Topic: Fundamentals of building and maintaining your crypto portfolio - page 2. (Read 200 times)
Quick follow up. Deviding cryptocurrencies from the point of risk level based on capitalisation is the easiest way, but not the only one. It will be better if you'll come up with yiur own grades based on personal vision.
No so many people in crypto have only BTC or ETH. Everyone who has several coins is actually maintaining a portfolio. So it is important to know how to control it effectively, but the more i read posts here, the more I understand that most people do't even plan it. Below i will describe the fundamentals everyone should understand. The post is mainly targeted to educate newcomers. I encourage expirienced users to share thoughts in comments as well.
Rate of return
The main goal of any investor is to make profit. First of all you need to decide how to calculate it. There are 3 most used strategies in crypto:
- Take profits in fiat currencies or its substitutes like USDT. (I don’t personally like USDT, but it is still very popular despite all events)
- Take profit in BTC. All investments/trading are done to increase BTC holdings.
- Take profit in your favorite altcoin. Most people use ETH, but you can choose any: NEO, ADA, XRP and etc.
Regardless of your choice, you need to plan your profit and set a goal. It can be +1000$ or +20% in BTC and etc. Once the goal is reached portfolio management is completed.
Risk management and diversification
The main rule here is the more profitable investment seems, the more risky it is. Diversification is the most common way to lower risks.
From risk level point of view we can divide all coins/tokens on:
- Low-risk assets (LR) – first 5-10 coins on Coinmarketcap
- Medium-risk assets (MR) – top 30 coins
- High-risk assets (HR) – all other projects and ICOs
Note, you can use your own criteria to divide assets.
Depending on the percentage of assets with different risk levels, there are three main types of portfolios:
- Conservative |5-10 assets |Risk ratio: 75%/25%/0% (LR/MR/HR) | Stable, but will not make lots of profit.
- Moderate |10-20 assets | Risk ratio: 25%/50%/25% (LR/MR/HR) |The most commonly used type of portfolio.
- High-risk |20+ assets | Risk ratio: 25%/25%/50% (LR/MR/HR) | Very risky, but can have a great potential on a bullish market. Sometimes it can be built only on ICO tokens.
One of the most general recommendation for any portfolio is to have at least 25% in BTC. I don’t follow it now and it might be a huge mistake.
Liquidity
Liquidity shows two things: interest of investors to this asset and how many tokens you can easily sell or buy. You need to check trade volume for a month at best (if it is available of course). If you are going to buy a no-name coin with total 24h volume of 10 BTC, don’t expect you will be able to sell/buy on 1 BTC fast.
In general, always study projects before investing. Do both fundamental and technical analysis if possible. Check what other people think about this asset. And never invest in project that you don’t understand!
Investment horizon
The most important thing for portfolio management is to define investment horizon i.e. how many days/weeks/month/years are you going to maintain it. Things move fast in crypto. On stock market you can build your portfolio for 4-5 years. In crypto 6 month is already a long hold. The smallest investment period here several days (or even less if you are day trader), the biggest is couple years.
For a small investment period you should choose small goals like 10-15%. If you are going to hold your assets until Christmas, you can set 100% or more.
The last thing for today is plan your storage for assets. We all know that exchange is not the best place for a long hold. Always to try to low risks and use secure storages like cold wallets, hardware wallets and so on. If you still want to store your assets on an exchange, divide them between 2 or 3 exchanges at least.
My full rticle is publishe on steemit: https://steemit.com/cryptocurrency/@cryptohumster/the-fundamentals-of-creating-a-crypto-investment-portfolio
In the next article I will talk about rebalancing your portfolio and what could you do with profit. Subscribe or follow me on twitter not to miss it.
**************************** UPDATE ****************************
As promissed, the second part is published: https://steemit.com/cryptocurrency/@cryptohumster/the-fundamentals-of-a-crypto-investment-portfolio-rebalancing
Rebalancing basis
Rebalancing your crypto portfolio is one of the most important aspect of portfolio management. It allows your portfolio to survive market deep, adopt to market condition, mitigate risk and optimize your profits. So what should you know about rebalancing?
There are two main rules:
- Rebalancing is always based on investment horizon
- Rebalancing is always made according to a pre-conceived scenario
I don’t need to explain why you need to consider investment horizon. It is easy to understand that if you invest for year you don’t need to rebalance your portfolio every day. You need to consider rebalancing once a month or once in 3 weeks.
As for the plan, there are two main strategies:
- Preservation of the current percentage of different asset groups (or for each risk level individually). For example, if you have moderate portfolio with 25%/50%/25% percentage, you may need to buy/sell assets to until the original proportion is restored.
- Changing shares. Some of your assets perform better than the others. You may want to increase the share of the most profitable assets and get rid of assets, bringing only losses. This operation will make your portfolio more profitable.
You need to decide what to do with a positive imbalance after rebalancing. You can either fix your profit, leave it as part of portfolio or reinvest.
The frequency of rebalancing depends on the following factors:
- Investment horizon. For long-term portfolios (from a quarter to a year or more), it makes sense to conduct this operation once a month. For medium-term - once a week.
- Sharp change in the proportions. For example, there was a portfolio with a balance of assets of 50/50, and after a while, it became 60/40. Such a significant change in the structure usually requires a rebalancing.
- Individual news background for each asset. For example, if there are positive rumors on a coin you may consider investing more and sell when the news come out. Remember, we always buy the rumors and sell the news.
In general, I will not recommend diversifying portfolio too much as it will be difficult to rebalance portfolio.
Rate of return
The main goal of any investor is to make profit. First of all you need to decide how to calculate it. There are 3 most used strategies in crypto:
- Take profits in fiat currencies or its substitutes like USDT. (I don’t personally like USDT, but it is still very popular despite all events)
- Take profit in BTC. All investments/trading are done to increase BTC holdings.
- Take profit in your favorite altcoin. Most people use ETH, but you can choose any: NEO, ADA, XRP and etc.
Regardless of your choice, you need to plan your profit and set a goal. It can be +1000$ or +20% in BTC and etc. Once the goal is reached portfolio management is completed.
Risk management and diversification
The main rule here is the more profitable investment seems, the more risky it is. Diversification is the most common way to lower risks.
From risk level point of view we can divide all coins/tokens on:
- Low-risk assets (LR) – first 5-10 coins on Coinmarketcap
- Medium-risk assets (MR) – top 30 coins
- High-risk assets (HR) – all other projects and ICOs
Note, you can use your own criteria to divide assets.
Depending on the percentage of assets with different risk levels, there are three main types of portfolios:
- Conservative |5-10 assets |Risk ratio: 75%/25%/0% (LR/MR/HR) | Stable, but will not make lots of profit.
- Moderate |10-20 assets | Risk ratio: 25%/50%/25% (LR/MR/HR) |The most commonly used type of portfolio.
- High-risk |20+ assets | Risk ratio: 25%/25%/50% (LR/MR/HR) | Very risky, but can have a great potential on a bullish market. Sometimes it can be built only on ICO tokens.
One of the most general recommendation for any portfolio is to have at least 25% in BTC. I don’t follow it now and it might be a huge mistake.
Liquidity
Liquidity shows two things: interest of investors to this asset and how many tokens you can easily sell or buy. You need to check trade volume for a month at best (if it is available of course). If you are going to buy a no-name coin with total 24h volume of 10 BTC, don’t expect you will be able to sell/buy on 1 BTC fast.
In general, always study projects before investing. Do both fundamental and technical analysis if possible. Check what other people think about this asset. And never invest in project that you don’t understand!
Investment horizon
The most important thing for portfolio management is to define investment horizon i.e. how many days/weeks/month/years are you going to maintain it. Things move fast in crypto. On stock market you can build your portfolio for 4-5 years. In crypto 6 month is already a long hold. The smallest investment period here several days (or even less if you are day trader), the biggest is couple years.
For a small investment period you should choose small goals like 10-15%. If you are going to hold your assets until Christmas, you can set 100% or more.
The last thing for today is plan your storage for assets. We all know that exchange is not the best place for a long hold. Always to try to low risks and use secure storages like cold wallets, hardware wallets and so on. If you still want to store your assets on an exchange, divide them between 2 or 3 exchanges at least.
My full rticle is publishe on steemit: https://steemit.com/cryptocurrency/@cryptohumster/the-fundamentals-of-creating-a-crypto-investment-portfolio
In the next article I will talk about rebalancing your portfolio and what could you do with profit. Subscribe or follow me on twitter not to miss it.
**************************** UPDATE ****************************
As promissed, the second part is published: https://steemit.com/cryptocurrency/@cryptohumster/the-fundamentals-of-a-crypto-investment-portfolio-rebalancing
Rebalancing basis
Rebalancing your crypto portfolio is one of the most important aspect of portfolio management. It allows your portfolio to survive market deep, adopt to market condition, mitigate risk and optimize your profits. So what should you know about rebalancing?
There are two main rules:
- Rebalancing is always based on investment horizon
- Rebalancing is always made according to a pre-conceived scenario
I don’t need to explain why you need to consider investment horizon. It is easy to understand that if you invest for year you don’t need to rebalance your portfolio every day. You need to consider rebalancing once a month or once in 3 weeks.
As for the plan, there are two main strategies:
- Preservation of the current percentage of different asset groups (or for each risk level individually). For example, if you have moderate portfolio with 25%/50%/25% percentage, you may need to buy/sell assets to until the original proportion is restored.
- Changing shares. Some of your assets perform better than the others. You may want to increase the share of the most profitable assets and get rid of assets, bringing only losses. This operation will make your portfolio more profitable.
You need to decide what to do with a positive imbalance after rebalancing. You can either fix your profit, leave it as part of portfolio or reinvest.
The frequency of rebalancing depends on the following factors:
- Investment horizon. For long-term portfolios (from a quarter to a year or more), it makes sense to conduct this operation once a month. For medium-term - once a week.
- Sharp change in the proportions. For example, there was a portfolio with a balance of assets of 50/50, and after a while, it became 60/40. Such a significant change in the structure usually requires a rebalancing.
- Individual news background for each asset. For example, if there are positive rumors on a coin you may consider investing more and sell when the news come out. Remember, we always buy the rumors and sell the news.
In general, I will not recommend diversifying portfolio too much as it will be difficult to rebalance portfolio.
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