Investing in Stocks VS Cryptocurrencies

Joudy Elhadidy
January 7, 2021


Stocks

If you want to invest in stocks but are not sure of how to start, here are some tips to ensure you’re doing it the right way:

Assess your financial situation

Before you invest, you have to make sure that you have enough funds to commit. A good rule to follow is to have little or no debt and six months worth of living expenses in emergency savings account in case you have a family.

Diversify your portfolio

There are different types of companies that range in size, volatility, industry. A successful investor won’t buy only one type of stock but instead will diversify his portfolio by investing in different types of stocks and funds.

Think in terms of risk VS return

If you want high returns, you will have to buy stocks that carry more risks. If you don’t want to buy risky stocks, you will need to be willing to only have lower returns

Assess stock’s volatility

To anticipate a company’s volatility, it is important to look at its rolling 12-month standard deviation over the past 10 years. In other words, look at the stock's average performance during this period. A normal standard deviation is approximately 17% which means that it’s normal if a stock increases or decreases by 17%.

Pros

Return on investment

Returns related to stock market investing outperform other types of investments. People investing in stocks have the opportunity to grow their finances over the long term

Easy to buy

It is easy to buy shares of companies. This can be done in minutes through a broker, a financial planner, or online after setting up an account.

Easy to sell

The stock market makes it easy for anyone seeking to sell their stocks at any time and turning their shares into cash quickly with low transaction costs. As prices are volatile, people avoid the risk of being forced to take a loss

Cons

Time

If you are interested in investing, it takes time to do your research of which company to invest in to determine whether its stocks are profitable. Many things need to be learned such as reading financial statements and annual reports and following the company’s developments in the news. It is also important to monitor the stock market.

Stress

Monitoring the stock market is like riding a roller coaster. Stock prices can rise then fall a second later which stresses people and pushes them to sell their stocks at a low price out of fear. It is advised to not constantly look at how prices fluctuate but instead check regularly.

Cryptocurrencies

Bitcoin is the most fashionable investment of the past decade. Created in 2009, the digital currency hits $1 trillion in market value, making it one of the best performing financial assets in recent history. If you’re looking to invest in Bitcoin, here are a few tips for reducing your risk while increasing your exposure to gain

Start small

Cryptocurrency price fluctuations are completely unpredictable. Even the most experienced investors allocate a very small percentage of their capital to bitcoin. That’s why it's better to keep your initial investment in it relatively limited.

Have a buy and hold strategy

Investing in cryptocurrencies should be done for the long term, it is advisable to not buy bitcoin then sell it the next day, week, or month. When the pandemic hit the world in March 2020, Bitcoin plunged 50% to $4,000 but then hit an all-time record in November 2020 of $20,000 three years after the cryptocurrency soared to this level, which proves that patience is important when investing in Cryptocurrencies.

Understand the uses of hot and cold wallet

Cryptocurrencies can be stored on either an offline cold or online hot wallet. If you want to access your account easily, it is advisable to use hot wallets. However, they are susceptible to being hacked. Whereas cold wallets are not able to be hacked as they are not accessible via the internet

Pros

Potential high returns

Cryptocurrencies tends to peak at very high prices. In March 2021, the cryptocurrency spiked to a record over $61K

Reduced possibility of identity theft

Payments occurring with bitcoin do not require any name or any identification number of the account holder. This is an advantage for Cryptocurrency users as they have more control over their personal information and financial data which makes them face fewer risks of identity theft unlike other means of payments like credit cards.

Cons

Volatility

Although Bitcoin has managed to outperform stocks over the long term, it is considered a volatile investment which makes it hard to know when the value of the currency will rise or fall. According to Forbes, the digital currency’s annualized 30-day volatility reached 114.51% on February 8.

Not accepted everywhere

The cryptocurrency is still only accepted by a very small number of online merchants which makes it hard to rely on it as a currency.