What's up everyone! It's another post of the Finance Friday series! I haven't traded much this week and just hodl'ed my alts, and it ended up a little bit bad! But to keep the quality of my posts, I'll talk about a topic on investing - specifically diversification.
Diversification
Never put all of your eggs in one basket
Diversification is an investment strategy in managing risks by mixing a wide variety of investments. In crypto, this means an investor buys different coins or tokens that have different applications and industries to minimize risks, than buying one or two and keep hope for 'moon lambo'. The crypto market is really volatile and one black swan could really hurt you overall if you're not diversified enough. I've bought most of my BTC last January, and we know that it has dropped since then. But by diversifying, I've manage to lower my losses on the overall dollar value of my portfolio by just 1%, and my BTC amount has increased by 50%. Meaning, if BTC goes back to 16k and I'll sell all my alts today, I'll be earning that much of my total dollar value investment. But how diversified should someone be?
I have divided my crypto investments into three parts: 1. The day trading portfolio, 2. The long-term investments, and 3. The income-generating investments
Day trading
One of the parts of my day-trading portfolio is in my Finance Friday Binance account. In my personal preference, I just hold 3-5 coins that I day-trade or trade frequently. Holding too many coins while day trading would lessen income opportunities. 3-5 coins is my personal preference. An overdiversified trading portfolio, risk yourself in getting less profits when one of your coins run. You'll always miss profits, you'll always do. There are 1400 different crypto as of now. Getting a good profit in one or two of your coins is enough. Portfolio management also gets harder the more bags of coins you have. And one important thing is to never run out of BTC. This is what you'll use to trade alts.
Long-term Investments
Courtesy:ICONOMI Platform
The overall crypto economy has no attention until last year. And as of now, the crypto-investors could be still less than 1% of the total global population. Being less diversified in a long-term portfolio would hurt your entire balance. Holding 10-15 different coins with different applications is okay. Great fundamentals on a coin or token should be observed before deciding to hold it long term. I personally do deep research in what coins should I hold long term, that I believe it would stay for the next 5-10 years. Holding too many could also reduce your profit opportunities, and holding a bit less could potentially hurt your overall portfolio. One day if I'd find success in crypto, I'd also hedge and buy commodities and traditional stocks. That way when crypto goes on a bear rally again, atleast I won't be totally exposed. I also am a fan of index funds and managed hedgefunds. I invest in tokenized index funds like C20 and others on the ICONOMI platform. I am overall bullish with crypto against the dollar, and this one helps me minimize risks and have a diversified portfolio, even I'm not buying all the altcoins that I could. I'm a small investor and we know that withdrawing coins on centralized exchanges have high fees. Buying index funds would let me buy a diversified portfolio with lesser fees. And I don't even have to rebalance it myself since they'll do it regularly.
Courtesy:ICONOMI Platform
Income-generating investments
These would include masternodes, income-generating and dividend-paying tokens. I have once read that a rich man should have atleast 5 sources of income, and he should make money while he sleeps. Getting atleast 5 income-generating crypto would be great. I am also dollar-cost averaging my entries on this one. Of course one of it is STEEM. Although you can generate good income without even investing a single dollar in it, specially if you're a good writer and you'll catch one whale's attention. I buy STEEM or SBD from time to time. Usually I use most on boosting my posts to atleast get to the hot page and get attention. I haven't found great success, though part of it could be considered as my fault for inconsistency, but sure this will be one of my income-generating investments. I have one other income-generating coin, still too small to be considered as income for now. I am finding for more, I'm considering staking a low cap coin and hope I'd find success in there. I can't still afford the Class A masternodes for now, but I'm sure I'd be there soon.
The Portfolio
How bad did this week end? The Consensus rally that was expected didn't really happen, and the alts that I held kept dropping. I didn't sell most of the alts I bought last week. I have sold my QSP, which did have a recovery before this week ended. BTC dropped from $9k last week to a low of about $7.9k in the middle of this week. Alts then followed to bleed and kept dropping, except a few, those which I never bought. Having no spare btc in my binance account, I just chose to let it ride.
During the weekend rebound last Saturday, I have sold some alts and rebought others, which was really a bad move. Had I just sold them and stayed on BTC, or better, sold it to get USDT, I could've still got some profits this week. But given that trading really needs concentration and time, I had to pass because my job demanded more time than usual, and it is of higher importance than trading as of now. It could've been worse, if I panic sold my alts when it kept dropping, I won't have little chance to recover it back. But it really feels alt season just ended, and we need some catalysts to see some of them get a good rally. I think I'll be putting more in this Binance account, because I can see I have more opportunities if I'd put, specially that the alts are dropping. It seems I'm more pumped when the alts drop because I can see more profit opportunities.
Overall, there are perks and disadvantages of holding. If one's entry are cost-averaged, then there will be good chances to sell and take profits everytime the altcoin bounces back up, and rebuying when they drop lower. This strategy though, needs more bags of btc and always keep some. Running out and holding bags that will keep dropping is dangerous though. I had done it with some, specially I bought most on the beginning of the year. Before I left the market for a while, I have sold some of it at huge losses, some more than 50% of my initial investments. This Finance Friday series is really teaching me a lot of strategies that I could try, and not hurt my overall equity. Cost-averaging is really better specially for investors that don't have time to swing or day trade, and those who don't have enough money to put to let their daily gains pay for their living.
Here's my weekly progress in this series:
Initial investment = 0.01 BTC/$68 (estimate)
Previous week value = 0.01827214 BTC / $154.27
Current week value = 0.01780630 BTC / $146.12
Weekly Gains = -2.54% / -5.28%
Total Gains = 78.06% / 114.88%
Interested in trading and haven't traded yet? Try Binance. They trade STEEM too!
You can buy some altcoins not listed on Binance at Kucoin!(Please always check the url and don't get phished!)
Feeling ballsy and wanna do leverage? BitMEX allows up to 100x! Don't get burned though, or else the bot will quote your order.
Disclaimer: All information found here, including any ideas, opinions, views, or cryptocurrency picks, expressed or implied herein, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. I am not your financial advisor. Please don't sue me if you follow my picks and lose money.
Missed the previous weeks? Here's the list
Week 1
Week 2
Week 3
Week 4
Week 5
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