Terra-Luna collapsed. Celcius is in trouble. Bitcoin has fallen. The ones who can tolerate such crazy situations and huge drawdowns are the ones with a deep pocket, like Michael Saylor.
The amount of savings one has makes a difference to one's holding power in a losing trade. Obviously, if you have a deeper pocket it will be easier to hold the trade for it to recuperate. Your lifestyle and immediate needs won't be impacted despite the sudden downturn of events.
It is therefore important to separate savings from investment, from a personal finance management perspective, even for us retail traders.
We all have basic needs, and we need to spend on them. Food, rent, gas, education, and the list goes on. It would be foolish to bet the rent money to buy the dip! Bad idea. Don't do it, no matter how inviting the cheap price looks.
Besides the immediate needs, there is also a need to build up an emergency fund in case of anything. The common guideline is to have half a year of salary as a buffer.
If you have something to pay for, say house renovation, holiday, medical bills, retirement, or children's education, that is projected to happen in a few months or years, they should be budgeted for. A separate saving stash is needed for these.
After accounting for all these expenses, what is left can be invested. The distribution of that investment is a topic for another day.
When one has the certainty that these basic planned and unplanned financial commitments can be met, investing becomes a less stressful activity. Even in dips when the portfolio is badly affected, one can still put food on the table and will not be forced to liquidate the stocks or crypto.
I am not necessarily advocating one to hold on to any assets and praying for it to recover if it is down, because it might never. But at least having a deep pocket in the form of savings would not set up one to make decisions in a confused state. Better chance for the right decision.
So, be realistic, do you have a healthy savings stash? Don't put them at unnecessary risk. They can turn out to be important stabilizers in your financial well-being, even in the current crazy inflation climate.
Better to hold cash and lose them to inflation, than to lose everything like in the case of Terra-Luna or Celsius in a sudden and potentially irrecoverable fashion.
For me, in a practical sense, I DCA into crypto based on what is left after I account for my savings needs.
P/S: This is not financial advice, and please do your own due diligence.
If you read this far... and if you are a like-minded Hiver who is on the path to learning more about Hive and crypto investing, and if you like to be tagged when I write such posts, I welcome you to leave a comment below and let me know. We can form an alliance to support each other's growth.
You might be interested in this post, @jacoalberts!