Managing your crypto assets properly is the most important yet overlooked process in the world of crypto. More often than not, I'll see people creating a portfolio and throwing a ton of money in without even thinking about their goals, budget, diversification, etc.
Having a few years experience in the crypto sphere, I want to offer my knowledge and help you track progress to increase your gains through effective coin portfolio management.
Let's get started!
Step 1: Define Your Goals
Are you trying to increase your USD holdings? Are you trying to increase your crypto holdings (BTC, ETH, LTC...)? Do you want to increase both? These are the fundamental questions you have to ask yourself to decide how you are going to accumulate wealth. It's important to decide your goals so you have a clear destination that you intend on reaching.
Step 2: Choose Long-Term Coins
If you decided to increase your crypto holdings - awesome! It's now up to you to use that thinker of yours to choose where you intend on storing your wealth. In this article, I won't go through how to pick your long-term coins, but I will offer you some pointers on diversification.
What is diversification? Well, Investopedia states that it is "the process of allocating capital in a way that reduces the exposure to any one particular asset or risk". In layman's terms, instead of putting all your eggs in one basket, you're placing your eggs in multiple baskets. If you drop one or one gets stolen, you will have the majority of your eggs dispersed in the other baskets.
Is it really necessary to diversify? Yes. Can you over-diversify? Absolutely. True diversification works by investing in different asset classes that move separately from each other. In crypto, diversification is difficult because alts basically follow Bitcoin, and typically get hit harder in bearish cycles. This is why I believe crypto over-diversification does more harm than good. Instead of selecting your top 50 coins, I recommend keeping your diversification to around 8-10 coins. Each of these should have real-world application & function somewhat separately from one another.
For example, if 100% of your portfolio is held in payments systems such as Litecoin, Dash, or Ripple (as opposed to smart contract ecosystems), perhaps it would be a good idea to spread that wealth into coins that touch in different industries like the grocery industry, real-estate, etc.. Additionally, instead of investing all of your wealth in ERC-20 tokens, perhaps it would be better to diversify into coins that aren't based solely on the Ethereum blockchain.
Now, it's up to you to do your due diligence and ensure that you're long-term investment options are highly likely to survive & thrive in the long-term. Select these as if you were required to hold them for a minimum of 5 years - take your time, and choose coins/companies that you truly believe in (not just because some CNBC article promises a 900% gain).
Step 3: Account Separation
Now that you've defined your goals and know what assets you intend on building, it's time to separate accounts. What do I mean by this? You need to decide if you are an investor, day trader, swing trader, or a mix. Personally, I am mainly an investor in cryptos but I also have a set account used specifically for swing trading in USD. Instead of dipping into my long-term assets, I have a separate "account" to divide my wealth into different use categories.
Note: you can separate your accounts as you'd like. Perhaps you want to build your cryptos through trading and have long-term holdings in common stocks. Whatever works - just make sure you understand your goals.
Here is an example of ratios that I use to separate my portfolio into more manageable accounts :
| Long-Term Assets | Day Trading | Cash |
|---|---|---|
| 80% of total assets | 5% of total assets | 15% minimum |
This is basically the structure I go by - a heavy focus on long-term investing (building my crypto assets), a small focus on day trading (building my cash for spending), and a set cash reserve (for market dips). In my opinion, you should ALWAYS have at least 8-10% of your wealth in cash. The reason for this is to set up ladders when the market is dipping. As the market dips, you buy more of your long-term assets on sale! Without cash on hand, you won't be able to take advantage of the corrections, and you will not build your wealth as quickly as you would like.
Step 4: Funding/ Budgeting
Now that you have your portfolio segmented according to your goals, you now have to decide on how much you will fund to each account. Ideally, you have a job and get paid on a regular cycle. Say you take 30% of your $1000 (so $300) paycheck and put it towards your crypto investment portfolio. You can decide how you're going to distribute that $300 via the previous step. If you intend on keeping 80% of your total assets in long-term investments, then 80% of that $300 should go into that category.
Funding should be like clockwork; have a set day of every week (or biweekly, monthly, etc.. whatever works) to transfer funds in to distribute. Use this day to keep track of the amount purchased and the fees paid so you always stay on top of your finances. If you intend on managing a portfolio, it is IMPERATIVE that you stay organized. Create a Google Sheets document tracking when you purchased, for how much, how many "shares", and the associated fees. Don't miss this - if the tax man comes knocking, be prepared to answer the door.
Step 5: Action
Bam!! You've successfully set up your portfolio like a pro. You know exactly what asset you want to build (USD, BTC, or both), you know which accounts are receiving how much money, and you're organized so you never have to wonder how much of your money went to paying fees.
Now it's time you implement and stick to this portfolio. In no time, you'll see gains that you never thought were possible and you'll be confident in your abilities to manage your money. I hope this was super helpful - if there is anything that you think I should have added based on your experience, don't hesitate to comment and let me know!
Thanks for taking the time to read :)
Matt Concordia