What is ‘Good’ Diversification, and How Should You Invest in Steemit?
According to Modern Portfolio Theory it is important to have many stocks, at least 10 (even 20 is advocated) in different sectors to decrease risk.
Personally, I like to have diversification between asset classes, rather than so much diversification within an asset class (e.g. stocks).
For example I have an apartment, an education, some stocks (6-8 companies: mostly in consumer finance banks with return on equity > 30%), some digital currencies, some silver and some cash.
There is of course a risk that you pick a bad apple within an asset class. But people tend to forget that there is also a very real risk that you miss out on something if you own too many different stocks or too many digital currencies.
All my bad investments have come from not paying attention.
Our attention span is rather limited!
If you look at the no doubt greatest investor of all time, Warren Buffet and his brilliant partner Charles Munger, they mostly invest in companies where they personally like the product. Warren Buffet drinks a lot of coke!
I personally like Steemit, therefore it makes sense to buy some Steem.
If you have 1000 dollar you want to invest in Steemit: How should you invest?
Personally, I would recommend to invest over some time with multiple smaller tranches. Why? It reduces risk.
Digital currencies are not stocks: They do not have any income per se. It is the Network effect that makes them valuable. However, it make them so far extremely difficult to analyse, thus they are very prone to booms and busts, more than say Coca Cola. The FOMO is a very strong force with such huge price swings.
When I started to put some money into Steemit 2 months ago the Steem price was $2,5. If I had just moved all in at once, I would had a substantial loss, whereas by having multiple buys I have reduced my average Steem price substantially.
Ok, enough Wisdom for today.
Steemit to the Moon!
WeLL GOOD !
Good analysis and you are right, diversification is key in investing. For some asset classes it might sense though to diversify even more. If you don't know anything about stocks, it might make sense to still put 20% in through an index fund.
Also, remember the risks and storage costs of your assets. Back-up your passwords and private keys for cryptos safely. Make sure that the gold you own isn't worth less than the security measures you have to take for it not to be stolen.
Good advice!
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I think by having your money invested in multiple different things and getting residual income from many locations is better than purely invest into one thing.
Yes, you might have the problem where some of them drop in value but usually the general consensus is that you will profit in the end with the others going up.
If everything fails, at least you will have steem to support you haha
Steem On!
Great advice @janusface