Five investing rules to create long-term success
While we have seen a recent pullback in the crypto market, the phrase that continues to ring true is: "It's not about timing the market, but rather time in the market.”
This couldn’t be truer for Bitcoin itself, with even the worst possible buy in Bitcoin generating a minimum return of +27% per year. But this only applies if you held it over a five-year period. This equates to a +230% return over those five years — showing the true power of long-term investing.
This article aims to help you cut out the noise and see through the short-term negative media hype. If you stick to the five simple investing rules and principles we lay out, you’ll learn to manage these interesting times in which we find ourselves. While others may make ill-informed and rushed short-term decisions, following these rules will help you remain calm and level-headed while navigating the world of crypto investing.
1) Compound interest – the eighth wonder of the world
Would you rather receive $1 a day or a $0.01 that doubles every day? “Of course I’d choose the dollar, it's 100x more money!”
What most people don’t understand about investing is compound interest, the eighth wonder of the world.
After 16 days, if you chose the dollar, you would be $16 richer. If you chose the 1 cent, you would be $327.68 richer. How, you may ask? Compounding.
After just 28 days, the $0.01 would have doubled 27 times and be sitting at a whopping $1 342 177.
What does this teach us about investing?
It doesn't matter how small your first investment is, what matters is consistency. Invest on a regular basis and leave your money to compound and grow just like that initial 1 cent piece.
Compound interest works like magic, but it only works if you leave it to do its thing for a very long time.
But how do I leave my money invested for so long?
Well that leads us to our next point…
2) Don’t invest money you can’t afford to lose
The key to being able to leave your money invested for extended periods of time is by knowing your ideal position sizing.
Position sizing is the process of deciding how much to invest in a specific asset. This is a crucial skill that allows you to remain invested for the long term.
If you are over-invested and an unexpected accident or expense arises, you will have to sell your investments to make these payments. Therefore, you shouldn’t invest money you need to meet normal responsibilities. This act of selling interrupts your compounding interest process and reduces the power of long-term investing.
If you’re under-invested, you run the risk of not capturing the full return on your investable cash, but you do at least have the option to increase your investment size by buying small amounts on a weekly or monthly basis.
The golden amount to invest is different for everyone depending on their situation. But one thing is constant across every investor – don't invest more than your financial situation will allow.
The key to striking the right balance is through an investment strategy called dollar-cost averaging.
3) Strategy: Dollar-cost averaging
I’m sure we’ve all been in the situation where you invest your extra money into an investment and a week later, that investment is down -10%. Now you’re sitting wishing you had more money to invest. This is where dollar-cost averaging (DCA) becomes an integral part of being a successful investor.
DCA is an investment strategy where you divide up the total amount of money you want to invest over a time period into small, frequent purchases of the desired asset. The most common DCA schedule is to purchase the said assets at the beginning of each month. The goal is to reduce the impact of price movements and make the process of investing a habit.
Does dollar-cost averaging work for crypto too?
If you take a look at the graph below, we compare $100 invested monthly into BTC and Gold. Over the five-year period, you would have invested $100 60x making your total invested capital $6 000.
We can see that this strategy doesn’t only work for Bitcoin, but it outperforms its yellow metal counterpart quite substantially. If you had chosen to DCA into Bitcoin, your portfolio would be valued at $67 176 (+1 019.61%), while your Gold portfolio would only be worth $7 307 (+21.79%).
4) Understand the asset class
Crypto is like early-stage tech investing.
Much like every early-stage tech innovation fighting for market share and adoption, volatility is part of the growth process.
With crypto, a whole paralleled financial ecosystem is being built live, in front of your eyes. A financial ecosystem that is built by the people, for the people. An ecosystem that encourages transparency, collaboration and free markets. Of course, there are going to be growing pains, mistakes and failure – but that’s the price of true progress.
Now that we know what it is, we must understand the possible problem it solves and the value it creates.
In the case of crypto, it allows for a financial system and products to become transparent, faster and more efficient, while protecting many from inflationary practices and corruption. It allows for the transfer of value from one to another without the need for intermediaries taking big profits for moving our money around.
For the most part, human beings hate change.
With most innovative technological advances, humans first resist it. Then they don’t agree with the need for it. Then ultimately they try to destroy it.
This happened to the internet in the late 90s. It was a time when many believed the use of e-mail or a website was completely unnecessary because we had a functional postal service and brick-and-mortar stores.
As we can see below, it’s happening again.
Over the past 13 years, multiple people and sources have tried to convince the world that crypto is not needed. Much like the internet, crypto-currencies and blockchain technologies will become so integrated into our lives that you can’t imagine a world without it.
But which crypto-currency do I pick and how do I know it will be the winner?
Investing is one of the best ways to build wealth and reach your long-term financial goals. But choosing the correct investment or asset class to help you reach your goals can be challenging. Diversification helps solve this problem by spreading your investments across a group of assets or asset classes so that you don’t risk it all on one single asset trying to deliver excellent returns.
The idea is that by exposing your portfolio to multiple crypto-currencies, you’ll stand to benefit from uncorrelated returns.
Sure, you won’t realise the same returns as you would have if you went all-in on the highest performing crypto-currencies. But on the flip side, you won’t risk having all your eggs in one basket. Instead, via diversification, you spread the risk and benefit from a far less volatile ride along the way.
Not only that, we can see that diversified bundles actually outperform some of the major crypto-currencies. Although easy to understand, diversification can be difficult for some to practically introduce into their portfolio. The vast amounts of assets in the investment world, especially in the crypto space, can be difficult to navigate
Where do I find these diversified crypto bundles?
Revix, a crypto investment platform based in Cape Town, was founded to solve that very problem. In addition to making it easy and safe to buy individual crypto-currencies, Revix’s claim to fame is its crypto Bundle offerings.
In the same way you would buy into the JSE Top40, Revix Bundles allow you to invest in a group of crypto-currencies seamlessly.
Revix currently has three bundle offerings:
The Top 10 Bundle is like the JSE Top40 or S&P 500 for crypto. It provides equally weighted exposure to the top 10 crypto-currencies that make up more than 75% of the crypto market. This bundle has significantly outperformed Bitcoin over the last 12 months.
The Smart Contract Bundle provides equally weighted exposure to the top five smart contract-focused crypto-currencies such as Ethereum, Solana and Polkadot. These crypto-currencies allow developers to build applications on top of their blockchains, similar to how Apple builds apps on top of its iOS operating system.
The Payment Bundle provides equally weighted exposure to the top five payment-focused crypto-currencies looking to make payments cheaper, faster and more global. These cryptos include the likes of Bitcoin, Ripple, Stellar and Litecoin.
Reap the rewards of financial fitness in 2022
2022 is the year to bulk up your investments and improve your financial fitness. The Revix 2022 Financial Fitness Challenge is your way to start the year off properly and build healthy habits that last.
Keep the momentum going by completing daily challenges. They will earn you bonus Revix points that can be redeemed for Bitcoin. This challenge is a marathon, not a sprint.
Start now and see how good it feels to be financially fit.
Promotion valid from 14 January to 25 February 2022, T&Cs apply.