Investing in cryptocurrency is a high-risk, high-reward strategy.
Making the decision to invest in it is complex and depends on a variety of factors, including your personal financial goals, risk tolerance, and understanding of the market.
In this article we look what you need to consider when investing in cryptocurrency, so you can make an informed decision on whether it's right for you.
Investing in cryptocurrency has some advantages.
Like all types of investments, investing in cryptocurrency has disadvantages.
Plan your investment strategy
One of the main things to consider before investing in cryptocurrency is to have a plan. This helps you put into perspective not only your investment goals, but when and how you want to achieve them.
It can also help to remove the likelihood of emotions influencing your investment decisions. There are times where you may feel tempted to change your investment strategy because an area of your portfolio is not doing well, or you received recent news the market is going to plummet.
While these events may cause you to react quickly, it's important to consider your investment strategy. If your approach is intended to be a long-term plan, making decisions based on short-term market fluctuations, may greatly affect what you set out to achieve.
Review your timeframe and risk tolerance
Consider how much time you're giving yourself to build towards your financial goals and how much risk you're prepared to take on to get there.
For example, an investment plan for retirement may look very different for someone closer to retiring than a person who's decades away.
If you're looking to access your money in a shorter time frame, remaining invested through ups and downs in the market may be unlikely, so a less risky investment approach may work to your favour.
Consider where to invest your money
You may choose to divvy up your money across a variety of asset classes such as cryptocurrency, shares, cash or property. This will help to diversify your risk so if one of your investments doesn't perform well, your losses may not be as significant.
On the flip side, it does take more effort as you'll need to remain up to date across a variety of markets.
Consider the digital asset not just the share price
If you're investing in cryptocurrency, it's also important to look beyond the price and consider the digital assets you're buying into.
When you own cryptocurrency, it represents ownership in a digital asset.
Ultimately, what you choose to invest in should be based on your interest in the technology and risk appetite.
Here are some factors you may want to consider:
Research the market
It's critical to take the time to research what factors may have an impact on your investments so you can make informed decisions.
Having a good understanding about the cryptocurrency market and the underlying technology you're interested in will also help you make better decisions.
And don't forget to always do your own research rather than relying on hype and other peoples' opinions. Stay informed about developments in the market and the latest news related to the coins you're interested in.
Steps to get started with investing cryptocurrency
Investing in cryptocurrency follows a very different process to investing in shares. Here's some simple steps to follow:
Step 1: Select a cryptocurrency exchange
Cryptocurrency must be bought through an exchange-a platform where buyers and sellers meet to trade cryptocurrencies.
When choosing an exchange consider how much security it offers, the fees and any minimum investment requirements as well as the types of cryptocurrency it has available.
As part of this process, you may need to verify your identity and provide personal information. You also need to have funds available in your account which you can set up by linking your bank account or making a payment with your debit/credit card.
Step 2: Choose which cryptocurrency to invest in
Take some time to understand the different and unique characteristics of each cryptocurrency as there are many to choose from.
Step 3: Store your cryptocurrency
Because cryptocurrency is digital, you need to be able to store your coins in a safe environment.
When you buy cryptocurrency, it's typically stored in a wallet attached to the exchange. But you can move it into a more secure location such as a ‘hot' wallet-stored online and run through internet connected devices-or a ‘cold' wallet-external device such as a USB or hard drive.
Step 4: Decide how much to invest
Just like any type of investment, how much you choose to spend on cryptocurrency should depend on a number of factors like your budget, risk tolerance and your investment strategy.
Always focus on the total dollars you want to invest, rather than the number of coins and never invest more than you can afford to lose.
Step 5: Manage your investments
How you manage your cryptocurrency depends on your investing strategy and goals but it's important to review your portfolio regularly.
As cryptocurrency is extremely volatile, you may need to increase or scale back on some coins, depending on your investment goals.
Before deciding to invest in cryptocurrency, consider how it fits with your own risk tolerance and financial needs. If in doubt, seek independent professional advice where you can.
Note: We do not offer cryptocurrency investments.
This article is issued by, OnePath Funds Management Limited (ABN 21 003 002 800, AFSL 238342), and OnePath Custodians Pty Limited (OPC) (ABN 12 008 508 496, AFSL 238346, RSE L0000673) as the trustee of the Retirement Portfolio Service (ABN 61 808 189 263) and the product issuer. OnePath Funds Management and OnePath Custodians are part of the Insignia Financial group of companies, consisting of Insignia Financial Limited ABN 49 100 103 722 and its related bodies corporate (Insignia Financial Group).
You should read the relevant Financial Services Guide (FSG), Product Disclosure Statement (PDS), Target Market Determination (TMD), Additional Information Guide (AIG), Investment Funds Guide (IFG), and product and other updates (for open and closed products) available at onepath.com.au and consider whether OnePath products are right for you before making a decision to acquire, or to continue to hold any OnePath product. Alternatively, you can request a copy of this information by calling Customer Services on 133 665.
Taxation law is complex, and this information has been prepared as a guide only and does not represent taxation advice. Please see your tax adviser for independent taxation advice.
Before re-directing your super or moving your money into your product, you will need to consider whether there are any adverse consequences for you, including loss of benefits (e.g. insurance cover), investment options and performance, functionality, increase in investment risks and where your future employer contributions will be paid. Any investment is subject to investment risk, including possible repayment delays and loss of income and principal invested. Returns can go up and down. Past performance is not indicative of future performance.
The information provided is of a general nature and does not take into account your personal needs, financial circumstances or objectives. Before acting on this information, you should consider the appropriateness of the information, having regard to your needs, financial circumstances or objectives. The case studies used in the articles on this website are hypothetical and are not meant to illustrate the circumstances of any particular individual. Opinions expressed in this document are those of the authors only.