Getting out of crypto? Here are 4 other ways to build wealth

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Crypto investing isn’t the only gig in town.

Important points

• After more than nine months of crypto winter, many crypto investors are feeling the cold.
• Building a diversified portfolio can create wealth over time.
• Avoiding debt and building an emergency fund can help make your money work for you.

It’s been a tough year for cryptocurrency investors. The total market cap – the value of the entire crypto market – has fallen from nearly $3 trillion to less than $1 trillion. Many top cryptocurrencies are down as much as 90% or more from their all time highs. Unfortunately, many who bought crypto for the first time last year are now underwater on their investments.

Some crypto investors see this period of prolonged low prices as an opportunity to buy crypto at a discount. Others are looking at other ways to build wealth, and there are plenty of them out there. The first step is to create a plan and define the approach you want to take. This depends on many things, including your tolerance for risk, your financial situation and how long you want to spend managing your investments.

Here are four steps to take.

1. Maximize contributions to the pension fund

According to a study by Ramsey Solutions, eight out of 10 millionaires contributed to their 401(k) plans, and three-quarters said regular, consistent investing was a key part of their success. If your company has a 401(k) plan, maximize your contributions, especially if your employer matches what you contribute. It’s essentially free money.

If you’re self-employed or your company doesn’t offer a 401(k), you can look into other tax-advantaged retirement accounts. For example, depending on your tax situation, an IRA or Roth IRA can help you save for retirement in the most tax-efficient way.

2. Learn about investing

Just like when you first bought crypto, understanding other types of investments can seem daunting at first. Take it slow and learn all you can before jumping in. Think about your risk tolerance and how you want to build a balanced portfolio of investments. If you’re nearing retirement, you can choose to put a certain percentage of your money in bonds, which have less risk than stocks.

When it comes to stock investing, once you open a brokerage account, you don’t need to buy individual stocks, especially if you don’t have time to actively research and manage your investments. Other ways to invest include mutual funds, exchange-traded funds (ETFs) and index funds. Index funds track a stock index, such as the S&P 500, while mutual funds are actively managed by a fund manager.

3. Build a solid financial foundation

The trick to investing money is to think long term. The stock market can have a bad year and go down in the short term, but historically it has produced strong average returns over time. However, to build wealth, it’s important to only invest money in stocks and bonds that you don’t plan to touch for the next five years or more. To do that, you also need money set aside in a savings account.

An emergency fund that can cover three to six months of living expenses – or more – is an important building block. It can give you peace of mind so that if you are hit by a financial crisis, such as a job loss or medical emergency, you will be able to cover it without touching your investments or going into debt.

Another key factor is living below your means. It’s not as exciting as buying crypto and becoming a millionaire in a few months. But spending less than you earn and saving or investing the rest is one of the few surefire ways to get rich over time.

4. Avoid debt

If you’re carrying high-interest credit card debt, you’re not alone. However, it is a major obstacle to wealth building, as it eats into your income and costs you money over time. As a general rule, if your debt is costing you more than the interest you can earn by investing, it makes sense to prioritize paying off debt.

According to The Ascent survey, the average credit card APR is 16.4%. In contrast, the average return from the S&P 500 between 2012 and 2021 was 14.8%. Everyone’s situation is different, but be aware of how much debt you have and what it’s costing you.

A note on getting out of crypto

If your crypto assets are worth much less than you paid for them, the desire to cut your losses is understandable. Don’t sell your crypto because of falling prices alone. Think about whether your original reasons for buying still hold true, and how you think it might work in the long term.

You may be keen to get out of crypto altogether, but panic selling can be costly. If you sell, you lock in your losses and will not benefit if prices eventually recover. If you think individual coins and tokens can survive the crypto winter and your financial situation allows it, you can keep your existing holdings and put new money into various forms of wealth building.

Any kind of investment loss can be more than disappointing. But if your crypto portfolio is on the rocks, try to see this as an opportunity to put various financial foundations in place – ones that will help you build wealth over time. Crypto prices may rebound, but if you have a diversified portfolio and are not overly dependent on a single asset, your financial success will not be dependent on a crypto recovery.