The fundamentals of creating a crypto-investment portfolio

Hello my fellow steemitians! Today we are going to talk about fundamentals of portfolio theory in Crypto Land. I hope you will find this information useful. So, who needs to read this article? 

• People new to crypto or investing in particular 
• People who want to rethink their portfolio 
• Experience investors who can bring more value to the article in the comments 
• Those who have some free time for an interesting read 

Before we go any further I want to remind you this article is not a financial advice, I’m not a financial advisor of any kind. The article was created for solely entertainment purpose. 

Not so many people in crypto have only BTC or ETH. Everyone who has several coins is actually maintaining a portfolio. So it is important to know how to control it effectively.  

Rate of return 

The main goal of any investor is to make profit. First of all you need to decide how to calculate it. There are 3 most used strategies in crypto: 

• Take profits in fiat currencies or its substitutes like USDT. (I don’t personally like USDT, but it is still very popular despite all events) 
• Take profit in BTC. All investments/trading are done to increase BTC holdings. 
• Take profit in your favorite altcoin. Most people use ETH, but you can choose any: NEO, ADA, XRP and etc. 

Regardless of your choice, you need to plan your profit and set a goal. It can be +1000$ or +20% in BTC and etc. Once the goal is reached portfolio management is completed.  

Risk management and diversification 

The main rule here is the more profitable investment seems, the more risky it is. Diversification is the most common way to lower risks.  From risk level point of view we can divide all coins/tokens on: 

• Low-risk assets (LR) – first 5-10 coins on Coinmarketcap 
• Medium-risk assets (MR) – top 30 coins 
• High-risk assets (HR) – all other projects and ICOs 

Note, you can use your own criteria to divide assets. 

Depending on the percentage of assets with different risk levels, there are three main types of portfolios: 

• Conservative |5-10 assets |Risk ratio: 75%/25%/0% (LR/MR/HR) | Stable, but will not make lots of profit. 
• Moderate |10-20 assets | Risk ratio: 25%/50%/25% (LR/MR/HR) |The most commonly used type of portfolio. 
• High-risk |20+ assets | Risk ratio: 25%/25%/50% (LR/MR/HR) | Very risky, but can have a great potential on a bullish market. Sometimes it can be built only on ICO tokens. 

One of the most general recommendation for any portfolio is to have at least 25% in BTC. I don’t follow it now and it might be a huge mistake.  

Liquidity 

Liquidity shows two things: interest of investors to this asset and how many tokens you can easily sell or buy. You need to check trade volume for a month at best (if it is available of course). If you are going to buy a no-name coin with total 24h volume of 10 BTC, don’t expect you will be able to sell/buy on 1 BTC fast. 

In general, always study projects before investing. Do both fundamental and technical analysis if possible. Check what other people think about this asset. And never invest in project that you don’t understand!  

Investment horizon 

The most important thing for portfolio management is to define investment horizon i.e. how many days/weeks/month/years are you going to maintain it. Things move fast in crypto. On stock market you can build your portfolio for 4-5 years. In crypto 6 month is already a long hold. The smallest investment period here several days (or even less if you are day trader), the biggest is couple years. 

For a small investment period you should choose small goals like 10-15%. If you are going to hold your assets until Christmas, you can set 100% or more.  

The last thing for today is plan your storage for assets. We all know that exchange is not the best place for a long hold. Always to try to low risks and use secure storages like cold wallets, hardware wallets and so on. If you still want to store your assets on an exchange, divide them between 2 or 3 exchanges at least. 

In the next article I will talk about rebalancing your portfolio and what could you do with profit. Subscribe or follow me on twitter not to miss it.  

Disclaimer 

I’m not a financial of any kind. I encourage you to check all information yourself and make decision only based on your own opinion. All articles are created for solely entertainment purpose. 

If you like this post please vote for it and follow me on Steemit. Feel free share your thoughts in comment section. 

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Image source

Article materials partly taken from russian channel forklog