Investing is easier than ever these days, thanks to a host of platforms that make it possible to buy and sell assets right from one's phone. And the good news is that millennials seem to be taking advantage of that.
In a recent Motley Fool survey, almost 60% of millennial investors say they own cryptocurrency and/or stocks. But of the two, crypto beats stocks as the more widely held investment, with 60% of millennials holding digital currencies in their portfolios and 56% having stock holdings.
On the one hand, it's a good thing to see millennials jumping on the investing bandwagon. Younger generations are in a solid position to invest early and grow lots of money for retirement.
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But is crypto the ideal asset for millennial investors to hold? Or are they better off playing it safer?
A good time to take some risks
Owning cryptocurrency isn't for the faint of heart. As volatile as the stock market tends to be, the value of crypto can fluctuate even more wildly, depending on a host of factors.
This year, several popular digital currencies are down substantially. While the same can be said for stocks, the crypto market has taken an even more significant beating.
But that's not the only reason millennials should proceed with caution with regard to crypto. They should also recognize that it's a fairly speculative investment that comes with lots of risk.
For one thing, we don't know if crypto will become a widely accepted form of payment or not. We also don't know what regulations might come down the pike that limits the way crypto can be used or traded.
To be clear, it's not like stocks don't carry their own risks. But there are plenty of publicly traded companies that have been around for more than 100 years. Crypto, on the other hand, has only existed for a little over a decade. And so it's difficult to know exactly how much staying power it has.
Furthermore, there are different metrics that can be used to research companies and decide if their stocks are a buy. Investors can look at cash flow, outstanding debt, earnings per share, and other such publicly disclosed numbers. It's harder to determine the value of different digital currencies because that number is largely a function of investor demand -- not an underlying product or service.
While crypto is clearly a risky investment, if there's ever a time to take on some risk, it's when milestones like retirement are far away. So millennial investors who own crypto aren't necessarily doing themselves a disservice. If anything, they're putting money into a riskier asset at a more appropriate time.
Let's also remember that risk and reward tend to go hand in hand. So millennials who put money into crypto could end up with sizable gains over time.
Don't overdo it on crypto
Millennials may be big on cryptocurrency, and that's not a terrible thing at all. But it's important to recognize the risks of owning digital currencies before loading up.
It's also essential to maintain a diverse mix of investments at any age. Millennials who opt to load up on crypto should make sure that it's just one of several assets they hold.
A portfolio with a healthy mix of stocks, crypto, and some money in bonds could constitute a nice balance of risk and reward for investors who still have many years in the workforce ahead of them. Going too heavy on crypto, on the other hand, could be downright disastrous -- even for millennials, who have time on their side.
