Investing in the crypto market is a trend that has grown popular since the crypto bull run of 2020. And with this rising popularity, we are seeing more and more beginners step into this market sector.
But while crypto investing might be a great way of building wealth over the long term, learning the right processes and skills required for you to do it right can be daunting to learn as a beginner.
In this article, we will be breaking down the 7 things you need to consider when you decide to build a crypto investment portfolio and what you need to do right now to tune this crypto portfolio to your very needs.
Before we get into all that, it is important we get some definitions and some confusing terms out of the way.
Investment Portfolio/Crypto Investment Portfolio. What Is The Difference?
The term “Investment Portfolio” is used to describe the collection of assets an individual owns or investments he has made. This could include real estates, stocks, bonds, and cryptocurrencies.
However, a “Crypto Investment Portfolio” is only talking about the collection of all crypto assets and crypto investments an individual has made.
And with the rise in global acceptance of digital currencies, building a crypto investment portfolio could be a crucial step in helping you achieve your financial goals. But it requires proper research, planning, and consideration especially with the kind of high volatility this asset class has.
A wrong investment decision could easily see your gains or portfolio capital wiped out in no time. Below are the 7 key things to consider if you want to build a crypto portfolio that will perform in this market conditions.
7 Things To Consider When Building A Crypto Investment Portfolio
1. Do You have Clearly Defined Goals?:
The first step you need to take as a crypto investor is to have a clearly defined and well written goals on what you wish to achieve with this crypto portfolio.
These goals could cover things like:
- What your financial needs are for this portfolio are
- What your Investment time horizon looks like
- Your investment plan
- Risk tolerance
- Capital requirement
- Investment assets
By having a clear picture of what you wish to achieve with your crypto portfolio and a clear understanding of how to get there, and the time it might take you to get to this financial goal, you will be able to stay focused, track your growth, and avoid panicking or doing harmful things during market downturns.
This plan should also cover in detail your investment style, how you wish to invest, and when you should be investing. These set of rules are very important to you as a professional investor if you want to shorten your learning curve in this market and push your portfolio to the top.
So before you start deploying any of your assets into the crypto market, take your time to research and create a well defined investment plan and goals for your crypto portfolio. This would save you from getting lost in the confusion that inevitably comes with the crypto volatility.
2. Do You Understand Crypto Platform Security (Hot/Cold Wallet)?:
Now you have created a well researched and properly written investment plan, the next thing you should be considering is picking the right crypto platform for you. Deciding on the crypto platform to use is very important because you will be buying crypto assets on these platforms and sometimes storing your investments in their online wallet.
Ignoring the importance of security when it comes to investing in a decentralized market like cryptocurrency is the fastest way to get hacked and loose your capital.
For long term investments, it is important for you to store your coin in secured hardware wallet/cold wallets. This type of wallet are offline and offers a higher level of security. However, they are more difficult to transact with.
For frequent transactions, you want to make use of a hot/online wallet. Picking and using only trusted crypto exchanges and online wallet is important if you want to avoid getting hacked.
So do your research to find out the best crypto exchange platforms and online/offline crypto wallets to use before jumping into this market.
You can check out our Review section on this website to get the most honest reviews about popular crypto exchanges/wallets, and what makes them stand out from the rest.
3. Buying Your First Coin. Where To Begin?:
Another key factor crypto investors need to consider when creating a crypto portfolio is “Risk Tolerance”.
Not all crypto assets move the same way, some are more volatile and less liquid than others. This makes it very important for you to understand the inherit risk present in any Altcoins, tokens, or NFTs you might decide to add to your portfolio.
An easy way to start creating your crypto portfolio right now is by picking established coins like Bitcoin and Ethereum. These type of coins are also known as blue-chip coins and they have a very low probability of failing and loosing all their values.
So do your due diligence and know the risks that you might be taking on before making any purchase. By only investing in crypto projects you truly understand and believe in, you will be able to hold on to your investments all the way to the end, despite any kind of volatility/sell off that might come.
4. Consider Diversifying (On-Chain and Off-Chain Crypto Projects):
There is no shortage of the types of coins to buy, this makes the next factor to consider when creating a crypto portfolio be Diversification.
A diversified portfolio protects an investor in rough markets, allowing them weather the storm and come out from that bearish market cycle with manageable drawdowns.
However, the question now becomes; how do you diversify, and how much diversification should you introduce into your portfolio?
Check out this article: Beginners Guide: How To Create A Balanced Crypto Portfolio For Any Kind Of Market Condition.
5. Do You Understand Leverage, Gas Fees, and Margins?:
Crypto investing carries with it a lot of unique terms that you must understand if you want to properly structure your portfolio.
Knowing where to use leverage, how to take advantage of margins and how the fee structure can affect your portfolio returns is very important in your journey to financial freedom.
As a beginner, you want to stick to buying coins of projects you understand and support with little to no leverage. And then holding it over a period of time. By employing leverage or margins, you are increasing the risk and aggressiveness of your portfolio.
6. How Regular Should You Monitor and Rebalance Your Investments?:
Another factor to consider is tracking your investment. Building a crypto portfolio is not a one time invent. As time goes, you will need to keep track and rebalance your portfolio over and over again.
This could mean cutting off riskier assets in favor of more conservative options, taking pretrial profits from your position during bull runs and so much more.
By having a clear idea of how you want to manage your crypto portfolio during different market conditions, you can keep your investments on track to the top and achieve your financial goals in no time.
7. Do You Have a Clear Exit Plan For Rotten Assets?:
The biggest down fall of any crypto portfolio is having a bad exit plan.
Not all your investments are going to work out fine, this is why you diversify. But after diversifying, you need to have a clear exit plan for closing down any of your investments that stops making money and starts dragging your portfolio down.
If you can create a strategy to cut off these loosing investments faster before they do any serious damage to your gains, you can immediately lower your drawdown and increase the possibility of your crypto portfolio performing well in various market conditions.
So before investing into any new crypto asset, determine what your exit strategy would be and then stick to it. This way, you would be able to handle the market volatility without loosing sight of the end goal for that investment.
How Much Should a Beginner Invest?
When initially starting out, it is best for beginners to test the waters with little funds. This way, you can gain the experience you need for crypto investing while the amount of loss you make.
Starting small also allows you see first hand how volatile the crypto markets are, this way you are better prepared to handle price swings when you start investing more money into the market.
Once you are through the trial/novice stage, it is important you make sure the amount of funds you allocate into your crypto portfolio should be determined by your current risk tolerance level.
So if you are a conservative investor, you might want to allocate less than 1% of your capital to any single crypto coin within your portfolio, while those with a moderate-risk tolerance could allocate between 5 per cent and 10 per cent.
There is no set in stone rule for this, if you are more aggressive or have more conviction in a crypto project, you can up your risk. The goal is simple, you need to find the kind of risk level that you are comfortable with at all times.
Going all in on any single project is not a great portfolio strategy to have if you want to stay in this industry for the long run.
Check out this article: THE 5 GOLDEN RULES OF INVESTING IN ANY MARKET FOR BEGINNERS.
Conclusion
Creating a perfect crypto portfolio is a complex process that requires careful consideration, patience, and a cool head no matter what the market condition is.
There is no one-size-fits-all approach to building a crypto investment portfolio! So take your time, trust the process, and avoid investing in “pump and dump shit-coins”. And while the learning curve might be steep and take time to master, the returns you can get from making that investment is astronomical.
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