For anyone looking to start investing in 2022, two of the most common investment options are cryptocurrency and the traditional stock market. But how do you know whether stocks or crypto is the right choice for you?
There are many factors to consider when looking at investing in cryptocurrency vs stocks. Before you put a dime into either of these assets, it’s important to make sure you really understand the difference between crypto and stocks to ensure you make the best personal investment decision.
Crypto or Stocks: Which Is a Riskier Investment?
Cryptocurrency is a digital currency that can be bought and sold via various online crypto exchanges. Though a relatively new investment option, cryptocurrencies have soared in popularity and value over the past several years, with Bitcoin alone accounting for approximately $800 billion of the total crypto market value.
While there are many legit cryptocurrencies, and certainly many people have made large ROIs investing in crypto, the market is not without its risks.
As a digital currency, which has no real assets or cash backing it up, cryptocurrency exists in an extremely volatile space, and is prone to sharp rises and falls in value. Additionally, the world of crypto is still kind of the “Wild West” of investing, and is largely unregulated on a global scale. Because of this, there is a big risk of cyber crime.
Risks of investing in cryptocurrency:
Isn’t backed by anything “real”
Many cybersecurity issues (including prevalence of crypto scams)
Stocks have been around for hundreds of years and the world’s biggest stock exchange, the New York Stock Exchange, began in 1792. A stock is basically a piece of ownership in a company that gives the holder entitlement to a certain portion of the business’s profits. In general, if a business is doing well, its stock prices increase, but there are other factors that influence stock values.
Although stock values are backed by real assets and cash from the companies that issue them, the stock market is still extremely volatile.
Regardless of how a business is doing, speculation and bigger issues, such as global economics and politics, can cause the prices of certain stocks to shoot up or drop drastically. Investing in stocks also always comes along with the risk that a company fails suddenly, and its stocks become worth next to nothing.
Risks of investing in stocks:
Hard to make large ROIs (better for long-term investing)
Stocks can fall in price and never rise again if a company fails
Global issues can affect whole markets or sectors
Things To Consider About Crypto Investments
Crypto is extremely volatile because the prices are completely determined by crypto traders and their actions. A crypto coin that’s very popular and valuable today could be worth next to nothing tomorrow.
The Worldwide Interest
One pro of investing in crypto is that the worldwide interest in digital currencies only seems to be going up. As cryptocurrency becomes increasingly mainstream, there should be more and more investment opportunities.
Since cryptocurrency only exists in the digital space, and it isn’t regulated by any central governing bodies, crypto investors are a favorite target of cyber criminals. Hackers and scammers have been known to do everything from flat out emptying investors’ crypto wallets by stealing their login info, to creating fake cryptocurrencies and making off with millions of dollars from eager new investors.
We already mentioned that the lack of regulation makes the crypto world an ideal space for cyber criminals to operate in. On the other hand, there is also the risk that cryptocurrencies become heavily regulated by global governments, which would make them a much more complicated (or even impossible) investment.
No Intrinsic Value
Since cryptocurrencies are not backed by any real assets or cash, they have no inherent value. Their value is purely based on what investors are willing to buy and sell them for.
Growing Number of Coins
New crypto coins are constantly appearing, so there are more options than ever when deciding what cryptocurrencies to invest in. However, it’s also important to be aware that this makes it harder to determine which cryptocurrencies are legit and which are a scam.
Things To Consider About Stock Investments
Has Intrinsic Value
Stocks represent a piece of a company, and thus have a “real” value. A stock’s value depends on the success of the company that issues it, so if the company does well, so does the stock (usually).
Years of Returns on Investments
Stocks make a great long-term investment. While there are always dips and spikes in the stock market, the overall pattern is of stock values trending up. So, if you’re willing to buy stocks and hold onto them for years to come, you can make strong overall ROIs in the long run.
Stock markets, including the exchanges, brokers, and companies involved in them, are heavily regulated, which makes it safer for investors. It’s important to note that there is still plenty of stock fraud and lots of online stock investing scams that you need to watch out for, despite all the regulation.
While less volatile than the crypto market, stock markets are still prone to extreme swings. This is especially true when there are global political and economic problems, such as wars and recessions.
Hard for Big Gains
While it’s possible to get lucky and buy stocks for the next Apple or Microsoft before they blow up, most stock market investors don’t make huge returns. Experts consider an average return of 10% over the long term to be good for stocks.
Other Things To Consider
Your Time Horizon - the Shorter It Is, the Safer It Should Be
Your time horizon is how long you intend to hold onto your investments before you cash them in. A short time horizon is typically considered to be 5 years or less.
If you have a short time horizon, you should make safer investments, so you run less risk of losing big.
While crypto can provide big returns in the short term, you also have the potential to make nothing if a cryptocurrency you invest in loses all its value.
On the other hand, buying and holding stocks for a few years should provide you with some solid returns, but they likely won’t be very big.
For a short time horizon, you may want to consider a mix of stocks and crypto, to average out higher returns.
Diversification is the practice of spreading your funds around in different types of investments to protect against risks. In stock investing, you can diversify by investing in different sectors, which don’t impact the value of each other if one is doing well and the other isn’t.
You can also diversify by investing in totally different markets, such as crypto and stocks. If you choose to do so, you should keep your crypto investments to a small percentage of your total portfolio (experts recommend about 2-5%).
Scams and Security Risks
Remember that, besides the normal risks presented by market volatility and other factors, any investment also comes with the risk of getting scammed.
There are lots of scammers operating offshores who prefer to target new investors online and steal their hard-earned funds in a variety of ways. Fortunately, there are also people out there who can help you get your money back if you lose it to stock or crypto scammers.
Where To Turn if You Are Part of a Crypto or Stock Scam
If you’ve fallen victim to a cryptocurrency scam or a stock trading scam, contact a chargeback company immediately. Check the reviews of verified chargeback companies on Top 10 Chargeback to find the right professional fund recovery specialists to take on your case.
Crypto or Stocks: Which Is a Better Investment?
There is no definitive answer to the question of “should I invest in crypto or stocks?” The decision really depends on your personal financial situation and goals.
If you have a lower risk tolerance and want to invest long term to help save for future expenses, such as retirement, you might prefer to invest in stocks. If you have a higher risk tolerance and want to try and earn bigger ROIs in the short term, crypto investing might be right for you.
Keep in mind that you don’t necessarily have to choose between crypto vs stocks. In fact, the right choice for many modern investors is to put a bit of money into both.