When it comes to designing your crypto portfolio, how do you go about choosing the right cluster of coins to give you the best return? This article explores three important questions that experts often ask themselves to strike the best balance and expanded exposure.
Do You Want To Deal With Liquid Or Illiquid Assets?
From the beginning of things, you want to determine the outlook of your portfolio. Generally, two options are available—ICOs and existing tokens. With ICOs, your money remains on hold until the coin begins to trade. This makes the option more illiquid.
On the other hand, existing tokens are easy to buy and sell, making them more liquid. Therefore, they are the best option. For a patient person who would not like to check frequent market changes, then ICOs could be the best investment option. Otherwise, investing in existing tokens gives you an opportunity to buy or sell the exchanges whenever the market soars or plunges. This eventually depends on how active you are in the market.
Regarding ICOs, they can only offer the best returns if they stay in the market for long. According to a recent study by Boston College, an average ICO yields about 82% return on investment. The same study reveals that only 44% of ICOs survive to the long-term, and that ICO returns decrease with time. This shows that while ICOs can initially yield a great return, their value may decrease before they get listed on an exchange.
Do You Want To Deal With Tested And True, Or Newer And Riskier Coins?
After you decide on the degree of liquidity of your portfolio, it is time to determine the level of your risk. If you want to be a risk-taker, you should try out something new. For that reason, newer coins, recently listed on exchanges would be the most preferable option.
On the other hand, if you prefer playing it safe, you would rather go for the tried, tested top market coins. The main difference between the two coins is that newer coins may offer higher returns initially, but they come with more risks. Top market coins on the other hand, flow with the dynamics of the market gains and losses.
The goal of many investors is to beat Bitcoin. Armed with that objective, they invest two-thirds of their portfolio in safer and more established coins. The remainder often goes to the newer and riskier coins. If they land on the right newer coins, that strategy often enables them to beat the market without missing out when the market goes on a bull-run, which of course requires investments in the more secure coins.
Which Crypto Sector And Region Is Right For You?
Finally yet importantly, you have to decide on the specific coins to invest in. In the previous two phases, you chose the degree of the liquidity of your portfolio and the type of coins you would like to invest in.
Choosing the specific coins to invest in could be tricky, with close to two dozen top coins and more than 1500 newer coins. There are two strategies to go about it, which could help with the research.
The first step is to narrow down the coins and focus on the ones available in your region of the globe. For instance, you could focus on coins available in New York or on the projects based on Asia. Regional focus is important because investors from the same part of the world often have similar objectives. For instance, Asian investors could prioritize price and short-term gains while investors in the US could focus on long-term gains. It is advisable to know which of the themes concur with your investment philosophy.
This strategy could also help crypto enthusiasts who are willing to attend events and conferences in their regions. This will give you a chance to meet like-minded people from the same region and perhaps investing in the same coins. Besides, focusing on a particular region helps learn more about the objectives of other investors and coin founders.
The second approach is to pick on a few token sectors of your interest and research on them. Examples of token sectors are:
- Payment coins
- Gaming coins
- Developer platforms
- Decentralized and centralized exchanges
By choosing the sectors in which you have interest, you will enjoy researching on the same coins. This eventually leads to motivation and keeps you informed about your investment opportunities. In the end, you can be able to make wise and better investment decisions.
Creating A Crypto Investment Portfolio Final Words
The digital token market is volatile and navigating it comes with numerous challenges. However, if you keep the three questions at the top of your mind, you can have your investment portfolio optimized based on your interests and preferences.