Synopsis: Investing in crypto is best done with a portfolio approach where you buy into several different crypto assets. It means you have greater diversification, learn more, and have more potential for a big winner. Read this article for a simple guide to cryptocurrency portfolio construction!
How To Build A Cryptocurrency Portfolio
1. Learn About The Crypto Assets Before Investing
Perhaps the greatest return you can hope to gain from investing in cryptocurrency is what you will learn from your cryptocurrency portfolio – especially if you are a newcomer and are just dipping your toe in the water with small money at stake, as a cryptocurrency introduction.
to understand what you’re thinking of putting your hard-earned money into. This advice applies to all types of investments – not just your cryptocurrency portfolio. Ask questions like:
- What does this crypto do?
- Which other cryptos do similar things? Why is this one different?
- What are its cryptocurrency pros and cons?
- What would cause its price to go up, or down?
- How is their community organized?
- Has it been in the news recently? If so, what was said about it?
- How has the crypto value moved recently?
By doing this basic due diligence before investing, you can track the performance of your new crypto with a keener eye.
2. Gain A Broad Exposure
There’s an old saying you have probably heard: “don’t put all your eggs in one basket”. If your circumstances allow it, don’t just buy one crypto asset – buy a few of them. The value doesn’t need to be large. For instance, rather than put $500 into Bitcoin, try investing $100 each into five different cryptos.
Better yet, try to make the various assets in your cryptocurrency portfolio quite different from each other. Rather than buy five cryptos that are all Bitcoin offshoots, try to experiment a little. Divergent use cases will reduce the correlation within your portfolio, thus increasing your diversification.
One of the really interesting things about crypto investing is its ability to inject diversification. Most people have much of their net worth tied up in their family home, or in stock market equities that all move in lockstep.
Unlike stock market equities, crypto assets are much less likely to be affected by the gyrations of the broader market. Corporations like General Motors or Microsoft (the sorts of companies in most people’s retirement portfolios) are bigger than many sovereign countries. In fact, they have become so large that they all rise and fall together as the economy peaks and troughs. Crypto assets fill far more specialized niches, and so should be relatively uncorrelated with random stockmarket booms and crashes.
Beyond the diversification benefits, investing in a variety off cryptos will also teach you more! If learning is your aim, it pays to broaden your education across many use cases. The more cryptocurrency facts you learn, the better.
3. Decide On Your Risk Tolerance
When people think of the word “risk”, they tend to get nervous. To them, “risk” means danger. But smart investors realize that risk isn’t necessarily a bad thing – “risk” can also mean opportunity.
Everyone needs to decide on their own risk tolerance. Going through a deliberate exercise of thinking about their financial goals, and how much they are willing to put at risk is a great idea. It may even result in deciding to not invest in crypto at all. It is, admittedly, a highly risky space subject to wild price fluctuations.
Restricting your cryptocurrency portfolio to the more “mature” crypto assets like Bitcoin, Ethereum and Ripple limits your risk. But just remember that by limiting your risk, you are limiting your potential upside too. There are cryptos which have returned 100x, 1,000x, and even more. You can afford a few losers if you can find just one of these winners.
How To Track A Cryptocurrency Portfolio
1. Do It Manually – Use A Spreadsheet
The low-tech solution is to simply keep track of your cryptocurrency portfolio in a spreadsheet. Each row can be a different crypto asset, and each column can be your various wallets. Set the spreadsheet up to total up the holdings across all your different wallets. This method requires no special logins, or even an Internet connection.
Then whenever you feel like it, go to a website like coinmarketcap.com and update your spreadsheet with the going market price. It’s a little labor-intensive, but a simple spreadsheet is a fine solution if you don’t plan to trade in and out of your positions frequently.
2. Use A Tracking Software
You can also use a website or mobile application to automatically update with the current market price, such as the one found on cryptocompare.com. This means you can see the value of your holdings fluctuate in real-time. Just don’t become a junkie for constantly refreshing the page and worrying too much about how your cryptocurrency portfolio value changes day-to-day (or even minute-to-minute!).