Cryptocurrency and stocks are two of the most popular places for people to invest their money. It’s clear to see why they’re so popular – both forms of investment are easy to manage and you can make a lot of money out of either one. Of course, there are risks to both, and you can lose your money by making the wrong decisions. Just what are these wrong decisions? This post lists a few of the biggest mistakes to avoid when investing in crypto or stocks.
Investing in coins/stocks without researching them
It’s always important to know exactly what you’re investing in – otherwise, you may as well be gambling. Some expert investors recommend sticking to cryptocurrencies and companies that you already know. But if you do think about investing in a coin or stock you’re unfamiliar with, there are two big things worth researching: price history and overall current reputation.
The price history can tell you whether a coin or stock has largely been going up in value over time. Almost all coins and stocks will have slight dips in value, but overall the value should be going up. If a coin or stock has only recently started increasing in value rapidly, it could be worth researching exactly into why this is.
The overall current reputation is important to consider too. If there’s been a lot of negative media attention or public distrust of social media, it could be a danger sign. When researching coins, make sure that they seem official and have a white paper. With stocks, make sure that companies are not at the heart of scandals.
It’s essential to consider factors beyond mere selection; understanding the optimal timing for stock purchases can significantly impact your returns. Check out this insightful article on market timing for valuable insights and to know what is the best time of the day to buy stocks.
At the very least, you should understand what the purpose of the coin is/what industry the company is in. Make sure that it’s a purpose/industry that you understand.
Chasing too many cheap coins and penny stocks
Cheap coins and penny stocks can be popular because they don’t require much money to invest in. They can also experience some of the biggest increases in value. However, these coins and stocks are often low value for a reason – they are typically not as well established and therefore much more volatile (which can mean huge unexpected losses).
Higher-value coins and stocks are typically more established and popular – and often a lot less volatile. Those looking for a low-risk investment are therefore often better off investing in these coins and stocks.
Putting all your eggs in one basket
Putting all your money into one coin or stock is something you should never do. Every coin or stock has the potential to suddenly fail and lose all its money. If this happens, you could make a huge loss.
‘Diversifying’ is a term used to describe spreading your money across multiple coins or stocks. By choosing an array of different coins and stocks (ideally from a range of industries), you can reduce any potential losses – one coin or the stock may go bust, but there’s little chance they all will.
Experts recommend that a healthy diversified cryptocurrency portfolio contains between three and nine coins, while a healthy diversified stock portfolio should contain twenty to thirty stocks.
Trying to time the market
Almost all coins and stocks regularly rise and fall in value. The most stable coins and stocks will encounter slight dips along the way, but will largely increase in value in the long run. More volatile coins and stocks will experience large steep increases in value and large dramatic dips, and may not always increase in value in the long run.
Some investors when investing in crypto try to take advantage of these rises and falls by attempting to ‘time the market’. This involves buying a coin or stock when it’s at its lowest in value and then selling when it’s at its highest in value immediately before it drops.
The problem with this tactic is that without being lucky or having inside knowledge, it’s almost impossible to pull off. The biggest mistake comes to selling – investors will cling onto a volatile coin or stock as it’s rising in value hoping to sell it just before it drops in value. However, often when investing in crypto, investors end up waiting too long, resulting in the coin or stock sharply dropping in value before they are able to sell.
This is why it’s easier to simply buy and hold relatively stable coins or stocks for years and sell in your own time. These coins and stocks will encounter regular dips in value but will largely increase in value, so as long as you’ve held onto them for a few years, you should end up making a return.
Waiting to get even
Another common mistake investors make when investing in crypto is waiting to get even. Sometimes a coin or stock will encounter an unexpectedly sharp drop in value. It may drop so far that it becomes worth less than what you bought it for.
Eager not to make a loss, some investors will cling to these coins and stocks in the hope that they’ll one day rise in value again. However, such coins and stocks don’t always recover – you could be waiting forever to break even. The coin or stock may even continue to fall in value, losing you more money.
All in all, it’s important to know when to cut your losses. If a coin or stock has fallen sharply in value, and it’s not a trend that has affected other coins and stocks, it may be safer to sell as soon as you can and put that money into a more stable coin or stock. Keep clinging onto a falling coin or stock, and it may eventually become worth nothing – it’s better to sell it while it’s worth something.
You may be able to avoid things getting to this stage by having stop-loss orders in place. This involves having an alert sent to you as soon as a coin or stock falls to a certain value so that you can sell it immediately before it falls too far.
Being too lax when it comes to security
People will try to steal your crypto or hack into your stock account if it is not secured properly. It’s important that you’re not too relaxed when it comes to security.
When it comes to crypto, don’t just store your coins on an exchange – or worse, in an easily accessible computer folder. Always use a crypto wallet to store your crypto. There are different types of crypto wallets that you can explore. Work out which is the best type of crypto wallet for you.
Stock trading accounts are typically password protected – often using two-factor authentication. Make sure to use a strong password and not share login details with people you don’t trust.
Investing all your savings into crypto and stocks
Putting all your life savings into crypto and stocks is a bad move. Crypto and stocks both have their risks, and – while you can mitigate these risks by avoiding some of the above mistakes – a return is never guaranteed.
This is why you should always invest some of your money somewhere more stable such as a savings account. If the entire cryptocurrency or stock market does crash just as you need to access your money (which is rare, but does happen), you’ll still have money in savings.
Forgetting to regularly check-in
If you’ve just bought cryptocurrencies or stocks, you’ll likely find yourself checking their value every day. However, there may eventually come a point when you go weeks or even months without looking at them when investing in crypto. This can be dangerous as a lot can happen in a few weeks or months – if you’re not regularly checking in, you could find that you lose money.
Fortunately, nowadays it’s possible to set up alerts that can tell you when a coin or stock has fallen or risen to a certain price. With these alerts in place, you technically don’t have to keep checking. However, if you’ve not got these alerts in place, it’s worth regularly checking in.