The stock market goes up or down, and you can't adjust your portfolio based on the whims of the market, so you have to have a strategy in a position and stay true to that strategy and not pay attention to noise that could surround any particular investment.- John Paulson
Imagine getting your salary credited and from this month you started to consider investing part of your savings in cryptocurrency. You do your research and then find out that the crypto market is much beyond just bitcoin. There are hundreds of coins out there which perform differently every month and you never know which one will leave you with the biggest jackpot!
Every Investor who has been there in the market would never deny the fact that a diversified portfolio is, in fact, the safest way to invest. The crypto market is volatile and relatively new in the market which leaves us with very little data to predict the market. Because of the volatility, you can even lose your hard-earned money if the market is not in your favour.
The best solution to get out of it?
Diversifying your portfolio!
The main motto behind diversifying your portfolio is to reduce the risk of losing your money when the price of any coin is going down as your portfolio is backed up by other currencies whose chances of going in the same direction is next to NULL.
Let us take the scenario of two friends Tom and Kom. Tom has been investing for a while and his investments are quite diverse. He actively takes part in every type of investment possible. Meanwhile, Kom is very new to the market and has recently heard about cryptocurrency and has decided to invest in it. The investment sheet of both of them is given below.
After some time the value of the cryptocurrency fell drastically and they both lost around 50% of it. Kom was left with only $20,000 by that time due to his decision of investing all his money into crypto. Meanwhile, Tom also had to bear the loss and was left with $1500 but the value of his Gold and Mutual funds increased by 50% and 20% respectively so his total worth, in the end, was $67,500. Astonishing right? Even Kom felt the same. So from next time, Kom was more careful with his assets and spread his portfolio to other domains other than just cryptocurrency.
Cryptoworld is more volatile than any other type of investment. Which means the risks are higher in this market than in any other. But this should not discourage you from investing in it as the returns are also at the same rate much higher if your timings are right. The value of Bitcoin rose from 50cents to $20,000 and there was nothing more profitable for the people who had invested in it at the right time. Taking the above example if Kom had only invested in some other asset like Gold then he would have missed out the profit that he could have made while investing in cryptocurrency at that time. But doing so also comes with a huge risk, the risk of losing all the money. Therefore diversifying the portfolio makes sure that the risk is minimum. If there is a profit you eat the fruits but if there is a loss there is no chance that you lose all the money. There is still a chance left for getting a profit from some other asset.
After some days Kom comes after doing his research. This time he diversifies his portfolio and invests mindfully in all the markets. This time, fortunately, the crypto market does well and gives him a 100% profit. Along with this, the mutual fund gives him a 20% return as well but unfortunately, the gold market falls by 30%. So now his portfolio looks like this(Case 1).
Although Kom was very happy with the return of the cryptocurrency this time, he couldn’t take the risk of investing such a huge amount in cryptocurrency the next time. So, he redistributed his assets in his portfolio this time and split the extra money between mutual funds and gold. In this case, the crypto market again fell by 30% but this time he got a 20% return from the other two. So, he still managed to have a profit of $6,400 (Case 2).
For knowing on which market to invest in and at what time it is very important to befriend the market well.
Again if you are not willing to invest your time too along with your money there is a much easier way for investing in a diversified portfolio.
Investing in Index Funds. Yes! Investing in Index funds is an excellent way to invest in more than one coin. The best part is that it is backed by research and the mathematics behind it makes it more reliable than you predicting which coin is best for your portfolio in your first attempt.
Index funds are a set of diversified assets on which you can invest. The diversification can be upon you and which Index you choose. It is ideal to diversify your portfolio with coins not less than 10 to be on a safe side. The more you diversify the more stable your investments are. In the past, we have seen people’s lives changed in months when the prices skyrocketed to $20,000. Even on this day, we have witnessed the prices to increase and become more stable. You never know where and when you hit the jackpot so it is always advisable to diversify as much as you can.
But for early investors, there are other issues too like making accounts in different exchanges to which the industry has a very easy solution. There are various platforms like ‘Libertypool” that helps the new investors to plan and distribute their portfolio. All you have to do is to invest your bitcoins and it does the rest for you from. Choosing from the top currencies to invest in, to determine the best distribution it does all in just a simple click.
We mentioned that diversifying in not less than 10 coins is safe but what if we told you Libertypool distributes your assets into 30currencies making it cover almost 80% of the entire Blockchain. What else do you need than never missing out on any opportunity in the market? With CCi30, Libertypool chooses the top 30 currencies in the market.