There are a number of different strategies that investors use when putting money to work in the stock market. While investing in value or growth stocks is a debate that gets a lot of attention, others might focus more on dividend investing. The goal is to derive a stream of income from the stocks one owns, while benefiting from the potential for stock price appreciation.
But if you’re a big fan of dividends, then maybe it’s time to consider stake your cryptocurrency farms to achieve the same goal. Let’s take a closer look.
Show me the dividends
Dividend-paying companies are often sustainably profitable businesses that have enough cash to pay out a portion of profits to investors on a regular basis, usually quarterly. The result is that owning these companies can produce higher returns than the whole S&P500 index. Plus, these stocks trade with less volatility, making them easier to hold in your portfolio.
To be clear, holding these stocks is not a strategy reserved for those nearing retirement or in retirement. Even the youngest investors can reap the benefits of owning dividend payers as part of a well-diversified, long-term oriented portfolio.
Here are some examples of popular dividend-paying stocks Lowe’s and Target. These two top retailers have actually increased their dividends for at least 50 consecutive years, earning them the title of “Dividend Kings.” And they can be great additions to anyone’s portfolio.
All about staking
For those interested in income-generating assets, staking your cryptocurrencies is a strategy for earning yield, much like what dividend-paying stocks can provide. This can only be done with cryptos that operate what is called a proof of stake consensus mechanism (PoS), which means token owners lock or stake their assets in order to secure the network and verify transactions. And to do this, bettors receive rewards in the form of newly created chips.
After “Fusion“, Ethereum will be the most popular PoS blockchain. But Coinbase has already enabled staking, offering a return of over 3% to ETH holders. This system is more environmentally friendly than Bitcoinwho uses proof of work validation. And for investors, it requires no specialized equipment or expertise. gimbal and Solana are other well-known cryptos that perform PoS.
However, staking also comes with its fair share of risk. For starters, cryptocurrency prices are extremely volatile, so depending on how long your holdings need to be locked in, it may be difficult (if not impossible) to sell in order to minimize potential losses. Then there’s the possibility of a network outage or a hack, an event that seems all too common in this space. And finally, staking provides no insurance against losing your funds, a protection given to traditional brokerage accounts.
Although 2022 has been a terrible year for cryptocurrencies, with the overall market down about two-thirds from its peak of nearly $3 trillion in November last year, the potential long-term growth of the industry cannot be ignored. And that means staking could one day become an even more popular way to earn a return on all digital assets held. It’s certainly not without risks, but investors would be wise to at least consider this option, especially as the world moves towards an increasingly digital future.
Neil Patel has positions in Bitcoin, Coinbase Global, Inc. and Ethereum. The Motley Fool holds and recommends Bitcoin, Coinbase Global, Inc., Ethereum, Solana, and Target. The Motley Fool recommends Lowe’s. The Motley Fool has a disclosure policy.