Contents of this article:
By investing all the funds in one asset, the investor and trader is very risky. With such a strategy, it is difficult to achieve success in the cryptocurrency market. A competent approach is the diversification of the investment portfolio, investments in assets of different classes to reduce risk. We will explain what a diversification strategy means in the crypto industry and how investors create balanced portfolios.
What is portfolio diversification?
In marketing, a diversification strategy is a focus on the diversified development of a company. It involves the simultaneous development of unrelated activities, an increase in the list of goods and services produced, and the distribution of funds between different assets. Through a diversification strategy, the business grows , the company scales, enters new markets and reduces risks in case of failure in one or more areas of activity.
Diversifying an investment portfolio is also a way to reduce risks, but already in the field of cryptocurrency or other digital assets. An investor using this strategy distributes funds between assets that are different in several parameters, for example, simultaneously invests in cryptocurrencies, stocks, and precious metals.
The diversification marketing strategy, which is also applicable to the crypto market , not only reduces the risk of loss, but also facilitates access to part of the assets if an investor urgently needs to receive his money. This strategy has many advantages, the main ones are:
additional opportunities, portfolio diversity;
capital growth in the long run.
Types of asset allocation strategies
There are several investment portfolio diversification strategies, they can be classified according to several parameters. For example, by asset class. The portfolio may include not only cryptocurrencies , but also stocks, moreover, companies with different capitalizations, both large business representatives and promising startups , as well as bonds and commodities.
In the case of stocks, the asset diversification strategy can be classified by industry. A portfolio is considered balanced if it contains stocks of companies from different sectors of the economy. This approach protects funds in the event that one of the industries “sinks”.
Asset allocation can be strategic or tactical. The strategic is used by passive investors who buy the most liquid assets for long-term holding. Tactical distribution is more suitable for active investments, it enables the investor to invest not only in already established assets, but also in new, promising projects that are ahead of the market.
Example of distribution of cryptoassets
A diversification strategy is a set of rules to follow when compiling a portfolio, rather than a clear plan of action. Each investor must independently understand the features and intricacies of asset allocation, balancing the portfolio, depending on their goals. For example, following an asset allocation strategy, a portfolio might look like this:
40% – securities;
30% – bonds;
30% – cryptocurrency .
The assets themselves are also divided into several types, depending on liquidity. If you are investing in cryptocurrencies , don’t focus on one coin. The underlying asset of the portfolio should be one of the top coins with high liquidity, usually Bitcoin . But it is additionally worth buying cryptocurrencies of different capitalization. The more diverse the portfolio, the more time you will have to devote to analysis, regularly monitoring the dynamics of assets, selling some and buying others, depending on market trends. Constant analysis and timely redistribution of assets allow investors not only to save money, but also to increase it.
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