Hot Features
Premium
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
There are a lot of changes that investors need to deal with on a daily basis, which makes them truly aware of the importance of portfolio diversification to be able to deal with whatever the market might throw at them. Unfortunately, stock prices can fluctuate a lot, as factors like economic instability, market sentiment, and political events, among others, drive them. This is why investors worldwide need to look for other solutions to ensure they have everything to maximize the chances of gains and not experience losses.
Market diversification has proved to be the best ally for numerous investors over the years. Diversification implies investing in more asset classes so that individuals will mitigate risk and reduce the chances of losses. Nowadays, there is a new asset class that is very appealing, especially for tech-savvy individuals. When investors want to add digital coins to their portfolios, they should monitor the cryptocurrency prices to enter the market at the right moment.
Cryptocurrencies offer investors many advantages. For example, they work thanks to blockchain technology and are characterized by decentralization, which removes the need for intermediaries. Because of this, cryptocurrencies have captured the attention of those who want to have more control over their investments.
In this article, we will analyze the factors that make cryptocurrencies a great idea for portfolio diversification, so keep reading.
Why have cryptocurrencies proved to be a good solution to navigate the turbulent waters of the investment ocean?
Unfortunately, investors are dealing with a lot of market volatility, which means that the price of different assets is falling and rising over a short period of time. Even though these periods can bring opportunities for profits, they also come with a long list of risks, which is why most people start looking for the right solutions. Portfolio diversification is one of these strategies.
Unfortunately, there were moments when traditional markets experienced extreme volatility, such as the financial crisis of 2008. During this time, stock values declined dramatically, which made many investors fearful about investing in these assets. So, portfolio diversification is a solution to better prepare against these moments and have more stability in an unpredictable market. The good news is that adding cryptocurrencies can bring portfolio diversification and help people increase their chances of big returns.
How much crypto should you add to your portfolio?
Cryptocurrencies are also volatile assets, so if you want to protect yourself better, it is a much better idea to invest only a small portion of cryptocurrencies. This rate can vary, but experts usually recommend investing somewhere between 1% and 5%. Cryptocurrencies are a great investment, but they are also volatile, so they shouldn’t be the only assets you should add. In this way, you can experience gains without losing all your funds if things don’t work out the way you envisioned.
Invest in more cryptocurrencies
Again, cryptocurrencies are volatile assets, which means that you should develop the right strategies to protect against price fluctuations in this sector as well. You probably know the saying that you shouldn’t place all your eggs in one basket, and this is true if you want to reduce the chances of losses. With the help of diversification and investing in more digital coins, you can protect your digital coins in case one of them isn’t performing well. Additionally, you should take into account your preferences and goals. This will impact whether you should take into account a short or long-term investment.
Bitcoin and Ethereum are the largest digital coins by market cap, and because of this, they are seen as more stable investments. This also happens because they have been in the market for a long period and have managed to face all the challenges. They represent great crypto options. However, the newly launched project can also bring a lot of growth potential, as the prices can increase quite rapidly. In this way, individuals can take advantage of these opportunities.
Determine whether stablecoins are a good solution for you
The crypto space is home to plenty of types of cryptocurrencies. Stablecoins are one of them, and they are safer solutions, as their value is pegged to the US dollar. Because of this, they don’t experience the same fluctuations as the rest of the digital coins. So, the ones that don’t have a high-risk tolerance but are still interested in cryptocurrencies can consider stablecoins.
There are many stablecoins present, but it is a better idea to stick with the most popular ones with a larger market cap. In this regard, Tether (USDT) proves to be a good solution, as it has been in the market for a longer time and is safer than other speculative stablecoins.
Change your strategy when needed
Chances are high that your investment journey won’t be that smooth, which is why you should be open to changing your strategy when needed. In this way, you can reduce the chances of losses and have the upper hand in the market. Luckily, portfolio diversification will help you, but you should also ensure that you maintain a good diversification level.
So, you can sell the asset that hasn’t performed well, or you can add new digital coins to your portfolio to find the best solution to experience gains.
Last remarks
Portfolio diversification has become an unwritten rule in the investment landscape. Thanks to this approach, investors can better manage the market volatility and equip themselves with everything they need to remain relevant and not lose all their funds. Traditional markets have proved over the years to have many shortcomings, which is why investors are interested in adding cryptocurrencies to their portfolios.
However, cryptocurrencies are also volatile assets, which is why individuals should take a cautious approach to better protect themselves against everything that this market can throw their way. Investing in cryptocurrencies is indeed a double-edged sword, as you can experience two important scenarios. Benefit from immense gains, or lose all your funds. This is why you should research this market before investing and ensure you are prepared with all the strategies that can improve your experience.
Image source: https://unsplash.com/photos/a-person-holding-a-pile-of-coins-in-their-hands-BCJ5TRULhNo
