Bitcoin is a virtual currency that is going from strength to strength. However, this crypto-currency sees excessive fluctuation in its prices. Also, this volatility is one of the reasons why it is often compared to the stock market. Just how volatile is Bitcoin when compared to stocks? Read on and find out!
The Risk Factor: Bitcoin vs. Stocks
It is a fact that risks are inherent in investments. For different reasons, it is possible to stare at market crash. And when that happens, companies can easily go bankrupt. Therefore, it is important to weigh risks carefully while deciding to add various effects to your investment portfolio.
There are risks with an individual stock. There are fears that it will not grow, and there might be a cut in the dividend – which means that investors can be at a risk.
However, with various kinds of investments, risks are quite common. In case of stocks, it is slightly different because you can get some amount of guidance. It can be useful for you to understand whether the prices of individual stocks would go up or down.
When it comes to investment, your time horizon is an important criterion. The shorter your timeline is, the more the asset safety that can be expected. Also, you can get it there in your times of requirement.
The more the volatility of an asset, the less appropriate it is for investors with short timeline. Experts generally recommend investors that stocks and other risky assets need a minimum time of three years for riding out of volatility.
Stocks are most suitable for investors who can leave their money aside for some time and do not have to access it during that period. Generally, the longer an asset can be left after investment the better it would be. Some of the stocks out there have more volatility than others. For instance – growth stocks fluctuate significantly more than Dividend stocks or Value stocks.
Moreover stocks are often volatile; their volatility is usually less than that of cryptocurrencies like Bitcoin. Individual stocks are usually more volatile as compared to a stock portfolio and diversification can be beneficial due to this reason.
Hence, cryptocurrencies like Bitcoin are usually safe but at times this can be more volatile than stocks. For instance, during the year 2021 it lost over 50% of its worth in just a period of few months and later made a cent percent gain. Due to this kind of volatility, Bitcoin and other cryptocurrencies are inappropriate for short term investment purposes.
Cryptocurrencies are more suitable for all those investors who can leave their funds tied up and have the ability to wait for it to recover. The waiting time should best be in years instead of weeks.
Stocks have a robust long-term record and it is better to have a diversified stock collection constitute most of your portfolio. However if you have a long time until you need them.
While making investments in individual stocks, you have to carefully research your stocks – in order to get good returns. In case you are making investments in funds, you can purchase an S&P 500 index fund or a similar fund that is diversify broadly. Thus, without a lot of research and still manage to have the possibility for getting high returns.
Cryptocurrencies like Bitcoin work better with small allocation in the total portfolio of investment. It might be as small as 5% or even less.
But even such kind of a small allocation can be very useful for your investment portfolio in case the price of the cryptocurrency soars. When you limit your investment to only a small allocation you can be protected against a full loss in case the price goes nowhere.
In case the cryptocurrency grows to be a major part of your investment portfolio, more of your money can be reallocated to stocks – in order to reduce the overall risk of your portfolio.
It is not mandatory to make investments in Bitcoin, but if you want to diversify your investment portfolio, after getting proper knowledge about the crypto market you should definitely give it a try! Therefore, you can visit website to ensure safe and reliable Bitcoin transactions.
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