A lot of people are buying cryptocurrency these days, and whether that's a good idea or a poor one is yet to be determined. The reality is that there's lots of potential to make money with cryptocurrency, but as is the case with any investment, the risk of losing money very much exists.
But a fear of losing money isn't the only reason I'm choosing to stay away from cryptocurrency for the time being. The main reason I'm opting out boils down to the fact that I have an investing strategy, and cryptocurrency doesn't fit into it.
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"Buy and hold" may not work well for cryptocurrency
My investing strategy is a classic one known as "buy and hold." Specifically, I like to buy quality stocks for my portfolio that I think have the potential to increase in value over time.
How do I determine whether a stock is likely to gain value in the long run? For one thing, I can look at the company's financials and see how well it's managing its money. I can also consider the extent to which the company is able to innovate, as well as its competitive edge.
In fact, these are factors I tend to consider more so than stock price, because my goal isn't necessarily to snag a stock at its lowest price. Rather, my goal is to buy a stock and eventually see its price go up.
Now it's very possible to adopt a similar approach to cryptocurrency. But in my book, that doesn't work.
While some people may regard cryptocurrency as a long-term investment, I'm not convinced it has that staying power. The value of cryptocurrency is apt to hinge largely on how widely accepted it becomes as a form of payment, and frankly, I have no idea how to predict that. And so if I were to buy cryptocurrency, I'd feel compelled to hold it on a shorter-term basis and unload it at a profit. I'd also feel compelled to buy it on the dip.
But again, those tactics don't fit into my general approach to investing. And for that reason alone, cryptocurrency doesn't seem to be a good fit for me.
What's your goal in buying cryptocurrency?
A lot of people are rushing to buy cryptocurrency to make money. But before you add it to your portfolio, dig a little deeper than that.
Sure, the goal of any investor is to make money, but what is it about cryptocurrency that makes you think it'll get you there? Are you seeing evidence pointing to the fact that more and more merchants will accept it in the next few years? Or are you simply banking on the fact that there's a lot of buzz around cryptocurrency, and that it's therefore a good idea?
As is the case with any investment you make, be sure to do your research on cryptocurrency and make sure it aligns with your overall strategy. I've already done my legwork and drawn my own conclusions, and it pays for you to do the same.
