Investing is easier than ever these days, thanks to a plethora of platforms that allow you to buy and sell assets directly from your phone. And the good news is that millennials seem to be taking advantage of that.
In a recent Motley Fool survey, nearly 60% of millennial investors say they own crypto and/or stocks. But of the two, crypto trumps stocks as the most widely held investment, with 60% of millennials holding digital currencies in their portfolios and 56% owning stocks.
On the one hand, it’s good to see millennials jumping on the investment bandwagon. Younger generations are in a strong position to invest early and earn lots of money for retirement.
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But are cryptocurrencies the ideal asset for millennial investors? Or is it better to be safer?
A good time to take some risks.
Owning cryptocurrencies is not for the faint of heart. As volatile as the stock market tends to be, the value of cryptocurrencies can fluctuate even more, depending on a number of factors.
This year, several popular digital currencies are down substantially. While the same can be said for stocks, the crypto market has taken an even more significant beating.
But that’s not the only reason millennials should proceed with caution when it comes to cryptocurrencies. They must also recognize that it is a fairly speculative investment that carries a lot of risk.
For one thing, we don’t know if cryptocurrencies will become a widely accepted form of payment or not. We also do not know what regulations could come into existence that limit the way cryptocurrencies can be used or traded.
To be clear, it’s not that stocks don’t come with their own risks. But there are many publicly traded companies that have been around for over 100 years. Crypto, on the other hand, has only been around for a little over a decade. And that’s why it’s hard to know exactly how much staying power it has.
Also, there are different metrics that can be used to research companies and decide if their actions are a buy. Investors can view cash flow, outstanding debt, earnings per share and other publicly disclosed figures. It’s more difficult to determine the value of different digital currencies because that number largely depends on investor demand, not an underlying product or service.
While cryptocurrencies are clearly a risky investment, if ever there is a time to take some risk, it is when milestones like retirement are a long way off. Therefore, millennial investors who own cryptocurrencies are not necessarily doing themselves a disservice. If anything, they are putting money into a riskier asset at a more appropriate time.
Let’s also remember that risk and reward tend to go hand in hand. So millennials who invest money in cryptocurrencies could end up with sizable gains over time.
Don’t go overboard with cryptocurrencies
Millennials can be big on crypto, and that’s not a terrible thing at all. But it is important to recognize the risks of owning digital currencies before loading.
Maintaining a diverse mix of investments at any age is also essential. Millennials who choose to load crypto need to make sure it’s just one of several assets they own.
A portfolio with a healthy mix of stocks, crypto, and some bond money could provide a good balance of risk and reward for investors who still have many years in the workforce ahead of them. On the other hand, using too much cryptocurrency could be downright disastrous, even for millennials, who have time on their side.