If you haven’t heard, cryptocurrency is the flavor of the month in the investment world.
More than 20 million Americans own some form of cryptocurrency. With Bitcoin leading the way, the global market capitalization of crypto is hovering around $2 trillion. El Salvador became the first country to adopt Bitcoin as legal tender. Crypto was even a major cog in the Bipartisan Infrastructure Deal.
But what exactly is crypto? The digital phenomenon is somewhat of an enigma—an unregulated, private currency that hasn’t gained much footing in the broader marketplace. What crypto does have is an extremely volatile trading history. Following Bitcoin’s infancy in 2009 and 2010, when it was worth virtually nothing, values have been on a wild roller-coaster ride ever since.
When the going’s good, you can make a lot of money in cryptocurrency in a short period of time. But when the market heads south in a hurry (which it has multiple times), there’s a good chance you’ll lose it all just as quickly.
If a methodical approach to investing is more your style, consider these alternatives—some more aggressive than others. By employing one, or a combination, of these investment vehicles, the potential is there to earn higher-than-average returns on a regular basis (and maybe you’ll sleep better as well).
Dividend stocks
Dividend stocks are the least risky of this group. When a company you invest in enjoys a profit at the end of the year, it often will pay its shareholders in the form of a dividend. Investing in companies with a long history of success is typically the way to go. Sure, you could be more aggressive and collect high-yielding dividends from time to time through a more volatile young business (kind of like investing in Bitcoin, if you think about it). But earning a steady, passive income over the years through established businesses might make more financial sense.
Mutual funds & EFTs
Mutual funds and exchange-traded funds (EFTs) are popular investment options that share common features but differ in important ways. ETFs are a bucket of securities that trade on an exchange—the same as a stock. Whereas mutual funds are purchased through the fund itself.
Growth ETFs contain stocks in companies that are expected to grow at a rapid rate. Bundled together into one investment bucket, your workplace’s 401K is often structured this way. In contrast, when a company is deemed undervalued, savvy investors will snap up value ETFs in hopes that they will be big earners down the road. Growth ETFs are the riskier of the two because of the volatile nature of some of these companies.
When you buy mutual funds, think of it as investing in a virtual company. A mutual fund gives you access to professionally managed portfolios of equities, bonds, and other securities. In essence, you participate with others in the gains or losses of that fund.
Small-cap stocks
Even mammoth corporations had to start somewhere. Getting in on the ground floor before these companies hit the big time is the idea behind small-cap stocks. (Oh, to be able to hop in a time machine and scoop up some Microsoft, Amazon, or Apple stock on the cheap!) These tend to be fairly risky because not all smaller companies build themselves into multi-billion-dollar behemoths. But if you research, invest, and hold your investments in solid companies for the long term, you may be in store for significant returns.
“I’ll always be a big proponent of diversifying your portfolio when it comes to investments,” said Josh Lusby, CFP®, Wealth Advisor at SELCO Investment & Retirement Services. “Simply put, it’s the smart and safe way to go when thinking of your long-term financial picture.”
Trendy investments like cryptocurrency are hard to ignore. If you decide to test the crypto market—even for a short time—be sure to weigh risk versus reward and talk to a financial advisor. Conversely, putting your money into proven investment options may be more your speed.
You’ve likely heard it before, but Lusby confirmed that investing is more of a marathon than a sprint.
“Slow and steady wins the race here.”
