Updated: Sep 1, 2018
Okay, I agree, that is a pretty strong statement but I really believe it is true. So let me explain what I am talking about, I am talking about the opportunity right now to invest in cryptocurrencies. Yeah, I know, cryptocurrencies are a very risky investment but in truth, all investments carry risk just in varying degrees. So first off, before I speak about cryptocurrency investing I want to talk about what steps I believe are necessary to build a strong foundation onto which all of your investments will be built upon, so please bear with me I will get back to cryptocurrencies in a little bit.
Before I start I want to make it clear that I am not a financial advisor so everything I am saying here is just my opinion, just my thoughts on investing based off of my experience having been involved in various markets for many years. Also what I am talking about in this blog is related more to long-term investing rather than day or swing trading although some aspects of it could apply to both.
So this is my #1 recommendation, this is the bedrock that your investing foundation will be built on and if you decide for whatever reason to ignore any of my other suggestions PLEASE do not ignore this one. Before you ever invest a penny of your hard earned money I would strongly suggest that you educate yourself on whatever it is that you are considering investing in. I am not just talking about educating yourself about cryptocurrencies, I would recommend doing this for anything you are considering making an investment in. I know! it is hard to resist the temptation to just jump right in when you are excited about a new investment or when you are just starting out, but please try!
Trust me, I am speaking from experience here, I have been investing in various markets for many years now and I made the huge mistake of just jumping in with both feet without first educating myself. I just thought to myself that I would learn as I go, I mean how hard can it be, right? I did learn over time but as I'm sure you can guess, the first few years were pretty rough, I paid a steep price for my failure to educate myself first. I now look at it as the tuition that I paid to the markets for my education but it really was unnecessary. Today there is so much free educational information available about trading and investing that it makes absolutely no sense to not take advantage of it. Here are a couple of examples of what is available online.
For anyone interested in short-term trading (Day or Swing) my absolute #1 recommendation would be to check out Real Life Trading, there is a ton of free educational content (videos, ebooks) on their site that is totally free to sign up for. They also have trading rooms that do cost money to join but I have found it to be some of the best money I have spent for the education that I receive from being part of them. On top of that, they also have a couple of Slack channels, one for stocks/options and the other just for cryptocurrencies.
Jerremy Newsome, who is the founder and CEO is in my view unquestionably the best day trading/swing trading teacher I have ever found and trust me I have spent a lot of money with many other trading/investing companies, so I have been around the block a few times. https://reallifetrading.com
For anyone interested in longer-term investing I believe Investopedia is a very good source of educational information. https://www.investopedia.com/
Okay, for now, that is enough about education so the next step I would suggest would be to create an investment plan, this is the next layer of your investing foundation. As a way to start building your plan, answer the following questions:
What are my investment goals?
How long will it be until I need the money I am investing?
How much risk am I comfortable with?
How much can I save and invest each month?
How much debt do I have?
Do I have an emergency fund?
What are my current monthly expenses?
I would say that before investing one of the most important things to determine is your risk tolerance and one thing to consider when determining your risk tolerance is your age. The younger you are, you are able in my opinion to take on more risk when investing because you have the advantage of time, you have the time over the years to recover any losses you may incur from riskier investments. So why even bother to take on more risk? Because in my opinion there is a correlation between risk and reward, I would say generally the more risk an investment has the more potential reward it also has. So when you are younger and invest in riskier investments the potential rewards if realized can really jump start your investment portfolio.
Okay having said that I should also say you need to also use common sense, you still need to have a somewhat balanced portfolio. You shouldn't just put all of your money into very risky investments. As an example, if I was in my early twenties and just starting out my allocation would be something like this, 25% low risk, 50% higher risk, and 25% very risky. As you grow older you need to rebalance your portfolio risk from time to time, as you age the low risk (conservative) percentage of your portfolio should grow, reducing your risk exposure.
For everyone, I would suggest that you diversify your portfolio, don't just invest everything in stocks or everything in cryptocurrencies or whatever. Divide your portfolio into multiple asset classes, here are some examples of what your portfolio could contain.
Real Estate (actual property or through Fundrise)
Crowd Funded Lending Platforms (Prosper or Lending Club)
Private Start-up companies (you can now invest in private start-ups through
Seedinvest, StartEngine, Micro Ventures and others)
Okay, wow I got way off in the weeds, this blog was supposed to be about investing in cryptocurrencies. So the title of this blog is "This Very Well Could be the Chance of a Lifetime", as I said in the beginning that is a strong statement, why would I make such a statement? Because I truly believe investments into cryptocurrencies today could possibly offer life-changing rewards a few years from now. I believe this because I think cryptocurrencies are still in their infancy, think of the internet say in 1997 or 1998, I believe cryptocurrencies are at a similar stage of their development and adoption. If you could go back 20 years and invest in Amazon would you? I am sure most people would give anything for that chance! Or how about Apple? I am sure the answer would be the same. Well, this is how I view cryptocurrencies, I believe the possibility exists to see gains that could quite possibly rival those realized by early investors in internet companies. Just to be clear I am not saying that you can just pick any cryptocurrency and make a fortune, you still need to do your homework and pick cryptos with a real purpose and a great team behind it.
My personal belief is that gains in cryptocurrencies will outpace gains in the stock market over the next few years. One reason for this is because as I said I believe cryptocurrencies are a very new asset class which has a lot of expansion ahead of it and the stock market is in the 9th year of a bull market. Now that doesn't mean that the stock market is going to crash anytime soon but my opinion is that at some point we will see another bear market limiting gains for investors. However, if you learn to trade both sides of the market (long and short)
(insert an advertisement for Real Life Trading!) you could still do very well.
This price correction we have just witnessed in cryptocurrencies could offer a second chance to those who want to invest but did not get into cryptocurrencies early last year. For sure prices are much higher than if you would have bought early last year but they also are substantially cheaper than they were at the high in December and I still believe in a few years these prices will be viewed as a steal. Who knows? Maybe like buying apple or Amazon 20 years ago. One important thing to keep in mind is that cryptocurrency prices are very volatile, you need to be prepared for large price swings. You simply cannot panic and sell every time there is a selloff if you do that you will surely lose money. The best long-term strategy is to simply hold and add to your positions whenever there are large price dips. Also only invest as much as you could afford to potentially lose if the worst happened, and this goes for any type of investment not just cryptocurrencies.
Since making the low on Feb. 6th the crypto market has been in a nice uptrend with Bitcoin pushing back above $10,000. There is no telling if this recovery will keep on going at its current pace or if there will be another pullback but I still believe cryptocurrencies pose a good value at these levels. I personally had sold a portion of each of my positions in late November and again just after the 1st of the year so I have now started rebuilding those positions. I have also resumed my weekly auto recurring buys of Bitcoin, Ethereum, and Litecoin through Coinbase.
I know it may sound crazy right now to compare the potential gains of cryptocurrencies with the realized gains of those who bought Apple or Amazon 20 years ago but in 5 or 10 years it may prove to be not so crazy. Think of it this way, if you had told those early investors in Amazon that in 20 years the share price would be over $1400 they most likely would have thought you were crazy too.
Fantastic investment opportunities like Apple or Amazon usually are hard to spot at the time it isn't until years later that those opportunities unveil themselves to us. Cryptocurrencies in my opinion very well could be one of those opportunities.
Until my next blog, take care!