Every user has a unique crypto investment strategy. Some invest only in a single coin, while others prefer to diversify their portfolio with several coins to avoid risk. However, it is essential to maintain a well-balanced crypto portfolio. This can help protect your investment against volatility and ensure long-term growth.
So what’s the best way to create a well-balanced crypto portfolio? Let’s find out.
Plan Your Goals
Emotions don’t work in investing. Facts don’t care about our feelings. Setting up realistic goals and achieving them is one of the most significant indicators of success for an investor. You need to have a clear plan to set yourself up for success and minimize losses as much as possible.
The first step to making a well-balanced crypto portfolio is to be clear about your goals. Some people invest to grow their capital over time, while others have aggressive goals, such as "doubling or tripling the investment in under a year."
Another significant factor in planning is setting realistic goals and deadlines. You cannot go from 0 to millions in a short span of time. Start by setting small, attainable goals that you can gradually grow. This is especially essential if you’re new to the crypto world. Start small, and once you gain experience, you’ll be able to scale your portfolio.
What’s Your Risk Tolerance?
Risk tolerance is another critical component in making a well-balanced crypto portfolio. The crypto market is highly volatile, which means prices can fluctuate rapidly. Most investors avoid highly volatile currencies. However, some investors see this as an opportunity to earn high returns. Identify your risk tolerance before you invest. You can do this by assessing your investment goals.
Ask yourself the following questions:
- Am I looking to build a quick profit?
- Am I looking to build wealth for the long term?
- Am I looking to gain experience?
If you want to make a quick profit, you might have a higher risk tolerance. If you're going to create wealth for the long term, you should keep your risk tolerance low. Once you have assessed your overall goals, you can look at various cryptocurrencies and evaluate their risk. Stablecoins, such as USDT are considered low risk. On the other hand, Bitcoin is a highly volatile asset, even though it has the larget market cap. However, you should consider the risk to reward ratio as well.
Invest in Leading Coins
This step involves investing your funds in the coins with the largest market caps. Look at the 4–5 most significant coins that are more stable than others. They will still be volatile, but will have much less risk than investing in completely new coins.
However, you should keep your exposure to stablecoins, such as USDT and USDC, limited. These aren’t made to increase in value and have very minor fluctuations in price. Unless you are planning to scalp a large amount, you might not get the biggest benefit out of investing in these coins.
Diversify Your Assets
Another strategy that many investors use is to diversify their portfolio by investing in a multitude of different coins. This way, you can minimize risk and maximize reward. For example, some investors will put 70% in relatively less volatile currencies, such as Ethereum, and 30% in altcoins with a lot of growth potential.
Have Different Use Cases for Crypto in Mind
Cryptocurrencies come with all sorts of purposes. Analyze the use cases of different crypto to plan your investing strategy further:
- DeFi tokens: DeFi token can give you governance over the DeFi protocols. You can also use them for yield farming and earn rewards in the form of additional tokens or fees.
- Metaverse tokens: The rising virtual worlds allow users to interact and communicate in the most innovative and future-centric way possible. With metaverse tokens, you can buy and trade virtual assets.
- Gaming coins: These coins can be used as in-game currencies in blockchain games. They give you governance power, where you get to vote on proposals, and make decisions about the direction of the platform. You can also buy in-game merchandise with these tokens and sell them for a profit.
- Privacy coins: These coins offer private and secured transactions for your business or personal endeavors.
Review and Rebalance Your Portfolio
Review and rebalance your portfolio to ensure that your investments continue to align with your goals and risk tolerance. Since prices fluctuate all the time, you should adjust your portfolio accordingly. For example, if you see an inevitable trend going up or down, you can swap or transfer money in that direction.
This way, you are constantly improving your odds and are not just stuck in one position, waiting for the profit to go up.
Invest What You Can Afford To Lose
Finally, the most crucial advice is to only invest what you can afford to lose. Many people make the mistake of putting too much money on the line when they first start out in the world of cryptocurrency investing.
Some people invest their life savings in the hopes to multiply their net worth. Wise investors, on the other hand, only invest what they can afford to lose. The crypto market is volatile, and putting your life savings at stake might not yield the expected results.
The crypto market is dependent on Bitcoin’s price movement to a large degree. However, to balance your portfolio, you should also invest in altcoins and permissible projects that have a clear roadmap. Diversify your portfolio, invest smartly, and continue learning about crypto trading strategies. This way, you’ll have a solid portfolio that will put you on the path to success.