If you’ve ever followed or played sports, then you’ve likely heard the refrain of “Going back to the basics.”
When you hear that phrase, it’s usually in the context of turning a team around from failure to success. Or when talking about how a successful player or team became and stayed successful (queue the montage of famous players working on their skills in the off season and before and after games…).
To be fair, the advice to go back to basics is solid advice in so many areas of life.
Take investing into cryptocurrencies, for example (since you’re here), There are fundamentals that are worth reviewing again and again to get on track and to stay on track towards reaching your investing goals, and we’re going to talk about five of them today starting with…
#1: Use dollar-cost averaging
Now, if you’re not familiar with dollar-cost averaging, the idea is simple: Don’t try to predict every possible change in prices to determine when to buy and sell. Instead, regularly (every month, for example) invest a fixed amount, and over time, you’ll tend to see greater overall returns on investment (ROI) than if you’re trying to predict prices every minute of every day.
To go back to a sports analogy, think of it as a baseball team that focuses primarily on regular hits to get on base instead of focusing on homeruns.
Sure, homeruns (like big upswings in the value of your investments) are exciting, but they’re exciting precisely because they aren’t nearly as common as a base hit.
But getting a hit to get onto first base, if repeated by every player on your team, will tend to score you more runs in the game – and, therefore, help you to win more games than depending on homeruns. Don’t take my word for it, read Michael Lewis’s Moneyball (or watch the movie, but the book is better).
In other words, the flashy “big wins” often aren’t what will give you the biggest ROI over time. Regular steady investing over time will tend to give you the best ROI on both your time and money. Learn more about dollar-cost averaging here, and the benefits of rebalancing here.
#2: Be rational, not emotional, in your investing
We’ve all made bad decisions in our lives. I really don’t want to go into details, but believe me, I’m guilty.
Those bad decisions were sometimes because we didn’t have good information or enough information, but if we’re being honest, often those bad decisions were made because we were emotional about them. Again, I’m speaking from personal experience here!
Emotions are terrible influences on our investing decisions.
Now, to not be completely cold-hearted, emotions can help you to figure out why you want to do something, and they can help you to figure out the end result that you want to work towards.
But deciding how to get to that end result, how to get to that reason why you’re considering doing something, should never be emotional.
While emotions can be helpful in figuring out big picture ideas and setting goals… They’re terrible at the day-to-day decisions we make on the path to achieving those goals.
Deciding which assets to invest in, and how much to allocate to them, should also be emotionless.
Use your rational mind and rational decision-making to figure out how to get where you want to go, and make your investment decisions rationally. To boil this down into a single rule of thumb: Act, don’t react.
The next guideline helps ground you in reality so you can make better decisions…
#3: Know what your assets really are
This concept is a huge problem for some people to grasp, and it is usually a confusion in understanding between market cap and price of a cryptocurrency.
Finance reporter Laura Bogart writes,
Market capitalization, or market cap, is the total value of all coins in circulation. It’s calculated by multiplying the coin’s current price by the number of coins available. Market cap gives a clearer picture of a project’s true size and potential than price alone. While a cheaper coin might be tempting, the more expensive one could have more scarcity – and more potential for growth.
Put another way, Aaron and Austin Arnold say,
“It feels good to own a lot of something. But a large bucket of pebbles is not more valuable than a small nugget of gold.”
It is better to own a little something of value than to own lots of something of little to no value. (See, for example, my thoughts about memecoins here.)
It’s important that you be able to honestly determine the difference between gold nuggets and a bucketful of pebbles.
#4: Know your risk tolerance
It can’t be emphasized enough: Only risk what you can afford to lose.
Yes, you want to win and win big, but let’s go back to our first principle, dollar-cost averaging. Invest amounts that won’t put you in a financial bind if they don’t give you a huge ROI… or any ROI at all, for that matter. By the way, this is the difference between savings and investing. Savings is about preservation; investing is about taking risks with your savings in the hope of gaining rewards.
You need to be able to sleep at night, and you need to be wise with how you allocate your investing dollars.
Going back to the baseball analogy, invest in base hits that, if you don’t get on base with that one time at bat, you’ll still have opportunities and resources to get a base hit with your next player at bat.
If you only focus on homeruns, though, you may find that you’ve struck out at bat and didn’t score any runs, causing you to lose the game.
Remember, when Babe Ruth had the record for most homeruns, he also had the record for most strikeouts at bat. When there’s nothing to lose, going for the homerun can be fun, right? After all, YOLO… Might as well swing for the fences!
Your savings aren’t like that, though! I cannot overemphasize this point. When everything is on the line and you swing for a homerun and strike out instead, you don’t just get to go back to the dugout and wait for your next at-bat! As author and consultant Luca Dellanna says, your #1 goal in investing is avoiding ruin (podcast link, or get and read his book). Ruin is catastrophic for your savings.
Only invest what you can afford put at risk. Cryptocurrency is a high volatility asset class. That means both risk and potential rewards are larger than most other assets. It’s not for everybody, and only you can determine if crypto is right for you.
#5: Learn to earn
It’s been said that the surest investment is investing in yourself, and by that, they mean that gaining knowledge helps you to make better decisions and to develop skillsets that can help you to make more money.
Along that line, learning more about cryptocurrency investing can help you to make better and better investment decisions so that you can make wise choices and optimize your financial future.
Ultimately, the best investment you can make is in knowledge.
The more you understand how cryptocurrency fits within a balanced retirement savings strategy, the better equipped you’ll be to make confident, informed decisions – without chasing every market headline. Without insomnia.
At BitIRA, we help everyday Americans add digital assets like Bitcoin and Ethereum to their retirement accounts safely and securely. If you’re ready to take the next step, request your Free Insider’s Guide to Crypto IRAs.
It explains how tax-deferred crypto diversification with a Digital IRA works, the security protections we use – and what diversification could mean for your financial future.
Get your free guide today and learn how to build a smarter, stronger retirement – one digital step at a time.
Prefer to get started right now? You can open a Digital IRA now (anytime, day or night) in less than 10 minutes.
