Like hearing a catchphrase one too many times, it never
surprises me when I read over the two most frequent questions requested by novice cryptocurrency investors.
Which cryptocurrency should I invest in?
What’s the best investment strategy
These questions repeatedly echo through the halls of every crypto investment forum like a bad version of Groundhogs Day. I typically can’t help myself but reply with a smug answer “one that focuses on maximizing gains while minimizing risks”.
But not today my friend….not today.
I’m going to give you some real actionable advice and reveal
to you how responsible investors create wealth with solid fundamental practices that anyone can follow.
If you only take action on 1/3 of the advice that I’m about to
bestow upon you here today, I can absolutely guarantee that you’ll be
substantially better off than you would without this advice.
Historically a well-balanced profile has always contained a good
mix of stocks, bonds, and real estate. Personally, this is where I heavily
Those who start with their investment strategy early and
begin putting away money in their 20s (I'm talking about you millennial) have an exponential advantage over those who get started later.
Furthermore, investing and leaving your capital in a market (stocks, forex, cryptocurrency, bonds, etc.) for as long as possible, is the primary method for accruing wealth as quickly as possible compared to an investment opportunity where you’re merely covering your expenses.
Investing in a diversified portfolio is the ideal way of obtaining wealth. However it takes time and great discipline to reap the seeds that you sew. It doesn’t come quickly like and is applicable to anyone, who has the discipline to carry out these tasks regardless of your social standing, demographics, nationality, etc.
To put this into context, let’s take a look at an easily achievable goal. Let’s say you invest $250 a month at an 8% average annual investment. A person at the age of…
25 will have accumulated $878,570 by age 65.35 will have accumulated $375,073 by age 65.45 will have accumulated $148,236 by age 65.
As you can see from the example above, there’s a distinct advantage to putting away money at an earlier age. The 25-year-old ends up with roughly 7 times as much money as the 45-year-old resulting in the extremely rewarding but elusive…compound interest! This is the KEY to long-term investing.
Many people, particularly millennial’s, don’t like to invest in stocks because they’re afraid of losing money short-term. However when investing long-term, there’s very little risk in legacy markets. You see, stocks will obviously go down, however over a historical 10 year period; there’s always at least a minimum of a 7% per year gain once everything is averaged out. You see, with a long term investment strategy, stocks have literally never been a bad investment.
Outside of my own personal assets like my car, house, and recreational items, 60% of my capital is invested in funds like Vanguard. 20% is dedicated to stocks like Apple, Amazon, Microsoft, and other larger cap companies. The other 20% of my funds are spread out through various cryptocurrencies.
I also invest in many tax shelters like Roth IRAs in order to avoid taxes on my gains and increase the compound interest on my investment vehicles. I trade commission free on E-TRADE where I only invest in index funds with the lowest possible feeds.
Also take note that I “dollar cost average” my way into each investment vehicle. This means that I set out an exact amount that I’m going to invest in on a particular date regardless of what the current price is.
As I stated above, I am comfortably allocating 20% of my net worth into cryptocurrency, which a more risk adverse investor would most likely limit to around 5%. Many in my particular age group (40's) would typically not be willing to place more than 1% – 2% of their capital within any particular asset class. What can I say, I’m a sucker for these digital tokens.
So how do you actively invest in markets and maximize your potential earnings?
One of my favorite quotes from Albert Einstein is…
“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't pays it.”
The definition of compound interest is “a process in which asset earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, which is calculated by exponential functions, only occurs due to the fact that investment would generate earnings from both its initial principle and the accumulated earnings. Therefore compound interest defers from linear growth, where only the principal earns interest each period.”
There are three rules behind maximizing compound interest. These are…
1. Reinvest interest or dividends into the asset.
2. Add more to the investment whenever possible.Invest over a long period of time.
3. The younger you start the more powerful compound interest will become.
Now compounding cryptocurrency is a lot more challenging than your typical legacy markets. However, there are tools that I typically use in order to make the most money within both investment vehicles.
Let’s start off with my Top 4…
This is my favorite tool for passively investing in legacy markets. With this handy smart phone app you can automatically invest your spare change on all purchases and reinvest it at any time into a portfolio of ETFs. It’s a great way for developing a diversified portfolio as the platform can invest in more than 7000 stocks and bonds as well as auto re-balance your portfolio to stay within reasonable target allocations
Acorns does all the heavy lifting for you with regard to managing your portfolios based on investment goals. It’s also worth noting that the money that you invest in is rounded up from your bank account transactions and credit card purchases so it’s very easy to manage and goes completely unnoticed. I personally use the 10X option in order to increase my investments quickly.
So think of this platform as the Acorns of cryptocurrency. RoundlyX will round up your credit card purchases and bank transactions in order to invest into various cryptocurrencies. Currently users can choose from a host of various currencies which are currently being traded on Coinbase.
The company doesn’t take custody of your crypto as they merely facilitate the transaction through Coinbase. This is an incredible platform that I use with the 10X option. I also use this platform as my primary tool for dollar cost averaging into Bitcoin and other cryptocurrencies.
This is an incredible and intuitive iOS app that offers US compliant, commission free trading by connecting to over a dozen trusted and secure cryptocurrency exchanges.
Reducing fees and commissions, which Voyager does quite well, it is the key to growing wealth with this app. They also provide an extremely easy to use interface, interactive charts, and professional research tools which ensures that you stay up to date on large market movements.
This company allows cryptocurrency investors to earn interest on Bitcoin, Ethereum, and even Gemini Dollars. This is where compound interest comes into play as the company offers 6.2% annual interest on Bitcoin balances that are lower than 5 BTC and up to 8.6% on other digital assets.
Users also receive interest on their principal which will result, over the longer-term, in exponential gains for crypto hodlers. For the typical Bitcoin hodler, this is a great opportunity to grow your initial investment while waiting for Bitcoin to reach your targeted price.
Investing early and often is the true key to wealth. Look for low fee investments and exchanges that have lower tier commissions. Ensure that you take advantage of tax shelters like 401(k)s and Roth IRAs as well as put your money to work for you where you don’t have to touch it unless you absolutely need it.
Remember, always keep your long-term goal in mind (especially when you’re younger). Following the strategies I outlined above is the ideal way to be sitting pretty financially at 50, sipping margaritas by the beach, without a care in the world.
(Disclosure: The Author is the Business Owner at CryptoAccountBuilders.com)