May 5, 2023 | 7 min read
Summary: Considering investing in cryptocurrency? We look at the pros and cons to help you make an informed decision on whether it’s right for you.
Investing in cryptocurrency is a high-risk, high-reward strategy.
Making the decision to invest in it is complex and depends on a variety of factors, including your personal financial goals, risk tolerance, and understanding of the market.
In this article we look what you need to consider when investing in cryptocurrency, so you can make an informed decision on whether it’s right for you.
Investing in cryptocurrency has some advantages.
Like all types of investments, investing in cryptocurrency has disadvantages.
One of the main things to consider before investing in cryptocurrency is to have a plan. This helps you put into perspective not only your investment goals, but when and how you want to achieve them.
It can also help to remove the likelihood of emotions influencing your investment decisions. There are times where you may feel tempted to change your investment strategy because an area of your portfolio is not doing well, or you received recent news the market is going to plummet.
While these events may cause you to react quickly, it's important to consider your investment strategy. If your approach is intended to be a long-term plan, making decisions based on short-term market fluctuations, may greatly affect what you set out to achieve.
Consider how much time you're giving yourself to build towards your financial goals and how much risk you’re prepared to take on to get there.
For example, an investment plan for retirement may look very different for someone closer to retiring than a person who’s decades away.
If you're looking to access your money in a shorter time frame, remaining invested through ups and downs in the market may be unlikely, so a less risky investment approach may work to your favour.
You may choose to divvy up your money across a variety of asset classes such as cryptocurrency, shares, cash or property. This will help to diversify your risk so if one of your investments doesn't perform well, your losses may not be as significant.
On the flip side, it does take more effort as you'll need to remain up to date across a variety of markets.
If you're investing in cryptocurrency, it's also important to look beyond the price and consider the digital assets you're buying into.
When you own cryptocurrency, it represents ownership in a digital asset.
Ultimately, what you choose to invest in should be based on your interest in the technology and risk appetite.
Here are some factors you may want to consider:
It's critical to take the time to research what factors may have an impact on your investments so you can make informed decisions.
Having a good understanding about the cryptocurrency market and the underlying technology you’re interested in will also help you make better decisions.
And don’t forget to always do your own research rather than relying on hype and other peoples’ opinions. Stay informed about developments in the market and the latest news related to the coins you’re interested in.
Investing in cryptocurrency follows a very different process to investing in shares. Here’s some simple steps to follow:
Step 1: Select a cryptocurrency exchange
Cryptocurrency must be bought through an exchange—a platform where buyers and sellers meet to trade cryptocurrencies.
When choosing an exchange consider how much security it offers, the fees and any minimum investment requirements as well as the types of cryptocurrency it has available.
As part of this process, you may need to verify your identity and provide personal information. You also need to have funds available in your account which you can set up by linking your bank account or making a payment with your debit/credit card.
Step 2: Choose which cryptocurrency to invest in
Take some time to understand the different and unique characteristics of each cryptocurrency as there are many to choose from.
Step 3: Store your cryptocurrency
Because cryptocurrency is digital, you need to be able to store your coins in a safe environment.
When you buy cryptocurrency, it’s typically stored in a wallet attached to the exchange. But you can move it into a more secure location such as a ‘hot’ wallet—stored online and run through internet connected devices—or a ‘cold’ wallet—external device such as a USB or hard drive.
Step 4: Decide how much to invest
Just like any type of investment, how much you choose to spend on cryptocurrency should depend on a number of factors like your budget, risk tolerance and your investment strategy.
Always focus on the total dollars you want to invest, rather than the number of coins and never invest more than you can afford to lose.
Step 5: Manage your investments
How you manage your cryptocurrency depends on your investing strategy and goals but it’s important to review your portfolio regularly.
As cryptocurrency is extremely volatile, you may need to increase or scale back on some coins, depending on your investment goals.
Bottom line: before deciding to invest in cryptocurrency, consider how it fits with your own risk tolerance and financial needs. If in doubt, seek independent professional advice where you can.
Note: MLC does not offer cryptocurrency investments.
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This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the Insignia Financial group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at November 2023 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. It is recommended that you consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you make any decisions about your superannuation. You can obtain the latest copy of the PDS (or other disclosure documents) and TMD by calling us on 132 652 or by searching for the applicable product at mlc.com.au. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.