New to Investing? Why You May Want to Choose Stocks Over Crypto
by Maurie Backman | Published on Oct. 7, 2021
Crypto can be a scary choice for investors who are just starting out.
One of the most important things to do on the road to becoming a successful investor is to train your brain to cope with volatility. Stock values have the potential to rise and fall in a flash, and once you learn to recognize that volatility is actually normal, you may be less likely to make rash decisions that cause you to lose money, like selling stocks out of a panic when they're down.
That said, reaching the point where a market downturn or period of volatility is no big deal takes time. And it's for this reason that beginner investors may want to favor stocks over cryptocurrency.
It's all about learning to cope
Even seasoned investors sometimes have a hard time seeing their brokerage account balances plummet from one day or week to the next. But that sort of event can be even harder on newer investors who aren't used to rapid fluctuations.
Now one thing it's important to remember is that whether you invest in stocks, crypto, or another asset, you don't actually lose money until you liquidate an investment at a price that's lower than what you paid. You could buy a stock for $50 a share only to have its market value sink to $30 the next day. But that doesn't mean you're out $20 per share. If you do nothing, you'll be out $0. And if you wait things out, that stock may very well climb back up to $50 per share in time.
But while the stock market has the potential to be volatile, the cryptocurrency market can experience even wilder swings. And until you're used to the idea of seeing losses on screen (even though they're not "official" losses), you may want to stay away from crypto or otherwise limit the amount of money you put into it.
This isn't to say that buying digital currency is a bad idea. Many investors have had a lot of success with crypto. The point, rather, is that focusing more on stocks may better help you get acclimated to the ups and downs of investing. And that's an important skill to develop.
How to know if you're ready for crypto
Not all beginner investors are wired the same way, and you may naturally have a higher risk tolerance than the average investor with your experience level. If that's the case, then you may be ready to invest money in cryptocurrency. But before you do, ask yourself these questions:
- Do I know which types of cryptocurrency to focus on?
- Do I understand the risks involved?
- Am I at peace with the idea of losing all of my money if the crypto market crashes?
- Do I understand the tax implications of buying and selling crypto?
Some people invest for the first time in cryptocurrency. While you can certainly go that route, you may have an easier time starting with stocks and moving on to crypto in a few months' time -- or longer, depending on how well you're able to cope with market volatility. Ultimately, the choice is yours, and there's no right or wrong way to go. But it pays to at least consider the upside of using stocks to get your feet wet.
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