Editor’s Note: Welcome to the Early Investing Mailbag. Each week, we answer questions we think will help you learn about investing in pre-IPO startups and cryptocurrencies. If you have any questions for us, please email us at firstname.lastname@example.org. Just remember, we can only answer your general questions for information and strategy. We can’t offer personal advice.
Q: I am new to all of this. I don’t have a lot of money to invest, but I would love to know details on where to begin. I need some kind of cushion for me and my son’s future. To be honest, I am on a fixed income but would like to invest something somehow for our future not far from now. Are you able to get physical cash out of investing into the bitcoin world down the road?
A: OK, lots here to dig into…
I’m concerned about your overall financial situation. You say you don’t have “a lot of money to invest.” I hope you mean above and beyond what you spend on necessities.
But even if that’s the case, the overwhelming majority of your investments should be in less risky assets. Not having much to invest is no excuse to put proportionately more into crypto.
Invest in the stocks and bonds of your choice, as you should already be doing, as well as ETFs that follow interesting asset classes like gold, other commodities, real estate and the stock markets of non-U.S. countries. Then use what you have left on the crypto recommendations Adam and I recommend.
By the way, we recommend that 1% to 5% of your portfolio should be in crypto, but of course only if you can afford it. That means if you’re investing $1,000, $50 should go into crypto.
You may be tempted to invest more than that, especially if the amount you have left for cryptocurrency investments isn’t as much as you’d like.
I’d be careful here. Crypto investing has high upside. You can definitely hit home runs in this space. But it also carries more risk than your other “normal” investments. Our advice applies to EVERYBODY, regardless of their income bracket.
What you need to keep in mind is that a little money invested in crypto can go a long way. The gains can absolutely be outsized. So you really don’t need to put in a lot to get out a lot. You can put in modest amounts like $100 or $200 per crypto coin and realistically still make big cash gains.
And the nice thing about crypto is that you can cash out any time into dollars… “down the road,” as you say.
I noticed that you also specified a preference of collecting your gains “not far from now.” Again, I’m not entirely sure what you mean. We view crypto investments as a long-term play, meaning the longer you stay in, the better we feel you can do.
Another way of putting it: If you cash out too soon, you may be leaving a lot of future gains on the table. Exactly when to cash out is an individual decision we can’t make for you. But you should know that we think cryptocurrencies will be on the fast growth track for many years to come.
Also keep in mind that cashing out doesn’t have to be an all or nothing proposition. You can choose to take 10% or 20% of your gains – perhaps with the objective of leaving your original stake intact to continue making money for you down the road. We suggest you keep at least some of your investment on the table. The proven way to make the most money in crypto is to buy and hold for years.
By the way, these are topics Adam and I write about often. So keep checking us out at earlyinvesting.com. We’re now publishing five days a week.
+ Early Investing Co-Founder Andy Gordon
Q: I live in North Carolina and I am [trading] with Robinhood and another company. I also have a friend [who uses] E-Trade. Robinhood tells me it will let me know when cryptocurrency [investing] will be available in my state. My friend tells me he can’t get cryptos through E-Trade. Is it the companies we’re with, the state we live in or both [that prevents us from getting crypto now]? If it’s the state we’re in, could you tell me why? I’m puzzled.
A: Robinhood is an online discount stockbroker. It’s the first such brokerage to offer cryptocurrencies to its clients. Robinhood Crypto is available in 17 U.S. states so far. It plans to add more states soon (though it hasn’t said where North Carolina is on the list).
There’s a lot of regulatory work to be done before brokers like Robinhood can offer crypto to everyone. And no other stockbrokers (like E-trade) have moved into cryptocurrency (yet).
The vast majority of crypto trading takes place on specialized “crypto exchanges” like Coinbase, Binance, Bitfinex and Bitstamp. These businesses offer cryptocurrencies only, and many of them make it easy for customers to purchase with traditional “fiat” currencies, like the dollar or euro. This is not as simple as it sounds, because there are all sorts of regulations and laws that must be followed closely. But it’s how the vast majority of newcomers get started.
At some point in the next year, however, I believe we’ll all be able to buy crypto through ETFs (exchange-traded funds). At that point, it will be simple to buy bitcoin through a “traditional” broker. It’s one of the major catalysts I’m watching, and one I believe will be a hugely bullish event for cryptocurrencies.
So you have two options here. You can take the time to buy cryptocurrency through an exchange today (it’s gotten quite easy, really). Or you can wait until it’s available to every stock investor in the world. I believe the price of bitcoin will be far higher once ETFs are available. All of a sudden, millions of investors will have a simple way to buy bitcoin in a comfortable, familiar fashion.
Right now, there’s still a learning curve to buying crypto. It’s quite easy compared to the early days. But it does require you to open a new type of account, and many people aren’t willing to take that step. They’ll wait to buy until they can do it in their “old accounts.” And that could be a very costly decision.
The inconvenience and volatility we put up with today are simply the cost of being an early adopter. You have to learn to accept them as part of the overall risk/reward scenario. High potential risk, and even higher potential rewards.
+ Early Investing Co-Founder Adam Sharp