Earlier this month, one college friend casually told me over drinks he'd made tens of thousands of dollars investing in another cryptocurrency. He said he hoped it would be worth enough one day to buy a house. One hundred dollars, or 0. My wife's opinion of me has reportedly decreased by the same amount. Other cryptocurrencies have seen similar spikes, though they trade for much less than bitcoin.
There's a long list of factors people may point to in an attempt to explain this. Regulators have taken a hands-off approach to bitcoin in certain markets.
Dozens of new hedge funds have launched this year to trade cryptocurrencies like bitcoin. The Nasdaq and Chicago Mercantile Exchange plan to let investors trade bitcoin futures , which may attract more professional investors. Yet a key reason the price of bitcoin keeps going up is, well, because it keeps going up. Small investors like yours truly have a fear of missing out on a chance to get rich quick.
And when the value of your bitcoin doubles in a week, as it did for me, it's easy to think you're a genius.
But you can get burned assuming it will keep skyrocketing. Some investors have likened the bitcoin hype to the dot-com bubble. If that's something that intrigues you, keep reading to see how much you would have made if you'd invested in Ethereum from day one. One email a day could help you save thousands Tips and tricks from the experts delivered straight to your inbox that could help you save thousands of dollars. Sign up now for free access to our Personal Finance Boot Camp.
By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. In theory, yes. But life doesn't usually work out that way. The Ascent's picks for the best online stock brokers Find the best stock broker for you among these top picks. The challenging thing about cryptocurrencies and other new investments is that with the benefit of hindsight, we'd all have bought Bitcoin or Ethereum years ago.
It does so because it believes it is a solid long-term investment. Dollar-cost averaging is a technique often employed by long-term investors. If you invest a certain amount every month, you are buying shares in good times as well as bad times. In good times, the value of your shares increase. In good times, you get fewer shares, which reduces the future potential upside, but it also means you have a nice total gain on your investment.
The loss from the second month then becomes 5. When things brighten up six months later, you have purchased 6 x 6. If you keep your cool and stick with the plan even when the market is down, you get more shares for your money. These additional shares boost investment returns when the market rebounds. This is a big part of the reason why regular stock investors get a higher long-term return compared to safer investments despite the temporary ups and downs in the market.
Many stocks and funds also give dividends to investors. The dividends are essentially profits given to the owners shareholders providing a couple of extra percent return on top of regular share price increases. Most mutual funds and stocks offer the option of automatically reinvesting the dividends.
This is done in good times as well as bad times, meaning that you get dollar-cost averaging on what is essentially an invisible boost to your regular investment schedule.
With compounding, an asset's earnings are reinvested to garner more earnings; the profits occur as the investment is generating earnings from the original dollar amount and the built-up earnings from the previous periods.
For simplicity's sake, assume that compounding takes place once a year. However, the compounding return will more than double your investment. The easy way to run the numbers is using a calculator , but you can do the math manually by adding the new year's contribution to the old total and then multiply the new total by 1.
As the amount you have to invest grows over time, the variety of options for investing you have expands, enabling you to have an even more diversified portfolio. In reality, your annual statement won't be as tidy as any calculator can predict. An individual retirement account IRA is a great way to go and can turn even small sums of money into a big nest egg over time.
That's the power of compounding gains over time. Why an IRA? In a word, taxes. With a traditional IRA , you gain similar benefits as with a k , reducing income taxes by cutting your taxable income each year you contribute while also growing your nest egg tax-free until you start taking distributions in retirement.
One trap to be aware of is investing in penny stocks. Penny stocks are typically low-priced stocks of smaller or thinly traded companies. While it may seem logical that tiny companies or stocks that trade for just pennies per share or even less have the highest return potential, the reality is that the world of penny stocks is full of fraudulent companies and pump-and-dump schemes think The Wolf of Wall Street.
If you've been holding off with your investing, don't wait any longer. You'll be surprised at what a difference it will make in the long run. Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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