You should be diversified. Here’s why.
Cryptocurrency investment is an interesting topic. We are all enthralled by the categorically unmatched potential of cryptocurrency. It’s tough to not be excited when you feel like you’ve stumbled upon something that could change the world before everyone else.
The returns that some cryptocurrencies have generated in the past are absolutely unthinkable. Just a few years ago many people turned thousands into millions in less than a year. Can it happen again? No one knows (but everyone has an opinion).
But alongside all of the positivity, euphoria and hope is a nagging feeling that perhaps cryptocurrency investment is too promising. This is because not all investments make blinding returns. In fact, many investments lose investors money – especially in cryptocurrency.
Crypto is a risk heavy industry. We know that people made millions, but others lost millions. Those that invested at the wrong time could be as far as 99% in the red. That’s very, very bad.
Understanding the risks is one thing, but you also need to be prepared to play the market wisely. There’s no sense in investing without a solid strategy. As part of your investment strategy you should consider diversifying your portfolio.
Why have a balanced portfolio?
Having a balanced or diversified portfolio means you have invested in multiple different cryptocurrencies, effectively spreading your risk across various assets.
No investment is guaranteed to generate a profit and this is doubly true when buying cryptocurrency. There are thousands of cryptocurrencies – it’s naive to think that all of them are going to succeed.
We therefore know that some, if not many, of cryptocurrencies are going to fail. This means that the valuations of these failed assets will crumble and drop to zero or close to it. As an investor, you need to make sure you are not over exposed to an asset that could fail and drop to zero.
Cryptocurrency is akin to a minefield. In general, no one knows what crypto is going to succeed and which is going to fail. Of course, you can use fundamental analysis to get you ahead of the pack and make it more likely that you are going to pick a winner. But even then, you are certainly not guaranteed to succeed.
Think about getting diversified
Imagine if you bet all of your money on one horse and it lost. That’s what it’s like to have a portfolio that isn’t diversified. That’s why many investors pick and choose many different crypto assets to invest in. That way, if one fails it doesn’t make such a dent in their overall portfolio. The overall hope is that the winners will far outweigh the losers. One way to stay on top of your portfolio is with a portfolio tracker.
Will it work? Only time will tell. As of now, investors believe that diversifying might be the ticket to success.