I am one of the lucky ones. I invested very little money and now have over $ 350,000 worth of cryptocurrency. I’m 30 years old, I rent out and apart from my crypto I don’t have a lot of savings or retirement plans. I’m really having trouble what to do next. I don’t know whether to go ahead or take the $ 350,000 and do something more practical with it. Am I stupid to just let it go?
– Mason, Chicago
You realize that “Let it ride” is a gambling term, right? While you may think that I wrongly addressed a throwaway phrase in your email, it is the blurred line between gambling and investing that makes cryptocurrency so confusing.
Too many people believe that investing is a gamble. As it turns out, investing is not a game of chance. Is there any risk involved? Yes. Is there a reward in the game? Yes. Is investing a game of chance? Well, that depends on your investment strategy.
The main difference between gambling and investing is that an investor uses diversification tools to mitigate risk and reduce the likelihood of loss. A player is usually all-in with a single lever that determines whether he wins or loses. And even if you hold different types of cryptocurrencies, using a single asset class means you won’t mitigate risk through asset allocation and diversification.
I have always believed that a person can acquire the right to take additional investment risks by adding underlying financial stability to their life, such as an emergency fund, an adequately funded retirement strategy, and the elimination of consumer debt. This level of stability is difficult to achieve when all of your net worth is tied to something as volatile as crypto.
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Investors have very specific goals in terms of return, time horizon and risk tolerance. Additionally, investors generally have specific goals for specific accounts, whether the money is for retirement, college, or some other timed event. The main objectives of the players revolve around winning the bet with no additional structural elements or restrictions.
The strangest reality at the intersection of investing and gambling is that in theory the same asset can be either an investment or a gamble. It is the strategy and planning behind the asset that will decide whether you will gamble or not.
Gambling is exciting. Investing well is really boring. Also, I am tired of reading / hearing quotes from the great investment gurus of our time, but Warren Buffett was not wrong when he warned, “Beware of investment activities that generate applause; the large movements are usually greeted with a yawn. “
Don’t make your decision so binary. There is no inherent “all or nothing” moment here. You can take money off the table and do something less speculative with it.
Warren Buffett was not wrong when he warned, “Beware of investing, which generates applause; the big moves are usually greeted with yawns.”
I have always believed that a person can acquire the right to take additional investment risks by creating underlying financial stability in their life. For example, a healthy emergency fund, adequately funded retirement strategy, and lack of consumer debt make it more tolerable to invest excess funds in speculative instruments. This level of stability is difficult to achieve when all of your net worth is tied to something as volatile as crypto.
Consider using some of the value of your crypto holdings for more conventional stability. By doing this, you allow the rest of your crypto holdings to become less of a gamble and more of a particular investment strategy. You still have the theoretical advantage of crypto, but you also have a more reliable foundation for your financial planning strategy.
When selling cryptocurrencies, you need to consider taxes. Unfortunately, a bevy of crypto investors will learn an incredibly hard lesson if they fail to consider the tax obligations they have to the IRS.
You have to come to terms with the FOMO (fear of missing out) that inevitably comes with moving from a speculative investment strategy to a more prudent investment strategy. You can’t forever measure your diversification decision against an open schedule that would allow your previous speculative investments to fluctuate wildly, if not more,. That will be the temptation with all of this. If you diversify and then your previous investments skyrocket, you will feel like you have failed. You did not fail. This is FOMO, and it’s as old as investing itself.
An additional note: when you sell cryptocurrencies, you need to consider taxes. Unfortunately, a bevy of crypto investors will learn an incredibly hard lesson if they fail to consider the tax obligations they have to the IRS.
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Peter Dunn is a writer, speaker and radio host and has a free podcast: “Million Dollar Plan”. Do you have a question for Pete the Planner? Send him an email at [email protected]. The views and opinions expressed in this column are those of the author and do not necessarily reflect those of USA TODAY.