Welcome to this week’s newsletter. I received numerous emails last week to talk about cryptocurrency & my take on this investment.
With the rise of cryptocurrency [especially with the big news of Bitcoin hitting $100,000 this year], you may have wondered whether this exciting but volatile asset class deserves a spot in your financial portfolio.
So, Let’s break it down so you can make an informed decision that aligns with your financial goals.
What is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that uses cryptography for security. It’s like digital money that exists only online. Unlike regular money (like dollars or pesos) issued by governments and stored in banks, cryptocurrency operates independently and uses special technology called blockchain to keep transactions secure and trackable. Think of it as a combination of online cash and a digital ledger that everyone can see but no one can easily change. Popular examples include Bitcoin and Ethereum.
Why people want to invest in cryptocurrency?
It’s hard to ignore the buzz surrounding cryptocurrency. I started investing in crypto back in 2020 and as human beings, it’s hard to ignore the FOMO (fear of missing out).You’ve probably heard stories of people who became millionaires overnight by investing early in Bitcoin or Ethereum (i.e. the DOGEcoin millionaire)
While these stories are compelling, it’s important to remember that cryptocurrency markets are incredibly volatile. Prices can skyrocket one day and plummet the next. For a nurse juggling a demanding career and aiming for financial freedom, this level of risk may not be ideal.
Importance of Financial Foundation
Before diving into cryptocurrency or any high-risk investment, it’s essential to focus on your financial foundations. Here’s what that looks like:
- Build an Emergency Fund: Aim to save 3-6 months’ worth of living expenses in a high-yield savings account. This safety net ensures that unexpected events—like a medical emergency or a sudden job loss—don’t derail your finances.
- Pay Off High-Interest Debt: High-interest debt, like credit card balances, can eat away at your income. Focus on paying this down before exploring riskier investments.
- Maximize Retirement Contributions: Take full advantage of your 401(k) or 403(b) plans, especially if your employer offers a match. Consider also contributing to an IRA to grow your nest egg for retirement.
- Diversify Your Investments: A well-rounded portfolio with stocks, bonds, and index funds is a solid foundation for long-term wealth building. Diversification reduces risk and provides more stable returns over time. I have a free investing class if you have not signed up.
Cryptocurrency: A Speculative Investment
If you’ve checked off the financial foundation boxes and still want to explore cryptocurrency, consider the following recommendations. This is what I did since I still want to dabble into this asset.
- Invest What You Can Afford to Lose: Only allocate a small percentage (e.g., 1-5%) of your total investment portfolio to cryptocurrency. Think of it as a speculative investment, not a core component of your financial plan. My cryptocurrency portfolio is only 2-3% of my overall investment portfolio.. I invest mostly in Bitcoin, DOGE, ADA & XRP.
- Do Your Research: Before buying any cryptocurrency, research its purpose, use cases, and the team behind it. Stick to well-established cryptocurrencies like Bitcoin or Ethereum if you’re a beginner. I would definitely avoid memecoins unless the money i put in it is money I consider gone.
- Use Reputable Platforms: Choose trusted cryptocurrency exchanges to buy and store your assets [ I use binance + coinbase] Enable security features like two-factor authentication to protect your investments. This type of storage is considered HOT STORAGE. I would also look into putting your cryptocurrenly in a hardware wallets [ledgers] which is just essentially storing it offline [safer from cyber attacks]
- Hold for the Long Term: Avoid the temptation to day trade. Instead, consider a long-term approach, as the cryptocurrency market is notoriously volatile in the short term. However, I also would recommend taking profits.
- Stay Updated but Don’t Obsess: Set limits on how often you check your cryptocurrency portfolio. Constant monitoring can lead to emotional decision-making.
Balancing Risk and Reward
As a nurse, your time is valuable, and so is your hard-earned money. While cryptocurrency can be a tempting way to build wealth, it’s crucial to approach it with caution. By prioritizing your financial foundations and treating cryptocurrency as a small, speculative piece of your overall investment strategy, you can participate in the market without putting your long-term financial goals at risk.
Remember, the goal is to make your money work for you, not to gamble it away. Cryptocurrency can be a fun and potentially rewarding addition to your portfolio, but it should never come at the expense of your financial stability or retirement security. Build a solid foundation first, and you’ll be well-equipped to make the most of any investment opportunity—crypto included.
Reply back, do you invest in cryptocurrency?! How much did you allocate for this investment?
