Disclaimer
The information provided in this series is for educational purposes only and does not constitute investment advice. The University of Illinois System Student Money Management Center does not endorse or promote any specific investment products, financial institutions, or investment strategies. Individuals should conduct their own research and consult with qualified financial professionals before making investment decisions.
Introduction
You've built your emergency fund, paid down high-interest debt, and decided you're ready to invest (Tither, 2026). Now comes the next question: where should you put your money?
Open any social media app and you'll see conflicting advice. One finfluencer, or financial influencer (State of California, 2026), swears by index funds. Another claims crypto is the only way to build wealth. A third insists you're missing out if you're not day-trading individual stocks. The noise is overwhelming and sometimes dangerous.
Here's the reality: different investment options carry different levels of risk and understanding those risks is essential before you invest. In this article, we'll compare stocks and crypto through the lens of risk management, breaking down what each offers and what you're actually signing up for when you invest in them.
Risks and Rewards
Whatever you choose to do with your money, all options come with risks and rewards. Understanding these risks is the first step to managing them.
Some common risks include:
- Purchasing Power: Inflation erodes what a dollar can buy over time. Money sitting idle loses value. Investing is our only way to combat purchasing power risk.
- Exchange Rates: Fluctuations in global currencies driven by politics, economic policy, and international events can affect investment values.
- Market Volatility: Supply and demand create constant market fluctuations. Prices go up and down, sometimes dramatically.
- Tax Liabilities: Investment gains are taxed. Short-term capital gains (assets held less than a year) are taxed at higher rates than long-term gains (Internal Revenue Service, 2026).
- Frauds and Scams: Misleading and fraudulent business practices target investors, especially those new to investing.
While not exactly a risk, fees can cost you significantly over time. Active trading typically means higher fees. Small differences in fees early in your investing journey compound into large differences over decades. Learn more in our recorded webinar on YouTube: Steps To Investing (ILStudentMoney, 2022).
Despite these risks, investing offers rewards too:
- Staying ahead of inflation: Investments have the potential to grow faster than inflation, preserving and increasing your purchasing power over time.
- Generating income: Beyond investment growth, you can receive dividends and interest.
- Dividends are portions of a company's profits paid to shareholders (Wikipedia contributors, 2026). When you reinvest dividends, you're using those payments to buy more shares (or fractional shares) and compounding your returns over time.
- You can earn interest from bonds or bond funds.
- You can also earn capital gains when you sell assets that have appreciated in value.
- Building wealth over time: Regular investing builds your net worth—the total value of what you own minus what you owe (Pellegrini, 2026).
- Compounding growth: Earning returns on your returns creates exponential growth over time. The earlier you start, the more powerful this effect becomes.
These risks and rewards may play out very differently in stocks versus crypto.
Stocks
Consumers access stock exchanges through brokerages (Smith, 2025) —platforms like Fidelity, Schwab, or Vanguard that let you buy and sell shares via apps or licensed professionals. These trades happen on regulated exchanges (Harper, 2025) like the New York Stock Exchange (NYSE).
This infrastructure includes layers of regulation designed to protect investors (U.S. Securities and Exchange Commission, n.d.). The Securities and Exchange Commission (SEC) was created after the Great Depression to oversee securities markets (U.S. Securities and Exchange Commission, n.d.). State-level agencies like the Illinois Department of Financial and Professional Regulation (IDFPR) (Illinois Department of Financial and Professional Regulation, 2024) provide additional consumer protection. The Financial Industry Regulatory Authority (FINRA) (Financial Industry Regulatory Authority, 2024) serves as a self-regulating entity within the industry.
When you invest in stocks, you're working within a system built over centuries (Hwang, 2025). The global stock market can trace its roots back to the 1600s. The example we talk about here, a stock exchange (NYSE) and regulation (SEC) in the USA, is about 100 years old.
While stocks carry risk, multiple strategies can help manage it:
- Diversification: Spreading investments across different companies and industries within the stock asset class. If one company struggles, others may perform well.
- Asset Allocation: Distributing investments across multiple asset classes—stocks, bonds, real estate—to balance risk and return potential.
- Dollar Cost Averaging: Investing fixed amounts at regular intervals regardless of market conditions. This approach means you buy more shares when prices are low and fewer when prices are high, averaging your cost over time.
- Time Horizon Considerations: Starting early gives your investments more time to recover from downturns and benefit from compounding growth. Learn more by listening to our podcast on compound interest: The Impact of Compound Interest (Making Cents of Money, 2023).
Asset allocation and diversification are two of the most important ways to limit investment risk. Diversification becomes easier with index funds and mutual funds. An index fund tracks a specific market index, like the S&P 500, by holding the same stocks in the same proportions as that index (U.S. Securities and Exchange Commission, 2026a). Instead of picking individual companies, you automatically own a slice of hundreds of companies. Mutual funds work similarly by pooling money from many investors to buy a diversified mix of investments (U.S. Securities and Exchange Commission, 2026b). Target-date funds take this further by automatically adjusting from aggressive (higher stocks) to conservative (higher bonds) asset allocation as you approach a target retirement date (U.S. Securities and Exchange Commission, 2026c). A portfolio with more stocks may have higher potential for gains but with more volatility. On the other hand, a portfolio with more bonds has less volatility with more stable potential for returns. As you approach retirement, you want less anxiety about your income potential from investments.
Crypto
Beyond stocks, bonds, and real estate, crypto assets represent the newest asset class in investing—and the newest means the most risk and uncertainty.
FINRA refers to crypto assets rather than currency because they don't function as traditional currency (Financial Industry Regulatory Authority, 2023). Some serve as digital infrastructure for specific activities or technologies rather than as money for everyday transactions.
Digital assets include thousands of different cryptocurrencies and non-fungible tokens (NFTs). They're created and stored digitally, often using blockchain technology, a complex coding system designed to manage assets and prevent counterfeits.
Digital assets, like Bitcoin, have a very limited track record of historical performance, making them speculative without intrinsic value (Cambridge Dictionary, 2026). They haven't stood the test of time, and they have significantly less regulatory protection than traditional securities like stocks or bonds.
Three defining features set crypto apart:
- Extreme Volatility: Prices can swing dramatically in short periods, driven by speculation, social media trends, and market sentiment rather than underlying fundamentals.
- Limited Historical Performance Data: Unlike stocks with decades or centuries of data, crypto has existed for roughly 18 years (Encyclopedia Britannica, 2026), with most crypto assets coming into existence much more recently.
- Decentralized Nature: Blockchain technology operates without central authorities, which limits oversight and investor protections (Prasad, 2021).
Stocks vs. Crypto
Stocks and crypto differ in many ways. Here, we'll focus on two critical ones: regulation and volatility.
First, regulation. Stocks operate within established regulatory frameworks. The SEC enforces securities laws, exchanges follow strict rules, and brokerages must meet licensing requirements. When something goes wrong, investor protections exist. Sadly this doesn't mean you will get your money back if you lost any, but it is a higher likelihood of being reimbursed and having resources to seek justice when an investor is wronged.
Crypto markets remain largely unregulated. While Illinois recently passed legislation to protect consumers from cryptocurrency scams (Illinois Department of Financial and Professional Regulation, 2025), regulations vary widely and are constantly changing. If you hold digital assets with a company in another country, they may stop providing service to your region—and you could lose access to your assets if you don't act quickly.
Second, volatility. Stock prices fluctuate based on company performance, economic indicators, and market conditions. Crypto prices can swing wildly based on social media posts and influencer endorsements and research shows that gains following crypto influencer recommendations typically disappear within days (Vlahakis, 2024).
It all boils down to risk. Interested in learning more? Check out these two resources.
Learn More
Ready to start building wealth but don't know where to begin? Join us via Zoom on February 11, 2026, at 12 PM CT to learn fundamental investing concepts that will set you up for financial success. Discover different investment options, understand risk and return, learn about compound interest magic, and create a simple investment strategy that fits your budget and goals. No prior experience needed – we'll start from the basics!
And, if you're feeling confident in your existing investing knowledge, take that knowledge to the next level! Join us via Zoom on February 25, 2026, at 12 PM CT to explore advanced investment concepts and sophisticated portfolio strategies. Learn about diversification techniques, risk management strategies, how to evaluate investment performance, and common pitfalls to avoid. Perfect for those who've mastered the basics and want to optimize their investment approach for better long-term results.
Register for the webinars here.
You can join for FREE from any device with internet access. You’ll need working speakers or headphones to listen in.
Conclusion
Stocks and crypto serve different investor goals and risk tolerances. Stocks offer established infrastructure, regulatory protections, and proven risk mitigation strategies. Crypto offers newer technology with higher volatility and less oversight.
Before investing in either, revisit the red flags we covered in Part 1 of this series, “Want to Start Investing? Read This First” (Tither, 2026). Understand what you're investing in, why you're investing, and what risks you're accepting.
Neither option is inherently right or wrong—but both require informed decision-making.
In our next post in this series, we'll explore practical options for investing in the stock market and how to get started.
References
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Encyclopedia Britannica. (2026, January 5). Satoshi Nakamoto. https://www.britannica.com/biography/Satoshi-Nakamoto ;
Financial Conduct Authority. (2026, January 29). Investing in crypto. https://www.fca.org.uk/investsmart/investing-crypto ;
Financial Industry Regulatory Authority. (2023, August 3). Crypto assets. FINRA.org. https://www.finra.org/rules-guidance/key-topics/crypto-assets ;
Financial Industry Regulatory Authority. (2024). A vibrant market is at its best when it works for everyone | FINRA.org. https://www.finra.org/ ;
Harper, D. R. (2025, November 2). Understanding different types of stock exchanges: An Essential guide. Investopedia. https://www.investopedia.com/articles/basics/04/092404.asp ;
Hwang, I. (2025, October 20). A brief history of the stock market | SOFI. SoFi. https://www.sofi.com/learn/content/history-of-the-stock-market/ ;
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ILStudentMoney. (2022, February 3). Steps to Investing #GetSavvy Webinar recording [Video]. YouTube. https://www.youtube.com/watch?v=3AYXsYQup-4 ;
Internal Revenue Service. (2026). Topic no. 409, Capital gains and losses | Internal Revenue Service. https://www.irs.gov/taxtopics/tc409 ;
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