In last Sunday's review, we looked at the features of the “Buy and Hold” investment strategy. Today we will get acquainted with the alternative strategy “Portfolio Investments”
Unlike Buy and Hold strategy, which has one clearly defined goal - long-term investment for accumulation, the Portfolio Investment strategy - can be used to achieve various goals:
- making a profit in short and medium term;
- diversification and hedging of risks.
The essence of the investment strategy is to use technical and fundamental analysis to select several crypto-assets in a certain proportion to achieve the set goal.
Suppose the goal is to obtain high income in the short term. In this case, assets are selected for the portfolio whose dynamics are currently in an upward trend and technical analysis allows us to conclude that this trend will continue in the short term.
The disadvantage of the formed portfolio may be: low liquidity of the assets included in the portfolio. There is also a high risk of losing part of the deposit due to the fact that the rapidly growing value of the cryptocurrency may be due to the pump of a worthless asset.
If we want to get a reliable investment portfolio, then its disadvantage may be low profitability or too long an investment period.
It is possible to choose as a goal not the receipt of high profits, but reliable preservation of an asset, which in the future can bring income, but currently has a downward trend. Then, to protect against depreciation of investments in this type of asset, they use a portfolio of crypto assets with an inverse relationship. In other words, cryptocurrencies are selected whose correlation coefficient approaches - 1. In this case, if one asset falls, the second should rise. The total profit should offset the losses.
The main disadvantage of portfolio investments is that it is very difficult to correctly conduct technical and fundamental analysis. Here, the success of the calculation depends entirely on experience and practical skills.
If practical skills and experience are not enough, then you can use “standard sets of crypto assets” for an investment portfolio, which have been tested in practice by experienced traders for a long time.. Here, for example, are some options for an investment portfolio:
- Package "Conservative" (85% - crypto assets from the top five in terms of capitalization; 10% - from the second five in demand, but showing positive dynamics; 5% - little-known but promising assets)
- Package "High Risk" (30% - BTC; 30% - ETH; 30% - showing an upward trend; 10% - ICO)
After a certain period of using such a “package”, you can make additional adjustments to the composition of the portfolio and select the proportions so that the result of the investment constantly achieves the set goal.
The need for constant monitoring and updating of the investment portfolio is one of the key features of this strategy.
Therefore, when choosing this strategy, you should take into account that the reliability and profitability of the “Portfolio Investment” strategy are much higher than that of the “Buy and Hold” strategy, but the necessary effort to maintain the “Portfolio” is much higher than that of “Buy and Hold”, and will require a lot of time for analytics.
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