Investing in the crypto market is an extremely risky proposition, even for the most experienced of investors. Random price fluctuations and high levels of volatility mean that risk management is difficult or even impossible at best.
Or is it really? On the contrary, it is actually possible to minimize your risk exposure when investing in cryptocurrencies.
Investors typically make the mistake of jumping on a bandwagon with hopes of seeing immediate results. More often than not, most investors end up buying into an asset just before a price correction.
When the price begins correcting itself, panic sets in and most end up selling at a loss. Thus leading to the saying of “buying high and selling low”.
So if you’re looking to start investing in cryptocurrencies, why not take a look at how you can better manage your cryptocurrency portfolio.
1. Do your own research
Forget what your neighbor/brother/colleague has told you about cryptocurrencies. The late 2020 crypto price rally and the recent announcement by Tesla has led to an influx of investors into the cryptocurrency market.
Most hoping for a mad rally akin to that seen in 2011 – 2013, will likely be sorely disappointed. And even more would end up losing money when the price of assets inevitably corrects itself.
Instead, do your own research and come to your own decisions. While cryptocurrencies are rarely affected by external market forces, you’d do well to actually understand what it is that you are investing in.
That way, you’ll be better equipped to understand what actually is going on. This allows you; an investor to make more educated decisions and this in turn will help you turn a profit instead of making a loss.
2. Diversify your assets
Diversification is one of the most effective yet underrated investment strategies. Whilst you may be tempted to fill your portfolio with crypto assets of all kinds, you will also need to balance out all of that volatility.
Build a portfolio that consists of a basket of assets of differing risk profiles. Your investment portfolio should ideally consist of volatile cryptocurrencies, large cap company shares, fixed income securities, and money market bonds.
Buy a variety of altcoins such as Ethereum, Litecoin, and XRP to compliment your Bitcoins. A good mix of low and high-risk assets helps to minimize your risk exposure whilst still allowing for a decent return on investment.
3. Only invest what you’re prepared to lose and never invest emotionally
A key rule of investing is to only invest what you are prepared to lose. New investors often make the mistake of jumping in with both feet without checking.
They have a tendency to make emotional decisions in the hopes of striking it big. This is especially important when investing in cryptocurrencies.
Investments should be treated as a long-term decision and not a gamble. Speculating on the price movements of assets without any prior research is akin to gambling and should never be done.
When first starting out, only invest what you would be comfortable losing. There’s nothing wrong with starting out small and gradually building up your portfolio on the long-term.
Give yourself time to become accustomed to price movements before committing. Click here to learn how cryptocurrency changes value: blog.tezro.com/cryptocurrency-value/
Forget about doubling your investment immediately – you’re not a hedge fund manager. Instead focus on conserving your capital and move upwards from there.
While these 3 simple rules may seem rather underwhelming at first, it is always better to err on the side of caution. Do your own research, stay diversified, and only invest what you’re prepared to give away. With time, you’ll find yourself making increasingly profitable investments.
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