29. Cryptocurrency portfolio diversification
Saving and investing capital is undoubtedly a kind of skill. As a novice trader and investor, you need to know what it is and what it consists of, diversification of the investment portfolio. How to carry it out correctly?
What is portfolio diversification – definition
Portfolio diversification is an investment method consisting in dividing one’s capital into different groups or assets. For example, you have 10,000 in your wallet. You place them on the stock market, real estate, cryptocurrencies, tokens, stablecoins, company shares or other assets. Thanks to this, you learn to invest on various levels and multiply your profit.
To not the only one diversification advantage wallet. At the same time, you do not take such a risk. Diversification of the investment portfolio allows you to avoid losing your funds completely.
Even if you lose money on real estate, you are left with funds in cryptocurrencies, which offsets the loss and even allows you to recover it.
Fun fact: Portfolio diversification is a great investment strategy!
There are many ways to diversify your portfolio. We will give you examples that do not focus only on cryptocurrencies and digital assets. You will see how broad the spectrum is covered by diversification:
- Tokenization projects.
- Stock market.
- Treasury bonds.
- Real estate.
- Crowdfunding projects.
And many others. Believe us, there are many ways to save money.
As already mentioned, the main advantage of portfolio diversification is to minimize the risk and loss of capital associated with investing.
Other advantages include maximizing profits and ensuring better financial liquidity. What’s more, this type of investing will let you know more financial instruments, available on the market and will raise investment awareness.
Over the flaws, portfolio diversification could argue for a long time. On the one hand, it should be remembered that it does not eliminate the risk of investing. It only reduces them. On the other hand, it must be considered that portfolio diversification is a bit limiting. Why? If we invest in many products, and only one brings us real profits, then in total – our profit is small.
Portfolio diversification methods
- A risky model. If you adopt this strategy, you are placing your capital in risky assets. Of course, you first need to analyse and evaluate them. By choosing a risky model, you want to achieve above-average profits in the shortest time.
- Conservative model, i.e. long-term investing. A feature of this method is stability and steady capital growth.
Before you decide any of the above models, please focus on market analysis and your capabilities. By adopting the right model, you can reduce your risk and increase your profit.
What’s the best way to diversify your cryptocurrency portfolio?
- Depending on the adopted investment strategy, the distribution of our assets will be different.
- To minimize the risk, however, let’s keep it a certain way to diversify.
- Let’s not limit ourselves to high-risk assets only. Funds in the portfolio should be divided to have assets (cryptocurrencies) with high, medium and low risk.
- Worth considering investing in stablecoins.
- Don’t make significant differences in the distribution of your assets and cryptocurrencies. The fact that suddenly the value of one of them will increase, do not list the others. This can have really risky consequences.
- Learn about the market and follow new trends.
Which assets are best diversified?
There is no single, specific and unambiguous answer to this question. If you don’t quite know what diversification strategy to come in, you can use portfolio trackers.
Trackers are programs that track the movements of assets in our portfolio for us. The most popular ones include: CoinMarketCap, Delta or KryptoBot.
Automated applications will to some extent relieve us of tedious technical analysis.
It is also worth considering that, in fact, it is from Bitcoin a large part of the entire available cryptocurrency market is dependent on it. Nevertheless, – do not give up other available coins. With conscious investments, even a minimal degree of portfolio diversification is essential. Controlling declines will allow you to cover subsequent losses with other assets available in your portfolio.
Even if you use diversifying your cryptocurrency portfolio, you cannot eliminate the losses that it entails investing. Nevertheless, we recommend this method. According to most experts, diversification, done wisely, makes sense. Regardless of whether you are just starting your adventure on the cryptocurrency market or you are an old stager – it is worth considering.