It's Your Money  

Investing in cryptocurrency after Its fall

Buying into cryptocurrency

Cryptocurrency, once hailed as the future of finance, has witnessed a rollercoaster ride in recent years, with staggering peaks and alarming troughs.

The year 2021 saw cryptocurrencies like Bitcoin and Ethereum reach all-time highs, followed by a significant downturn.

Let’s delve into the rise and fall of cryptocurrency and explore strategies for safe(r) investing in this dynamic space now that it's considerably down from its peaks.

Cryptocurrency, born with the launch of Bitcoin in 2009, steadily gained momentum over the years. It promised decentralized, borderless, and transparent financial transactions, attracting both enthusiasts and institutional investors. The real watershed moment came in 2021 when Bitcoin's price skyrocketed from a few thousand dollars to over $60,000, and other cryptocurrencies followed suit. Ethereum, with its smart contract capabilities, also experienced exponential growth.

However, this meteoric rise was unsustainable. Cryptocurrencies are notorious for their volatility, driven by factors like market sentiment, regulatory changes and macroeconomic events. In 2021, concerns over excessive speculation, regulatory crackdowns, and energy consumption in mining triggered a significant correction. Bitcoin and other cryptocurrencies experienced substantial losses, leaving many investors with heavy losses.

So where does that leave us today and is there a way to invest in this space today without taking on too much risk? Here are some steps to consider if you’re interested in investing in cryptocurrency:

1. Diversify your portfolio—The first rule of safe investing in any asset class, including cryptocurrencies, is diversification. Avoid putting all your funds into a single cryptocurrency. Instead, spread your investments across a range of digital assets. Diversification helps mitigate risk by reducing the impact of a poor-performing asset on your overall portfolio.

2. Do your research—Before investing in any cryptocurrency, conduct thorough research. Understand the technology behind it, its use case, and the team behind the project. Read whitepapers, follow news and updates, and be aware of the latest developments. Make informed decisions based on solid information rather than FOMO (fear of missing out).

3. Invest only what you can afford to lose—Cryptocurrency investments should come from discretionary funds that you can afford to lose without affecting your daily life or financial goals. Given the volatility of the market, it's crucial to avoid investing money you cannot afford to lose.

4. Dollar-cost averaging (DCA)—To mitigate the impact of price volatility, consider a dollar-cost averaging strategy. With DCA, you invest a fixed amount of money at regular intervals, regardless of the cryptocurrency's price. This strategy reduces the risk associated with trying to time the market and can work well for long-term investors.

5. Use reliable exchanges and wallets—Select reputable cryptocurrency exchanges for buying, selling and trading digital assets. Research their security features, customer support and track record. Additionally, use secure wallets to store your cryptocurrencies offline (hardware wallets) or in trusted digital wallets with strong security measures.

6. Beware of scams and frauds—The cryptocurrency space is rife with scams and fraudulent schemes. Exercise caution and be skeptical of too-good-to-be-true investment opportunities, especially those promising quick and guaranteed returns. Always double-check the legitimacy of the projects you invest in.

7. Stay informed about regulatory changes—Regulations surrounding cryptocurrencies are evolving rapidly in various jurisdictions. Stay informed about the regulatory landscape in your country and internationally. Compliance with local laws is essential to ensure the legality of your investments.

8. Prepare for long-term holding—Consider adopting a long-term investment mindset. While day trading and short-term gains can be enticing, they come with higher risks. Holding onto cryptocurrencies for an extended period may offer better prospects for a return on your investment.

9. Seek professional advice—If you're uncertain about your cryptocurrency investment strategy, consider seeking advice from financial professionals who specialize in digital assets. They can help tailor an approach that aligns with your financial goals and risk tolerance.

The cryptocurrency market's rise and fall have been nothing short of dramatic. While the 2021 peaks are now distant memories, the space still may hold some potential for long-term investors.

Safely navigating cryptocurrency investments requires discipline, research, and a cautious approach. By following these principles, you can participate in the cryptocurrency market with greater confidence and resilience in the face of its inherent volatility.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


Twelve steps to take after a disaster

Dealing with disaster

Disasters can strike when least expected, leaving individuals and families devastated both emotionally and financially.

In Canada, wildfires have become an increasingly common threat, leaving many residents grappling with the loss of their homes and possessions. While the emotional toll of such an event is immeasurable, it's crucial to develop a comprehensive financial plan to help rebuild your life after such a catastrophe.

In today’s column, I will discuss financial planning strategies for people who have experienced the loss of their homes in a wildfire or other disaster and the steps they can take to get back on track:

1. Prioritize safety first—After a wildfire has destroyed your home, the first step is ensuring the safety of you and your family. Contact local authorities and follow their guidance on when it's safe to return to the area.

2. Contact your insurance company—Reach out to your insurance company as soon as possible to report the loss and initiate the claims process. Understand the details of your homeowner's insurance policy, including coverage limits and deductibles. Insurance companies will send adjusters to assess the damage and determine the compensation you are eligible for. But make sure you get legal advice on the compensation they are offering to ensure it’s fair and correct.

3. Find a place to stay—While your home is being assessed and rebuilt, you'll need temporary housing. This may include staying with family or friends, renting a temporary residence or seeking assistance from local disaster relief organizations. Finding a rental home in the Okanagan can be challenging at the best of times and it is important to look ahead to the busy summer months next year as rebuilding will take significant time and many rentals only allow people to stay until springtime when they switch to AirBnB type accommodations.

4. Document the damage—Once you’re allowed back to the area, it's essential to document the damage caused by the wildfire thoroughly. Take photographs and make a detailed inventory of the items you've lost. This will be crucial when filing insurance claims or applying for government assistance programs. Be sure to include the estimated value of each item and any receipts or proof of purchase you have.

5. Access government assistance—In Canada, federal and provincial governments often provide assistance to individuals affected by disasters like wildfires. Research the available programs and apply for any financial aid or relief that you may qualify for. This assistance can help cover immediate expenses, such as emergency housing and basic necessities.

6. Create a budget—Once you have a clear understanding of your (new) financial situation, create a detailed budget. Calculate your income, expenses, and any available resources. With this information, you can prioritize essential expenses and allocate funds to cover immediate needs. Adjust your budget as necessary to ensure your financial stability during the recovery process.

7. Seek professional financial advice—Financial recovery can be a complex and overwhelming process. Consider seeking assistance from a certified financial planner, who can help you navigate insurance claims, government assistance programs, and amend your long-term financial plan to your new situation.

8. Rebuild your emergency fund—If you had an emergency fund before the disaster, you may have had to dip into it to cover immediate expenses. Rebuilding this fund should be a priority once you're back on your feet financially. Having a robust emergency fund can provide peace of mind and financial security in case of future unexpected events.

9. Re-evaluate your investment portfolio—If you are rebuilding, you may end up spending more than what is provided by your insurance company, and you need to plan ahead for where this money will come from. If some funds may be needed from your savings, it's essential to reevaluate your investment portfolio now to set aside funds in an account that will not be subject to market risks.

10. Rebuild your credit—A wildfire can have an impact on your credit score, especially if you missed payments or incurred additional debt during the recovery process. Rebuilding your credit is crucial for your long-term financial health. Pay off any outstanding debts, make on-time payments, and consider seeking advice on credit repair strategies.

12. Review and update insurance coverage—After experiencing a disaster like a wildfire, it's essential to review and update your insurance coverage to ensure you are adequately protected in the future. Work with your insurance agent to make any necessary adjustments to your policies.

Recovering from the loss of a home due to a disaster is a challenging journey but with careful financial planning and perseverance, you can rebuild your life.

By following these financial planning strategies, Canadians who have experienced a disaster can work toward a brighter and more financially secure future.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Financial strategies to help you retire early

Retire early money tips

The idea of retiring early is a dream for many Canadians, but it often feels like an unattainable goal. And with expenses and the cost of living skyrocketing, the dream seems to be slipping further away.

However, with the right strategies and financial planning, early retirement can be a reality even in the current market and interest rate environment. Let’s explore some tips and strategies people can consider if they are looking to retire early without sacrificing financial security or dramatically altering their retirement plans:

1. Start early and save aggressively—One of the fundamental keys to early retirement is to start saving as early as possible. The power of compounding interest works in your favor when you invest for the long term. Begin by maximizing contributions to your Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). Take advantage of employer-sponsored retirement plans, like a company pension or group RRSP, if available.

2. Create a comprehensive financial plan—Building a comprehensive financial plan is crucial for early retirement. Consider working with a certified financial planner who can help you set realistic retirement goals, assess your risk tolerance, and create a well-structured plan that will keep you on track and adapt to changing market conditions.

3. Manage debt wisely—High-interest debt can be a major impediment to early retirement. Prioritize paying off high-interest loans, such as credit card debt and personal loans. Make a plan to reduce and eventually eliminate mortgage debt before retirement. Lowering your debt burden will free up more of your income for savings and investments.

4. Live below your means—Living below your means is essential for building substantial savings. Avoid lifestyle inflation as your income grows, and commit to a frugal lifestyle. This means cutting unnecessary expenses, making thoughtful purchase decisions, and setting a budget that allows for consistent savings.

5. Maximize tax-efficient investments—Take advantage of tax-efficient investment strategies. Invest in tax-efficient accounts like TFSAs and RRSPs, and consider using other tax-efficient investment strategies once those accounts are topped off. Tax planning can help reduce your tax liability both before and during retirement.

6. Explore income-generating opportunities—To retire early without sacrificing financial security, you may need to generate additional sources of income. This can include part-time work, freelance gigs, or passive income streams like real estate or dividend-yielding investments. Supplementing your retirement income can help bridge the gap between early retirement and traditional retirement age.

7. Healthcare planning—Retiring early means you might not be eligible for certain employer-sponsored benefits. Plan for your healthcare needs, and consider private health insurance options if necessary. Ensure you have adequate coverage for potential health expenses during your early retirement years.

8. Emergency fund and cash reserves—Maintaining an emergency fund is essential, even in early retirement. Having a cash cushion to cover unexpected expenses or market downturns can prevent you from having to tap into your retirement savings prematurely. Aim to have at least six to twelve months' worth of living expenses in readily accessible cash or liquid assets.

9. Regularly review and adjust your plan—Market conditions and personal circumstances can change, so it's important to regularly review your retirement plan. Adjust your investment portfolio, savings goals, and spending as needed to stay on track for early retirement without compromising your financial security.

10. Consider the sequence of withdrawals–Once in early retirement, be mindful of the sequence in which you withdraw funds from your various accounts. A well-planned withdrawal strategy can optimize your tax situation and extend the longevity of your savings.

Achieving early retirement in the current market and interest rate environment is still possible with careful planning and disciplined financial management – and should not mean you need to sacrifice your financial security or alter your retirement plans dramatically.

By following these tips, sticking to your well-constructed financial plan and staying committed to your goals, you can enjoy the benefits of early retirement while maintaining a comfortable and financially secure lifestyle throughout your retirement years.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


What to think about before buying a home

Becoming a homeowner

For many Canadians, owning their first home is a significant milestone.

However, when you look at today’s environment of high interest rates and the resiliency of home prices, entering the housing market involves more than just finding the perfect place to call home. Let’s consider some of the variables that Canadians should look at before taking the plunge in home ownership.

One of the primary reasons people are drawn to homeownership is the leverage it provides. Leverage, in the context of buying a home, means borrowing a significant portion of the purchase price through a mortgage.

That allows buyers to control a valuable asset with a relatively small upfront investment. However, leverage is a double-edged sword. While it amplifies returns when the housing market is booming, it also magnifies losses when the market faces a downturn.

In recent years, the Canadian housing market has experienced significant price appreciation in many regions. Low-interest rates had made borrowing more affordable, making homeownership seem like an attractive proposition. But the rising rates have increased monthly mortgage payments, potentially even getting to the point where some people’s monthly payments are less than their borrowing costs.

With that in mind, Canadians considering buying their first home should carefully assess their ability to manage higher interest rates in the future.

Another important factor to consider is the limited diversification of assets that comes with homeownership. When you invest a large portion of your wealth in a home, you become heavily reliant on the real estate market's performance. While real estate has historically shown steady appreciation over the long term, it's important to remember that past performance is not always indicative of future results.

Investors are often encouraged to diversify their portfolios to spread risk. By holding assets in different classes such as stocks, bonds, and real estate, one can reduce their exposure to the volatility of any single market. When your main asset is your home, you lack this diversification, making your overall financial situation more vulnerable to changes in the housing market.

The Canadian housing market is known for its regional disparities. While some cities have seen housing prices skyrocket, others have remained relatively stable. This can create challenges for those looking to enter the market. Buying a home in a city with high volatility can be risky, as the potential for a significant drop in value is always present.

Additionally, the housing market can be influenced by various factors, including economic conditions, government policies, and global events. These factors can lead to unpredictable fluctuations in property values, which may impact the decision to buy a home. It's crucial for first-time buyers to conduct thorough research and consider their own financial stability when assessing the risks associated with market volatility.

Affordability is a key consideration for prospective homebuyers. The real estate market's current state in Canada is characterized by rising home prices in many areas, making it challenging for first-time buyers to find affordable properties. Buyers should evaluate their financial preparedness and ensure they have a stable income, a substantial down payment, and a manageable debt-to-income ratio before committing to a mortgage.

The Canadian government has implemented various policies and incentives to encourage homeownership, including the First-Time Home Buyer Incentive and the Home Buyers' Plan. These programs can provide financial assistance and tax benefits for first-time buyers, making it more accessible for them to enter the market. It's advisable for potential buyers to explore these options and determine if they qualify for any assistance, as it can significantly impact their decision-making process.

While the above points mainly focus on the risks of home ownership, there are also many rewards. The key is to fully understand the risk and do a proper evaluation of your situation before jumping in blindly.

Ultimately, the decision to buy a first home in Canada should be done carefully and be based on individual circumstances and long-term financial goals.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

More It's Your Money articles

About the Author

Brett has worked in the financial advice industry for over 15 years and is designated as a chartered investment manager(CIM) and certified financial planner (CFP).

In 2014, Brett was appointed to the board of directors of FP Canada (the national professional body for financial planning) and spent seven years on the board, including his final two as board chair. More recently, he was appointed to the Financial Planning Standards Board (FPSB), which is the international professional body for this industry with a three-year term beginning in April 2023.

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy-to-understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the national and global boards focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns or if you’d like a referral to a qualified CFP professional in your area by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories