Categories: Education

How to Diversify Your Digital Currency Portfolio

When it comes to making digital currency investments, it is essential to strike the perfect balance within your crypto portfolio, as this will help maximize potential investment yield while also minimizing possible losses. This is often accomplished by diversifying one’s portfolio, as investing in multiple digital currencies increases the odds of striking gold with any one of them, while also reducing the amount that you’re bound to lose when a coin drops in value considerably.

When to diversify your portfolio?

To kick things off, before making a crypto investment, it is important to determine whether you actually need to diversify your portfolio. The best means of judging this is to consider your budget. If, for instance, your capital is US$200, diversifying your portfolio isn’t really worth it. Diluting a relatively small amount of capital among various currencies isn’t a good choice, as value increases likely won’t be big enough to make the investment worth it. Analysts believe that diversification should start with an investment amount of at least US$500. However, more is always better, as it’ll lead to higher profits following price increases.

Dividing investment amounts

Now, if you’re ready to invest a higher amount of capital into digital currency, most diversified portfolios are divided into three different categories:

  1. The low-risk category (often cryptocurrencies such as Bitcoin or Ethereum)
  2. The medium-risk category (often altcoins with large market capitalization)
  3. The high-risk category (often ICOs and low-popularity altcoins that got your attention)

Investment stake in each of these categories will vary, with the highest investment made in the first category providing the smallest risk, a medium-sized investment in the second category, and the smallest investment in the third category. Investment percentages can vary, but most who choose this system aim for 50%-30%-20% or 60%-30%-10%.

Do keep in mind the fact that crypto investments often require consistent work and diversification. Even if initially profitable, an investment made a few months ago may no longer produce any yield today. Therefore, for sustained profitability, crypto portfolios often need adjustments, sales, and new investments.

Based on everything that has been outlined here, how would you divide your crypto portfolio? Let us know your thoughts in the comment section below.

Daniel Dob

Daniel is a bitcoin investor and journalist for numerous news outlets in the financial sector. When he's not writing, trading, or interviewing people, you can find him swimming, reading or taking one of his hobbies to the next level.

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