in a savings account just in case you need it. Why not keep most of that money for longer-term expenses in a crypto account while keeping a smaller dollar amount in savings for immediate needs? While you might be able to sell crypto for longer-term cash needs, what if there’s a plunge in crypto value equal to the great 2018 crypto crash? How would you feel if you had to sell your crypto at a 50 percent loss to pay for a new engine in your car? That new engine would now cost you twice as much after selling your crypto after the plunge in value. Not cool.

Build your savings before your investment portfolio just in case a huge problem hits the fan and you need money fast.

Rule 2 – Consider investing in multiple coins

Ever heard the expression, “never put all your eggs in one basket?” There’s a reason for that. Severely negative information that suddenly comes to light on one stock or one crypto can have a devastating effect on its value – potentially taking it to zero! Investing a few thousand dollars or more into a single asset and then watching it burn to the ground can cripple an investor’s mindset on investing.

“Never again!” someone might say after a wipeout. But while a savings account is great for short-term dollars, storing a lifetime of investment dollars in a savings account isn’t the right solution. Investors need to have balance in their lives, and that means investing in multiple assets.

Look at a list of some of the largest, most respected cryptocurrencies on the market as potential investment choices for your dollars. Sprinkle investments across some of these choices to reduce the chances of a single currency wipeout taking down your account to zero. Should you invest in some of the more speculative plays in crypto? Crypto under $1, $0.01, or even $0.00001 can definitely be more risky. Only invest the amount into these coins that you can afford if the value goes to zero. That way, taking the risk on highly speculative crypto can be worth potentially big gains, but if the crypto goes to zero, it won’t be a devastating loss.

Rule 3 – Invest in other assets besides crypto

After the great crypto plunge in 2018, many investors turned away from crypto. Severe losses can make some investors shun an asset. If all of an investor’s dollars are wrapped up in the thing that plunges 50%, 75%, or 90%, it’s not only a frightening physical loss, it can also cause mental damage that taints a person’s mindset against the asset. The best way to reduce risk is diversification.

Diversification across multiple crypto assets is great, but what if there’s another 2018-like crypto plunge? Keeping money in other assets, like stocks, is a way to suffer less if one type of asset, like crypto, faces a severe drop.

Rule 4 – Invest for the long-term

Trading in cryptocurrencies, stocks and other investments multiple times a day might feel exciting, but it’s impossible to accurately predict future price fluctuations 100% of the time. Predictive charts, Wall Street prognosticators, and videos from gurus are all guessing at future values, even if they sound like they know what they’re doing. These sources of directional price action may use advanced, informative tools to help them make better decisions. But ask them for a money-back guarantee on their prediction if the price doesn’t reach the target and they’ll laugh you out of the room. Why? They have no idea for certain where the price is going to go! And neither do you.

If you want to speculate on highly risky assets, only dedicate that portion of your total investment dollars you feel comfortable losing. Highly unstable investments can go to $0 in price, so be mentally prepared to login into that speculative investment account someday and see a big fat zero staring you back in the face. Otherwise, treat long-term investments like a bar of soap – the more you handle them, the more they’ll disappear.

The bottom line

There are more than 8,000 crypto assets in existence, with more coming online each year. While the jury is still out on whether crypto will be the world’s currency in the future, one thing is clear. It’s a current store of value gaining traction each year. Investing in crypto is a smart play as part of a balanced portfolio, but be sure to diversify your investment dollars across other asset types to enjoy long-term investment growth.