- Everyone wants to know if they should invest in crypto, from clients to friends to my mom.
- My answer: It’s not for everyone. Definitely don’t buy crypto if you’re looking for a quick payday.
- You should also avoid it if you have other financial priorities, or you’re afraid of losing cash.
- Read more stories from Personal Finance Insider.
“Is cryptocurrency a smart investment?”
I must’ve heard this a thousand times in the last year. Clients, friends, my dentist — even my mom wants to talk about crypto. There’s a digital gold rush happening, and everyone wants a piece of the action.
But not so fast. Before you invest in something as new and unproven as cryptocurrency, it’s important to look at both sides of the coin.
Failing to ask “Why not?” leads to investing based on emotion, or FOMO (fear of missing out), which can lead to costly mistakes. Do the smart thing and consider all angles, including why you shouldn’t invest in cryptocurrency.
After reviewing the pros and cons, you’ll have enough data to know if crypto is a good fit for you and your financial goals.
Here are three perfectly good reasons not to invest in cryptocurrency.
1. You’re worried about losing money in the short term
If you check your investment app multiple times a day and get anxious over losing 5, 10, or 20% in a few hours — cryptocurrency probably isn’t for you. Not unless you want more stress in your life. Since crypto is a new technology and an even newer asset class, that makes for a bumpy ride as an investor.
This is why mindset matters.
When you buy with a short-term mindset, you’re trying to time the market. This is the goal of a trader, not an investor. Instead of long-term growth, you’re focused on one thing: getting in and out at the perfect time. Only a small percentage of people can do this well. An even smaller percentage do it again and again without blowing up.
A better reason to buy: You’re not sure what will happen tomorrow, next week, or next month. And that’s OK, because you’re investing in crypto’s potential over many years, even decades from now. Short-term ups and downs don’t worry you. If they do, it means you have more money invested in a moonshot like crypto than you can afford to lose. Which is why it’s also important to establish what percentage of your portfolio belongs in crypto.
2. You’re hoping for a quick payday
Investors new to crypto often buy from a place of FOMO. Instead of asking, “Is cryptocurrency the right investment for me and my goals?”, the fear of missing out on overnight riches drives the buying decision.
I call this the “No Plan” plan. It rarely works out.
- You haven’t reviewed your goals
- You haven’t reviewed your portfolio
- You don’t know how or if crypto fits your strategy
But, because everyone in the world is yelling “Buy, buy, buy!”, you do, because you don’t want to miss out on the action. Without a plan or framework for how you’ll invest in cryptocurrency alongside your other goals, this mistake could cost you in the form of stress, delayed goals, and money that could’ve been invested smarter.
A better reason to buy: You’ve reviewed your goals, investments, and overall plan. After a deep dive, you’ve decided what percentage of crypto belongs in your portfolio (typically a small percentage, 1-5% is appropriate for long-term investors), and you’re ready to take the leap with a plan in place.
3. You have more important financial priorities
Everyone has multiple goals competing for their paycheck.
- Covering emergencies
- Buying a home
- Retiring on time
- Going on vacation
These are all things money can help you solve for. But it’s up to you to plan for each one.
If you get a $5,000 bonus check, the best investment might not be cryptocurrency. It might be the peace of mind that comes from filling up your emergency fund. Or emotional relief from paying off your student loans. Or getting closer to your home down payment goal. Or securing your future wants and needs in retirement.
Whatever the highest priority is, you’re the one who makes the final call on what’s best for your financial health. This is why it’s important to pause before buying crypto.
Can your money work harder for you somewhere else?
Answer this question to guide your buying decision.
A better reason to buy: If you’re on track with your goals and want another opportunity for growth, crypto has a ton of potential as a moonshot investment. But it shouldn’t be relied upon to pay the bills in retirement or cover a surprise medical expense. Make sure your financial foundation is set before jumping into a high-risk investment like cryptocurrency.
Anthony Carlton, CFP, is vice president at Farther, a digital wealth manager. Connect with him on LinkedIn to learn more about his work.
