There are two methods to make money in the financial markets, and everyone who has learned how to invest has heard this notion at least once. Fast and risky or more cautious and steady are the two options you have when it comes to taking on a challenge on the market.
“Investors" tend to follow the second paradigm, leaving the first one to “traders." Over the years, investors have been driven by the motto "Buy low, sell high," by which they've hunted for cheap assets and purchased them, intending to hold onto these investments for at least many months and sometimes years.
This approach appears to be easy to spot in the cryptocurrency market. Let us critically compare the two philosophical movements in the following sections.
Why Do Traders Like Buying and Holding Crypto?
Buy and hold has been repeatedly demonstrated to provide satisfying returns on cash invested when coupled with a complete set of analytical skills.
The fact that this strategy requires far less time than routine portfolio rebalancing should also be taken into account. In a similar way to purchasing a home, investors and holders alike look at the market, the asset, and the potential for future growth before making any decisions.
In other words, passive investors don't have the time (or the inclination) to worry about finding "ideal" entry and exit points or constantly monitoring the market.
Buy and hold and investing, in general, is what academics and portfolio management programs teach since this approach relies nearly exclusively on fundamental analysis to make its decisions.
With this method, there is a high opportunity cost connected. The term "buy and hold" implies that you want to keep a financial investment for the long term. Because of this, a buyer and holder must be self-disciplined throughout this holding time to not pursue other investment options.
It may be tempting to liquidate a position that has not brought any positive outcome for months. Still, this option may lead to losing an investment opportunity due to greed.
Portfolio Rebalancing: A Smart (Yet Costly) Strategy
Rebalancing your portfolio theoretically decreases the chance of your investments losing value by returning them to their initial risk tolerance.
The goal of an asset allocation is to reduce the impact of each asset class by minimizing both its upside and downside. Because of this, you are exposed to greater risk than you initially anticipated when a particular investment rises in value quicker than the other assets.
Rebalancing also eliminates the possibility of your buying and selling decisions being influenced by your emotions. The advice to buy low and sell high might be challenging to follow when it involves selling a token that is outperforming the market to purchase a coin with a falling price.
We're talking about an uninformed approach that implies that high-flying assets can only go down or, at best, have little opportunity for further gains.
Future forecasts of stock and bond market direction should be considered while making this important choice. If your reasons for purchasing the investment are no longer valid, then it is time to liquidate it.
If you cannot see yourself monitoring the market constantly and updating your analysis daily, you are among the majority of investors out there. Considering that most people have a job and invest their money hoping to gain a secondary source of income, it sounds unfeasible to expect everyone to spend hours studying the market every day.
While rebalancing a portfolio sounds reasonable, we need to face reality: it’s a time-consuming technique that few people can afford out of the professional financial world.
An Automated Rebalancing Solution on the Market
Shrimpy, an automated portfolio management platform, enables users to keep track and rebalance their portfolios over the long run in an automated manner. Removing the annoying, time-consuming component of portfolio rebalancing can undoubtedly appeal to many retail investors.
A direct connection to several prominent centralized exchanges (CEX) enables users to monitor the performance of experts in real-time and assess the crypto market. Advanced portfolio backtesting and automated portfolio management are among the features of the digital assets trading platform.
Shrimpy's social trading is one of the characteristics in which the team invested more effort. The system allows users to learn from the top traders in the world. Automated position copying is pre-configured in the software.
After investing, Shrimpy's automatic portfolio management software offers its community a wide range of functions. Consider rebalancing your whole portfolio, using stop-loss orders to avoid steep dips, or creating custom indices, together with other features.
Key Takeaways
Most investors wishing to rebalance their portfolio often need to face the hard truth: this optimal strategy is far more complicated than it sounds. The reason why many investors opt for a buy & hold strategy is frequently related to their daily time management.
Market solutions such as Shrimpy are aware of this issue. They wish to provide investors with a compromise between a sound portfolio rebalancing system and a less time-consuming approach.