If you're starting your crypto journey, chances are you have a specific asset in your wallet that you either received for free through an airdrop or purchased because everyone, especially your favorite crypto influencers, was raving about the asset (you had a fear of missing out).
However, having one or two assets in your crypto wallet is not enough; it is essential that you have a balanced crypto portfolio where a drop in the price of one asset does not affect the value of the other asset, allowing you to profit from the overall crypto portfolio regardless of the price change.
This means that a fall in the price of one asset, say Dogecoin, does not affect the whole amount invested in your portfolio if you have five other assets. Similarly, an increase in the value of one asset will make up for a fall in the value of another, ensuring that your capital remains stable.
For example, if you invest $1,000 in a single asset, such as Dogecoin, and the price of Dogecoin drops after you purchase it, your capital will fall. However, by investing the same $1000 in five separate assets (Bitcoin, Ethereum, Solana, Doge, and Binance coin), you can avoid a significant decrease in your capital because a drop in one asset does not always imply a drop in the others.
Thus, understanding that some crypto assets will perform better (either significantly grow or maintain a specific percentage decline) than others, creating a crypto portfolio with higher-performing assets that guarantee profits is crucial.
What is a balanced crypto portfolio? How can you build one as a beginner? This article will explore these challenges and reveal how to build a balanced crypto portfolio as a beginner and the different types of crypto assets that should be included in a balanced portfolio. Let's get started!
What is a Balanced Crypto Portfolio?
A balanced crypto portfolio is a collection of crypto assets you own to profit from, and it includes cryptocurrency with varying use cases and risk levels. A well-balanced crypto portfolio will contain a variety of crypto assets, such as altcoins, stablecoins, and NFTs.
You can boost your risk-adjusted returns by combining and diversifying your cryptocurrency investment. On the other hand, the value of your portfolio is fully decided by the current market price of all the cryptocurrencies you own. So, the value of your crypto portfolio can be largely determined by the volatility of the crypto market. However, having a balanced portfolio spreads risk across various crypto assets and may be less affected by market volatility.
5 Easy Steps to Build a Balanced Crypto Portfolio
Know the Type of Investor You Are
As a beginner, it is vital to establish and identify the type of investor you wish to be. Do you intend to keep your possessions for the long term? Do you want to gain money quickly by transferring assets? Do you wish to invest in certain projects? Knowing what type of investor you are will help you build a well-balanced portfolio.
Have a Tailored Investment Strategy
Once you've determined the type of investor you are, you must develop an investment strategy that fits your profile. You can fall into one of two major categories: hodler or trader. As a trader, for example, you will approach creating a crypto portfolio with a tailored strategy of trading and scalping by timing the market and taking advantage of the instant change in the price of cryptocurrencies.
As a hodler, your investment strategy would be to buy an asset at a low price and hold it until the price changes significantly or to invest through dollar-cost averaging, which limits the impact of volatility on your overall portfolio by breaking your investments into buying in small amounts over a given period.
Know the Crypto Asset to Buy
Another important step in creating a well-balanced portfolio is understanding the various assets that will comprise the portfolio. You must ensure that your portfolio is dispersed over several crypto market areas, such as;
- NFT projects
- AI crypto projects
- Metaverse cryptocurrencies
- Decentralized Finance (DeFi)
- Peer-to-Peer (P2P) payment solutions
Knowing which asset to purchase and spreading your money across many crypto market areas is a smart method for building a balanced portfolio with low overall risk.
Create a Strategy to Manage your Portfolio
Creating a strategy to manage your assets is critical to building a balanced portfolio because it includes risk management and understanding your risk-to-reward ratio. A portfolio management strategy directs your asset selection. It assists you in determining your risk tolerance, whether you wish to invest in low, medium, or high-risk assets and the percentage of each risk category in the portfolio.
Rebalance Your Portfolio Regularly
Review regularly how your portfolio performs and rebalance as needed to stay on track with your investing goals. Rebalancing your portfolio ensures that you evaluate your crypto assets and remove underperforming assets, replacing them with assets that have the potential to perform well. Rebalancing your portfolio regularly allows you to focus on its overall risk and make changes as needed to keep it on track with your investing goals.
Rebalancing your portfolio, on the other hand, can happen when market conditions change, such as during a bull market when asset prices are increasing. You may choose a more aggressive approach with a higher proportion of high-risk, high-reward assets or during a bear market when asset prices are falling, when you may consider a more protective portfolio allocated to blue-chip crypto assets or stablecoins with lower risk.
While starting your crypto journey as a beginner, it is important not to put all your investment into one asset, no matter your belief in its potential. You must have investment objectives, risk tolerance, and long-term intentions to ensure you build a balanced portfolio.
With the 5 easy steps outlined above, you can build a balanced crypto portfolio with a mix of assets across different crypto market areas. However, having a strategy for building a balanced portfolio for how much money you want to invest and in which assets is critical. The classic saying "Don't put all your eggs in one basket" applies to having a cryptocurrency portfolio. If the basket falls, you don't want to lose all of your eggs.