Please note: I am not a financial expert and this blog does not seek to offer financial advice. Please get professional advice and do your own research before making any investments.
The world of money and finances is in a constant state of change. Your spending, saving, and investing will also change as new financial products and services become available. We are spending an increasing amount online, and cash payments are diminishing. People have become more used to digital payment methods in recent years. Therefore, it is not surprising that cryptocurrencies have made such an impact.
However, are these new kids on the finance block suitable for long-term investment? Read on to find out.
A bit about cryptocurrency.
Some people struggle with cryptocurrency because of the word “currency.” They are so used to associating currencies with physical money, that the new relationship with virtual money takes time to establish. After all, a currency is anything that a seller and buyer agree on as a means of transaction.
In layperson language, cryptocurrencies are digital currencies that utilise cryptography for their security. Cryptography is the practice of encoding communications, thus making them secure.
Cryptocurrencies are decentralised and unregulated. They operate using a distributed ledger made up of a network of institutions. All members of this network witness and verify all transactions, and this system is known as a blockchain.
How a blockchain works.
A blockchain enables you to send and receive money securely to individuals and institutions. All blockchain members witness every transaction, rather than centralised institutions (banks), which provide security, speed, and flexibility. It also means that transaction fees are negligible.
As cryptocurrencies are virtual and easily divisible, they have become prevalent; none more so than Bitcoin. It has proved helpful for global transactions and worldwide travel, as there is limited government involvement in large money movements. However, does this make it a good option for retirement investment?
What are the prospects for cryptocurrencies?
Large corporations, including Visa, Amazon, and others, are testing how they can incorporate cryptocurrencies into their everyday operations. As cash continues to reduce in influence compared to digital currencies, cryptocurrencies are likely to become accepted by more companies.
Indeed, the hype around massive fortunes made through Bitcoin is fuelling cryptocurrencies’ popularity. However, there are significant risks involved with investing in a cryptocurrency. Many people have suffered significant losses for investing at the wrong time.
Understand the risks of cryptocurrency investment.
The prospect of making huge gains through cryptocurrencies is seductive, particularly for naive investors. You should understand that cryptocurrency is a high-risk investment. Therefore, it does not align with what people consider to be suitable retirement investments.
Traditional retirement investments.
Most people don’t fully understand the world of investments. Generally, they leave their investment management to a financial advisor or other investment professional. One thing you must realise about investments is that nothing is guaranteed.
However, you can influence how your investments perform by setting boundaries for the risk level you’re prepared to accept. For instance, whether you want low, medium, or high-risk investments in your portfolio.
Cryptocurrency sits firmly within the high-risk category, offering the potential for huge gains and losses. Low-risk investments are at the other end of the scale; safe but with mediocre returns. Most investment professionals recommend a mix of low, medium, and high-risk investments. A good combination of these could include investments in tech stocks, property, precious commodities, start-ups, and others.
Should you include cryptocurrency in this list?
Cryptocurrencies are too risky to be part of a retirement investment. Their volatility means you could quickly lose a significant proportion of your retirement fund. Do you want to take such a risk?
The way ahead. Ensure you maintain control over how your money gets invested. If you feel uncomfortable about how your money is being invested, take action. A financial advisor can help you make decisions that maintain your comfort level and help grow your retirement funds, check out Portafina.
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