A balanced investment portfolio includes a spread of assets like real estate, stocks, bonds, and even speculative investments like cryptocurrency. It may be a wild ride when we talk about dealing with stocks, but its extremes are nothing compared to the irregular movement in crypto. Understanding the nature of each of these assets will help you achieve your goal as an investor. Let us help you see the crucial characteristics of crypto and stock before you start investing.
Regulation
Regulations alongside laws are there to protect investors and their assets. With the Great Depression in 1929, the Securities and Exchange Commission was established to impose investment laws. It required disclosure of all company information that can affect the value of their stock in the market. It also means that a central body (meaning a government) controls the movement of stocks.
In comparison, cryptocurrencies are unregulated. By extension, it is decentralized. This makes it more desirable to a lot of investors. However, while it is unregulated by any government, this system leaves crypto investors vulnerable to a market crash.
Volatility
There is always a high risk of volatility when it comes to both crypto and stock. While the stock market has been known for its wild fluctuations, financial reports on stock are set to be made public. This gives an investor a window to make sound purchasing decisions.
If you think the stock market has enough roller-coaster going on, then you should know that the cryptocurrency market has an outrageous, more volatile state. Most of the time, these fluctuations come with no warning. So much so that Cryptoner, a trusted source that publishes guides and news about cryptocurrency, says that investors often limit the presence of digital currency to 5% in their portfolio.
Ownership
Stocks are viewed as an ownership right. It means that when people invest in stocks, they are accorded a percentage of ownership in the company. Ownership does not change unless the investor sells their portion.
In the digital currency market, anyone can set up their own. A person is allocated with tokens such as Bitcoin and Etherium. These tokens do not represent any legal stake in the organization that issued them.
Security
Since stocks are regulated by the government, it goes through a yearly audit and strict scrutiny. Because of this, the chances of stocks being subjected to fraudulence is low. As opposed to a digital currency that is unregulated by a central body, even a simple scam can cost you all your digital coins.
Time of trade
Traditional exchanges have trading sessions which means that transactions can only be done during a specific time of the day. This also means that any real-time incident between trading hours has no real effect on the market, but there can be major adjustments when the market re-opens. As for cryptocurrency, exchanges happen 24/7 and you have to be updated now and then because even small infractions can have an instant reaction.
Final Thoughts
If you are looking for different diversity in your portfolio, then go ahead and add speculative investment. That is, if you are comfortable with the risk of losing money every time it fluctuates. However, if you are the kind of person who prefers a more stable bulk on their portfolio, then you can go ahead and invest in stocks.
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