Table of Contents
- Two Essential Factors To Consider Before Investing In Cryptocurrency
- Your Budget and Income
- Your Risk Tolerance and Patience
- How Much Of Your Income Should You Invest In Cryptocurrency?
- Why should you invest in cryptocurrency?
Investing is an essential part of increasing your finances, your spending power and your disposable income. The money you earn should not be used solely for paying bills. Setting aside a portion of it to invest in stocks, a small business, digital assets like cryptocurrency, or any other opportunity that catches your eye is advisable.
How much should you invest in cryptocurrency, and What should you consider before putting your money into Bitcoin, Ethereum, Solana or any other Crypto?
As a company focused on expanding your financial options through cryptocurrency and sharing the importance of financial literacy, we can offer some insight into how digital assets can work for you in 2024.
Two Essential Factors To Consider Before Investing In Cryptocurrency
Your investment is a personal decision because it is your money and responsibility. You must consider two key factors - your budget and risk tolerance.
Your Budget and Income
The general rule for budgeting popularised by American senator Elizabeth Warren in All Your Worth: The Ultimate Lifetime Money Plan is the 50/30/20 rule.
50% of your income should go to your needs, 30% to wants and 20% to savings/investments. Your needs include rent, feeding, electricity, transportation, and internet bills. Your wants are things like Netflix subscriptions and fancy gadgets. Some people subscribe to the 80-20 rule - spend 80% of your income, save 20%. Whatever you choose depends on the peculiarities of your living situation.
Now, let’s focus on your 20% for investing. There’s a popular saying that you should never invest more than you can afford to lose. For some people, it could be 5% or 15% of their investment capital. Your risk tolerance determines the percentage of your investment.
Your Risk Tolerance and Patience
Gains can be as heavy as losses in cryptocurrency. You can go to sleep with a thriving portfolio and wake up to a bleeding red wallet. Conversely, you can spend a week downcast about the market prices, and by the weekend, prices have gone up and dropped a massive profit on your lap.
How much money are you comfortable with losing? Are you patient enough to work through price fluctuations? Is this a short or long-term investment? These are some questions you'll need to answer honestly. They will help you decide if you want to spend 5% or 15%, or even 1% of your investment capital on buying or trading cryptocurrency.
How Much Of Your Income Should You Invest In Cryptocurrency?
Let’s say you earn ₦150,000 ($200) monthly and want to buy some crypto now that the prices are down. Following the 50-30-20 rule, 20% of your income for investment would be ₦30,000 ($40)
If you decide to invest 5% (₦1500) into crypto, you can buy some BTC, ETH, ADA and XRP or only one coin like BTC. Exchanges like Obiex allow you to buy crypto for as low as $1.
After buying these coins, you can hold or save them in your crypto wallet. One of the ways people have earned money from cryptocurrency is by buying some coins for a low price and selling them when they increase in price.
Knowing which cryptocurrency to invest in can be confusing, so we wrote a guide to buying crypto and avoiding bad/shitcoins. We also have a guide to help you maximise your crypto investments.
Why should you invest in cryptocurrency?
The current global crypto market cap is $1.79T. There are over 8000 active cryptocurrencies and about 300 million cryptocurrency users worldwide. Despite the hits suffered by cryptocurrency in 2022, the industry is still valuable and working towards its goal of offering an alternate path to fiat currency and simultaneously working with fiat to make financial stability accessible to more people.
In fact, the US Securities and Exchange Commission (SEC) just approved the listing of the first spot bitcoin exchange-traded funds (ETFs).
The SEC's approval follows a period of anticipation and legal battles. This development is a significant milestone in the cryptocurrency market, with expectations of attracting new crypto enthusiasts, traders and institutional investors.
When it comes to investing, Benjamin Graham, Famous Economist and Father of Value Investing, sums it up best - “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioural discipline that are likely to get you where you want to go.”
Q: What are the two essential factors to consider before investing in cryptocurrency?
A: The two essential factors to consider before investing in cryptocurrency are your budget and risk tolerance.
Q: How do I determine the percentage of my income to invest in cryptocurrency?
A: The percentage of your income to invest in cryptocurrency can be determined by following budgeting rules such as the 50/30/20 rule or the 80-20 rule.
Q: What is the 50/30/20 rule, and how does it relate to investing in cryptocurrency?
A: The 50/30/20 rule suggests allocating 20% of your income to savings and investments, including cryptocurrency. Understanding this rule helps in deciding the investment amount.
Q: Is there a recommended percentage of income to invest in cryptocurrency, or does it vary for individuals?
A: The recommended percentage varies for individuals based on factors like financial goals, risk tolerance, and overall budget.
Q: How does risk tolerance influence the amount of income one should invest in cryptocurrency?
A: Risk tolerance plays a crucial role in determining the percentage of income to invest, as it influences the willingness to withstand potential losses in the volatile cryptocurrency market.
Q: Can I invest more than the recommended percentage of my income in cryptocurrency?
A: While there are guidelines, the decision to invest more than the recommended percentage depends on individual financial situations and risk appetites.
Q: Are there specific cryptocurrencies suitable for lower investment amounts?
A: Yes, certain cryptocurrencies are available for lower investment amounts, and the article mentions examples like BTC, ETH, ADA, and XRP.
Q: Should I consider short-term or long-term goals when deciding on the investment amount?
A: Both short-term and long-term goals should be considered, and your investment amount can be adjusted accordingly based on your financial objectives.
Q: Is it advisable to invest a fixed percentage of income, or should it be adjusted based on market conditions?
A: Adjustments to the percentage of income invested can be made based on market conditions, personal financial situations, and changing goals.
Q: What factors should I consider when deciding whether to hold or trade the cryptocurrency I've invested in?
A: Factors such as market trends, personal financial goals, and risk tolerance should be considered when deciding whether to hold or trade invested cryptocurrencies.
Q: Where can I buy cryptocurrency?
A: Platforms like Obiex allow users to buy crypto for as low as $1.
Disclaimer: This article was written by the writer to provide guidance and understanding of cryptocurrency trading. It is not an exhaustive article and should not be taken as financial advice. Obiex will not be held liable for your investment decisions.