In this article, I will cover how to build a well-balanced crypto portfolio.
You see, each person(whether a trader or investor) has their own idea of what a well-balanced crypto portfolio is. But we have some general rules worth looking at. I have identified 6 of them below:
General rules to create a well-balanced crypto portfolio
1. Split your portfolio between high, medium, and low-risk investments and give them appropriate/balanced allocation. Not too many high-risk coins as you may incur heavy losses. Also, not too many low-risk coins as you may get very little profit. I consider:
- Low-risk coins to be stable coins and other savings products
- Medium-risk coins are Bitcoin, Ethereum, and BNB. They’re well established but less volatile – a maximum of 50% drop
- High-risk coins to be Altcoins(alternative coins like Shiba Inu, LUNA, Doge, etc). They can have a 95%+ drop. Even LUNA had 100%.
2. Always hold some stablecoins to help provide liquidity for your portfolio.
- There will always be opportunities in the market so have a spare stable coin(USDT, BUSD).
- You can use them on many DeFi platforms and earn little interest
- It can help you quickly and easily lock in gains or exit a position
3. Rebalance your portfolio if needed: This simply means balancing back your portfolio. When one or more assets get out of balance, you take it back to the original allocation ratio. You can do this when the time arises or in specific periods(once a year)
4. Allocate new capital strategically to avoid overweighting any one area of your portfolio. If you’ve made significant gains recently from one coin, it can be tempting to pump in more money in it. You must not let greed interfere, instead, you can think about where to better place the money. Think of other coins and investments yet to skyrocket in price.
5. Do your own research. You are investing your own money, so don’t rely solely on the advice of others, especially from Whatsapp & Telegram messages, news, and mainstream media.
6. Only invest what you can afford to lose. One way to know if your portfolio is correctly balanced is true stress. If you can’t sleep at night or can’t concentrate on your day job or business then something is wrong.
When I find myself in such a situation, I always try to look at the risk involved. That is what is the maximum risk or loss I can get. If it’s too much, I reduce it. I don’t hope or pray about it. My 1st bear market was horrible. You may pass your stress or depressed feeling to your girlfriend and family.
So that’s all I have for you today. I hope you’ve learned something new.