How much time you spend in thinking about trading will of course be relative to how much money you want to invest. Before thinking about allocation, you should always follow these golden rules:
- Never invest money you cannot afford to lose
- Don’t invest using a credit card or debt such as student loans or re-mortgaging
- Don’t rely on unqualified trading advice
- Commit only a small proportion of your discretionary income
- Be prepared to see your investment decline
- Have an idea in your head of what you are trying to achieve
Discretionary Income is money left over after income tax and essential living expenses are taken care of. This is money that might be invested or saved.
There is no specific rule for how to allocate your discretionary income though there is agreement that it should be spread across a spectrum of assets by risk.
The largest proportion should be for the least risky – savings and indexed share funds – and the smallest proportion for the most risky.
Given that cryptocurrency is inherently risky, you should only consider allocating a small proportion, perhaps 5% or less, of your discretionary income.
There are many people who feel very strongly about crypto and you may see Tweets or Instagram updates talking about going ‘all in’. It would be extremely inadvisable to allocate 100% of discretionary income.
Depending on how much your discretionary income amounts to, you can decide what approach, if any to take, but bear in mind that there are fees associated with depositing funds with exchanges. Trading small amounts might also lead you toward trading obscure and risky cryptocurrencies, seeking huge returns.
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