Building a well-rounded cryptocurrency portfolio would be the next advanced step after an investor makes his first purchase of Bitcoin or another crypto. Having one helps to reduce risk by spreading capital around different assets, and can also expose an investor to more opportunity and a higher chance of successfully generating profit from their cryptocurrency investments.
In this article, I will be showing you some methods that you can use to plan out and build your low-risk portfolio, but you should be aware that you’ll always need to do your own research since there is no perfect formula for all investors.
First, don’t be put off by the vast sums some people are boasting about having in their portfolios – they may have been investing from the start and reinvested their profits and payouts gained over time. One of the most attractive things about the world of crypto assets is that you can get started with a sum as small as a couple of hundreds, and then slowly build it up in small increments.
Research and monitor:
It’s worth checking out a cryptocurrency before investing, but also keeping a close eye on the news and any media observations on the topic. Crypto news reporting on certain projects might influence the price performance of the token, especially the small-cap ones. It’s also advisable to subscribe to updates on the project’s website to receive development updates.
Tracking the performance of your crypto assets should be as important to investors as tracking the success of any other kind. Also, before investing in a coin long-term, we need to ask ourselves if the cryptocurrency is useful and does the project have users?
Risk tolerance
Also, one important aspect of cryptocurrencies to consider is their exceptional volatility. In a day, you need to be comfortable with the idea of our investments going up and down 50%. Any cryptocurrency investor must be prepared for their crypto holdings to fall to zero. That means any investor shouldn’t invest a sum of money that he can’t afford to lose if the worst happens.
Trading Small
No matter how low your starting point is, the best tactic is to make small investments until you become more confident in trading. There are several places where you can buy crypto assets. Try to stick with regulated websites like Coinbase which sells several types of coins. Buying by bank transfer is usually cheaper in fees than using a credit or debit card.
You Can’t Time The Market
Dipping in and out of the market could mean missing days in which huge gains are accumulated. You do not have to worry about that with a long-term investment strategy. In order to decrease volatility, I recommend buying your long-term portfolio following the DCA method.
What is Dollar Cost Averaging?
Due to cryptocurrencies’ volatility, it can be very hard to time your entry point into the market. Instead, you should dollar cost average into your positions. This means splitting up your investment into separate chunks and investing a fixed amount every week, for example.
With this method, either the market goes up or down, you already have a position to add to.
Diversification Is The Watchword
The wider you spread the load, the safer your assets will be. In fact, investing in much more projects than you initially thought is a good idea. Ideally,you should build a portfolio of low, medium and high risk cryptocurrencies or what we call in the cryptocurrency language, lower and higher market cap cryptocurrencies.
This is a list of today's biggest cryptocurrencies by market cap:
A market cap is the term you’ll be using to mean the same as value for a cryptocurrency. And It is always a good idea to check the market cap of the cryptocurrencies you get interested in. The market cap is counted by a simple equation: the price of the coin times the actual number of that coin in circulation.
You should note that the higher the market cap of a coin, the safer the investment is. Lower market capped coins are much more volatile. Hence, they have a bigger potential for doubling your investment. But a mix of all types is considered the best option overall.
Building a crypto portfolio by risk level:
It is better to set up your portfolio by risk. It is recommended that the majority(50% at least) is allocated for low-risk cryptocurrencies such as Bitcoin and Ethereum.
From there, a portfolio can be broken down further, by allocating 25% of it towards medium risk altcoins. The top ten cryptocurrencies by market cap are often considered medium risk.
Next, you can allocate 15-20% to higher risk altcoins. Those behind the top ten cryptocurrencies by market cap are considered high risk.
Finally, you can allocate 5-10% to the highest risk investments, or what the crypto community calls “moonshots”. These cryptocurrencies have the potential to bring investors huge gains.
If you are more of an adventurous investor and would like to allocate a big percentage of your portfolio to moonshots,we’ve got you covered! You can start using Binance which supports more than 150 cryptocurrencies . You can buy, sell, and exchange tokens like Ripple (XRP) and Eos.
Thanks for reading and if you have any questions feel free to ask in the comments!