I recently spoke with someone who told me that he removed all of his cash from the bank and 401(k) and invested it in digital currency. Indeed, some are finding that investing in digital currencies such as Bitcoin and ether can earn a high rate of return. But before you join the stampede into the world of digital currency investing, consider this recent news excerpt from Seeking Alpha:
Cryptocurrencies took a beating this past weekend. Bitcoin traded as low as $1,836, down about 8% on the day, and almost 40% from its high of $3,018 on June 11, while ether plunged almost 20% to $155, knocking off about 60% from its high of $395 on June 13. The selloffs are yet another stark reminder that digital assets remain highly speculative trading vehicles.
Moreover, the co-founder of ethereum network recently told Bloomberg News that the digital currency ether is “a ticking time-bomb.” “There’s an over-tokenization of things as companies are issuing tokens when the same tasks can be achieved with existing blockchains. People are blinded by fast and easy money.”
Ah, yes. “Fast and easy money.” Digital currency investing may be the sexiest investment that’s come along in a while, but the allure of fast and easy money has been around for millennia, and there’s no shortage of people who have been devastated in their pursuit of riches.
Of course we’ve seen this before. One might recall the late ’90s when high-tech mutual funds were creating nothing short of a feeding frenzy on Wall Street. But one also shouldn’t forget the countless people who lost everything after they made huge bets in technology only to watch many of their investments go bankrupt.
The temptation to make big money will never go away. But the lessons from history and successful investors of the past are tried and true, and they should not be forgotten. Before investing in digital currency, or any other investment, consider the following:
- If it sounds too good to be true, it probably is.
- For every person who makes it big, there are usually many more who took significant losses.
- Any investment that falls into the category of “highly speculative” should not be earmarked for any serious financial goal. If you’re saving for retirement, education, a wedding, a future home, or any other important goal, speculative investment vehicles are not the right place for your money. Speculative investments are for people who can afford to lose their entire investment.
- Diversification is key. Significant concentrations of money should not be made in any one investment or asset class.
- Slow and steady wins the race. Disciplined, long-term investing may not always be cool, but following a focused and strategic investment plan, usually centered around stocks, bonds, and real estate, will outlast the latest high-return investment and will give you a higher probability of success.