Tag Archives: cryptocurrency

The Difference Between Stocks And Crypto, And How Crypto Affects Taxes; The Short Version

When it comes to the topic of crypto or cryptocurrency, we’re never going to claim that we’re experts. When it comes to taxes we know a lot more on how to handle them. Still, we’d feel remiss if we didn’t talk a little bit about what crypto is and how it compares to stocks, which most people have heard about but might not understand either.

not a bitcoin!

Let’s talk about stocks, the stock market and investing. A quick explanation about stocks is that they’re investments in a company or corporation. You can buy them through a stockbroker or some kind of digital application run by either individuals or companies.
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3 Crucial Things To Consider Before Investing

It’s been a long time since we addressed the topic of investing. The last time was in 2014, and we offered up 5 Things To Know Before You Start Investing Your Money. It was short and sweet, and this article’s not going to be much longer. However, we’re going to address a few things more directly than before, especially as we consider how much investing has changed over the past 4 years.

As a preamble, investing one’s money isn’t such a bad thing. Over a long period of time, depending on how you invest your money, you’d be doing yourself a world of good. Still, there are things you need to think about before investing, no matter how, where, or in what you’re investing in. Here’s 3 relatively short tips (longer than the first article) for you to consider before you tip your toes into the investment game.

1. Start investing at the youngest age possible

It’s too bad that most young people don’t know anything about investing. Most probably haven’t heard anyone talking about it, including their parents.

The thing about investing is that it works best when it has time to accumulate wealth, even from the smallest amounts at the early stage with increases over time. There are people who learn about investing early on, and over the course of 40 years can amass a high amount of income that, though it starts off small, will only increase as times goes on.

Real investing takes courage and consistency.

There are times when the market drops and many people bail, taking their money out of the market because it feels like there’s no end to how low the market can go. This was indeed what happened back in 2009, when the market dropped to one of the lowest levels in history. However, for whose who had the courage to stay in, within 2 or 3 years not only had the market reversed course but it exceeded where it had been when the market started dropping in the first place.

The consistency part means continuing to put money into your market account at least once a month, hopefully increasing the amount over time when you’re earning more in your career, even when it drops. A lot of courageous people have found themselves becoming millionaires by the time they reach 60, if not sooner. Who wouldn’t want to be least be a millionaire?

2. Find someone you can trust who offers you good advice, and sticks around

This one is tricky, which is a shame, but it’s also why we alluded to it in our first and second points in the original article.

You need to find someone who’ll not only invest your money but will offer you suggestions on things you probably should know… but they don’t always do that. One of our clients had an investment account years ago, and the person investing helped the account grow pretty well. What he never told our client was that he should be adding more money into the investment on a regular basis.

Instead, when the market dropped and the broker had disappeared, our client found out that his account had dropped around 65% from the initial investment, but he’d have had more money available if he’d consistently added more to his account. Also, he might not have lost as much money if his broker had kept in contact with him and recommended moving his money into a less risky market fund until everything had settled.

What happened to the broker? The broker was working with a large investment organization that changed its rules saying brokers could only work with them on accounts higher than $25,000, so the investor moved on. However, the investor never called our client telling him this, so it wasn’t until my client started making phone calls looking for his broker, only to be told this by the investment organization.

Most of the large investment organizations only work with large financial accounts, which is why there’s been a bunch of smaller online services that allow you to invest your money no matter how little it is, as long as you manage it yourself. That might be a way to go if you don’t have the funds to start out big, but always do your research on those companies; most are legitimate, but you never know for sure until you check them out.

3. Try to understand something before you start investing in it

Above we talked about possibly using an investor to handle your money if it’s possible. Here we’re talking about other ways of investing where brokers aren’t usually used. Let’s look at the concept of cryptocurrency and things related to it.

We’re not experts in this field, so we’re giving a bit of financial advice. There are some major differences between investing in cryptocurrency and the stock market.

First, cryptocurrency isn’t based on what happens in the stock market, or the government or banks. In essence, it’s based on a computer network and the willingness of people to trust it. You don’t actually buy stocks unless you’re rich; you buy into a piece of… well… we’ll say “system”. How much of that system you’re getting depends on when you buy into it and how much you pay to get it.

For instance, if you bought a share of something that cost $5 a share, $100 would get you 20 shares or the company. If you buy any cryptocurrency, you’re buying a small percentage of what it happens to be worth on that day. Because you’re not buying shares, you can buy into it at lower amounts and still get a piece of whatever you’re investing in. Traditional investing had limits on how little you can invest; cryptocurrency usually doesn’t.

Second, the crypto (shortened) market can be a lot more volatile than the stock market. Because it’s success or failure isn’t controlled by the government, it can rise or fall drastically in a day, and it might recover the next day or take weeks to recover. It takes more courage to invest in crypto because of this fact, but it’s been growing a lot over the last 10 years and a lot of people continue getting into it.

Third, because of its volatility, if you have the courage to stay in at least 5 years or so, you can start with a set amount and over that time find that you’ve generated a lot of money. There are confirmed tales where someone invested around $1,000 in a particular “market” and find themselves having grown their account as high as $50,000 over that time period. That’s never going to happen in regular investing, but if the opposite happens there’s no cushion on how much you can lose in just one day.

This isn’t a lot of detail because we’re not experts in this field. As accountants, we know how to document what’s going on for tax purposes. That’s why we recommend that you do a lot of research if this is something you decide you want to get into. It’s a growing investment type that might suit you well.