Buying Crypto for the First Time in 2022? Do These 4 Things First

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Here's what to do if you're ready to take the plunge into crypto.

Key points

  • Make sure you can absorb any losses from crypto investing.
  • Do your research to understand your choices, the risks, and whether crypto fits your investing strategy.

Cryptocurrency is the sort of investment that isn't necessarily right for everyone. But if you've been on the fence about buying some, you may decide to move forward this year. Doing so could benefit you financially. But before you buy crypto, tackle these important tasks.

1. Assess your emergency savings

Any money you put into cryptocurrency is money you have to treat as if you will lose. This isn't to say that you're guaranteed to lose it. But since that possibility exists, make sure you're set financially in case unplanned bills strike.

Before buying crypto, give your emergency fund a close look, and make sure it contains enough money to cover at least three months' worth of essential living expenses. Without a solid emergency fund, you could end up forced to sell some of your cryptocurrency holdings at a loss to drum up cash, and that's not a position you want to be in.

2. Research your digital currency options

Though certain cryptocurrencies get more press than others, there are actually thousands of coins you can add to your portfolio. Rather than just go with a well-known name like Bitcoin, research your options. You may find that a lesser-known coin is a better fit.

3. Understand the risks

There's no such thing as a risk-free investment. Even bonds, generally considered a pretty safe bet, can backfire and result in financial losses. But cryptocurrency is a notably risky investment -- riskier than stocks, in fact.

The reason? The cryptocurrency market tends to swing more dramatically than the stock market, so the value of your investments can shift a lot from one day to the next. Also, there are stocks that trade publicly today that have been around for well over 100 years. But even the oldest cryptocurrency -- Bitcoin -- has only been in circulation for a little more than a decade. We don't yet know how much staying power crypto will have.

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Furthermore, new regulations could come down the pike that make cryptocurrency less appealing from a tax standpoint. That could not only impact your finances, but result in less demand for crypto, eating away at its value.

This isn't to say that you shouldn't buy cryptocurrency because of these risks. Just make sure you understand them before you jump in.

4. Decide how crypto fits into your investing strategy

Some people buy cryptocurrency with the goal of selling it shortly thereafter to make a quick profit. Other people buy cryptocurrency hoping to help fund their retirement. Think about how crypto fits into your specific investment strategy and how long you'll aim to hang onto it.

Buying cryptocurrency could be one of the savviest financial moves you make this year. But run through these important items before diving in. That way, you're less likely to regret purchasing digital coins.

Our Research Expert