If you’re looking to mix things up with your traditional investment portfolio and want to bring a more feisty risk tolerance to your strategies, cryptocurrency may serve to fill that role. The wildly volatile, speculative asset class has provided investors with both astounding returns and devastating losses.
Advertisement: High Yield Savings Offers
Powered by Money.com – Yahoo may earn commission from the links above.
Check Out: Warren Buffett’s Berkshire Hathaway Bought Over $73 Million in Shares of This Tech Company — Here’s Why
For You: The New Retirement Problem Boomers Are Facing
Many cryptocurrencies regularly post losses of 50% or more within months, weeks or even days, making millionaires out of some and destroying the savings of others. So, whether you are looking to build a diversified portfolio to help you achieve your short-term financial goals or long-term retirement plans, it’s typically never a good idea to put all your nest eggs in one basket.
While even the most speculative investors likely would not recommend you put all of your money into crypto, there may be a use for it as a diversification tool for your overall portfolio. As far as investment advice goes, when it comes to the market volatility of crypto, it’s always a good idea to take it slowly and follow these strategies.
If you’ve been wondering how much is too much when it comes to investing in crypto, most financial advisors and experts in the field recommend a crypto correlation of somewhere between 1% and 5%, with very few recommending more than 10%. Simply put, don’t invest more than 10% of your “risky” assets in cryptocurrencies, but finding the sweet spot may mean not investing more than 3%.
You want to limit your cryptocurrency exposure to a small percentage of your overall portfolio, which is why crypto works to diversify your overall portfolio, but shouldn’t be your entire investment strategy. This can help limit potential losses while still allowing for upside potential.
Up Next: 13 Cheap Cryptocurrencies With the Highest Potential Upside for You
The old saying don’t put all your eggs in one basket truly applies to investing in a mix of cryptocurrencies with different market capitalizations, use cases and blockchain technologies to make sure your financial bases are covered. In general, diversification is a way to reduce the risk in your portfolio by allocating your assets to a variety of investments. To achieve optimal diversification, these investments will have low correlation with one another.
The idea is that if you have two different investments that show a positive rate of return but do not always trade in lockstep, you’ll still achieve the same long-term return but with lower volatility. For example, with crypto, consider large-cap cryptocurrencies like Bitcoin and Ethereum for stability, and explore promising altcoins for growth potential.
Story Continues
