Many Americans Regret Their Crypto Purchases. Here's How to Avoid Buyer's Remorse

Build up your financial foundations before you buy crypto.

According to research from ConsumerAffairs into financial regrets, almost half the people who bought crypto in the past year regret their actions. Given the extreme volatility we've seen in the past six months, that's hardly surprising. If you were unlucky enough to buy Bitcoin (BTC) at its November high, it will be worth about 40% less today. Many people who invested in altcoins could be looking at even bigger losses.

Of the people who bought crypto last year, 32% said they were happy with the decision and 49% said they regretted it. Conversely, 16% of people who didn't buy crypto said they regretted not diving into the digital currency waters.

How to avoid crypto buyer's remorse

Last year was a breakout year for cryptocurrency. A Gemini report showed that 41% of crypto owners bought for the first time in 2021 and many more are still crypto-curious. However, it was also a volatile year, and new investors who bought in when prices were high may now be anxious about whether the market will ever recover.

It's easy to get caught up in the excitement of a new asset or product, and the growth of various crypto apps and exchanges means it's easier than ever to buy crypto. Nonetheless, these four measures will stop you making an investment decision you later regret.

1. Only invest money you can afford to lose

The golden rule of crypto investing is not to invest money you need for other things. You don't want to be stuck unable to pay the rent or cover other expenses because you bought more crypto than you budgeted for. These are high-risk assets, and prices can fall dramatically in a matter of weeks.

Bitcoin and blockchain technology could transform the way we manage money and crypto has come a long way in the past decade. But it still has some major hurdles to cross. For example, we don't know what impact increased crypto regulation will have. It could also be impacted by other evolving technologies such as quantum computing.

Billionaire investor Ray Dalio summed it up well when he said, "Bitcoin looks like a long-duration option on a highly unknown future that I could put an amount of money in that I wouldn’t mind losing about 80% of."

2. Research...and then research some more

Another frustrating aspect about cryptocurrency investment is that the internet is packed with so-called experts. Some make outlandish predictions about what might happen, some will tell you not to buy anything at all, and others have useful perspectives on the industry as a whole. The best way to make sense of it all is to research and build your own understanding.

But it's more than that. Whether it's crypto or stocks or real estate, it's always important to understand what you're buying and why. Only you know your financial situation, your risk tolerance, and your investment goals. Research will help you decide if a particular investment is right for you. It will also help you identify any specific risks to watch out for. For example, if a strong management team is a factor in your decision to buy, and then key members of that team move onto another project, you might reevaluate.

3. Build up your emergency fund

An emergency fund gives you a financial cushion against unexpected disasters. If you have three to six months' worth of living expenses put aside in an easy-to-access account, you'll be able to cope if you suddenly lose your job or face a medical emergency.

It is also a great antidote for buyer's regret. Some investors find the volatility of crypto investing stressful, especially at the start. It can be easier to sleep at night if you know you have money put aside to cover any catastrophes. Importantly, it also means you'll never be forced to sell your crypto or other investments if there's a crisis when prices are down. Having an emergency fund means you'll always be able to wait out any dip.

4. Consider how crypto fits with your overall financial plan

Before you invest in crypto, make sure you're on top of your other financial goals such as retirement planning and paying down debt. Look at how your potential crypto investments fit with your other investment goals, and whether it makes sense given your current financial situation.

Many experts advise that crypto should make up only a small percentage of your overall investment portfolio. By minimizing your exposure to one specific asset, especially a high-risk one like crypto, you're less likely to get burned if a particular sector or asset type crashes. A diversified portfolio means finding the right mix of things like stocks, bonds, real estate, crypto, and commodities.

Bottom line

Headlines about assets that rose over 5,000% are one reason so many people bought crypto for the first time last year. But cryptocurrency prices can fall dramatically, too. The best way to avoid making investment decisions you regret is to keep the risks front of mind as well as the potential gains. But not so much that you join the 16% of Americans who regret not buying crypto.

All the above steps are essentially ways to minimize the risks involved in buying cryptocurrency. Take your time, look for ways to balance your portfolio, and make sure you have sound financial foundations. That way you're more likely to be comfortable with the investment decisions you make.