#investinginbitcoin – Personal Finance

Investing risk and Reward

Written by R. A. Stewart

Weighing up the risks and rewards of various investments is doing your due diligence which is the responsibility of every investor.

There is no shortage of choice for investors to get involved with but it is a matter of choosing the ones which are right for your personal circumstances and goals.

Here are my personal views of some of the types of investments available:

High interest accounts with Finance companies

If a company is offering you an investment offering you a high interest; it can only mean that they are also charging high interest to their borrowers and the reason why some people are prepared to pay a higher rate of interest is because they have been turned down by a bank. This could only mean one thing. “These are people who are at a higher risk of defaulting on their loans.”

During the Global Financial Crisis of 2007-2008. Several finance companies in New Zealand went into liquidation. Prior to this some financial commentators warned people that the high interest rates being offered by these companies does not reflect the risk they are taking.

Investing in Gold through an online investing platform

Investors are able to invest in gold through the internet via apps similar to Sharesies, Hatch, and Robinhood but is this a safe way to invest?

I am not so sure because the problem with gold is that it provides no income, therefore investors are relying on capital gains to make money.

It is the transaction fees which could kill off any likelihood of profit, however, having said that, this is a good way to get involved in gold as an interest for a modest outlay. Just make sure you only use money which you would class as discretionary spending money.

Investing in Bitcoin

Is investing in Bitcoin a safe investment?

My answer to this is that nothing is 100% guaranteed, Bitcoin is a volatile investment. If you are prepared to ride out the lows then you can make capital gains for you.

It is not a substitute for your retirement fund and under no circumstances should you invest your entire life savings in bitcoin. The same is applicable to the share market and gold.

If you have discretionary spending money then using it to invest in Bitcoin is the way to go and who knows, you may become the next Bitcoin millionaire.

There are risks with Bitcoin but if you use your common sense and learn as much about the risks as you can then you can reduce your chances of making choices which can be costly.

Investors have so many options to invest these days but there comes the risk of losing due to an economic downfall therefore, it pays to be on the conservative side. That is to diversify and spread your money around.

About this article

This article is of the experience and opinion of the writer and may not be applicable to your personal circumstances therefore discretion is advised. You may use this article as content for your blog.website or ebook.

Read my other articles on www.robertastewart.com

INTRODUCTION

There are risks with bitcoin that investors need to be aware of in order to manage them. They may be out of the control of investors but at least there are steps one can to in order to minimize the risk. The risks will not be eliminated but at least you can mitigate them to a certain extent.

The Risks of Bitcoin that investors need to be aware of

Risk one-The volatility of bitcoin

Everyone knows how volatile bitcoin is and those who invest in this will see the value of this cryptocurrency fluctuate quite dramatically. Unless you can cope with the rises and falls of bitcoin then investing in bitcoin is not for you. There is little to be gained if the loss of your capital is going to cause you to lose sleep. I cannot stress enough the importance of using your discretionary spending money to play the cryptocurrency market.

What is discretionary spending?

It is money which is spent on travel, eating out, entertainment, hobbies and sports.

You would never spend the rent money or money which has been set aside for your retirement on entertainment such as a day out at the races so you should not use that money for playing the cryptocurrency market either.

Risk two-Hacking

A company called “Cryptopia ” which was an online bitcoin trading platform held funds invested in Bitcoin. It was hacked into and all those with bitcoin invested with cryptopia lost their money. There were some sad stories concerning the large amount of money lost by some individuals.

It has to be repeated that you should never play cryptocurrency money with funds you cannot afford to lose or to place too many eggs in the one basket as many of these investors appear to have done.

The other thing I have to add is that the actual amount of money lost by cryptopia investors is likely to be grossly inflated due to the rising price of bitcoin. If someone invested $1,000 in bitcoin and this rose to $10,000 in a few years only for them to lose the lot. It will go on record that this person has lost 10k when in actual fact, it was just 1k they lost.

Risk three-Lost passwords

An Australian man is locked out of his bitcoin wallet because he cannot even remember his password. The website where he has his bitcoin will lock him out of his wallet permanently if he has made ten failed login attempts. He has made eight. He has over 300k in his bitcoin wallet.

The lesson here is to write down your password and keep it locked away in a safe place.

The other piece of advice is to diversify your portfolio so that if something goes horribly wrong you will not lose too much in one hit.

Risk four-Government controls

Governments have the ability to ban crypto trading; China has done just that. Several agencies in China have joined forces to ban what they describe as “illegal” cryptocurrency activity. This is not to say other countries will follow suit but it just illustrates a point that governments do have the power to do this.

Risk five-Taxation

Two things in life are certain, death and taxes. You can be sure that at some point the taxman will want a piece of your bitcoin pie. Whether it be in the form of a Capital Gains Tax or the increased value of bitcoin. It should be remembered that if you are being taxed on the Capital Gains of your bitcoin then it may be possible to claim tax back on any capital losses. A good accountant will be able to advise you here.

Whatever form of capital gains you are investing in it should always be remembered that when there is the opportunity for capital gains there is also the possibility of capital loss. Investing in cryptocurrency is risky therefore, it cannot be stressed enough that the money you invest in bitcoin must be money you can afford to lose.

ABOUT THIS ARTICLE

You are welcome to use this article as content for your ebook or website. More articles by R.A.Stewart can be found at www.robertastewart.com

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