Traps In Managing A Small Investment Portfolio
“If I had to choose one strategy to keep in mind when investing, it would be diversification,” says Mindy Yu, former director of investments at Stash. “Diversification can help you better weather the stock market’s ups and downs.” source
There are a lot of golden rules in finance/investing, among which maybe the most important is don't put all your eggs in on basket. In other words, what the quote says above, diversifying is key in this business. However, having a small investment budget puts you in a difficult position and you may not even realize it, till it may be too late.
We're in a bull market, actually this is the last leg of the bull run and there's fomo everywhere because no one knows where the top is or when we're going to reach it. We all want to get rich and are trying to do everything to make it happen.
Diversifying our portfolio is not difficult as there are so many cryptocurrencies to choose from, one more promising than the other. Therefore fomoing in in too many coins is very possible.
Advantages
Having a diversified portfolio has it's advantages. If one coin gets crashed, you still have the rest of your portfolio, so you're protected. The other advantage you have in case of diversifying is that you have the chance to make a better profit if some of your coins are performing better than the others.
Disadvantages
Having a very small investment in each token has its limitation that can have serious consequences. Usually the healthiest strategy in a bull market is to take profits gradually as no one knows how long the bull run can last or where the top is. Set up 3 TP zones and leave the rest in case the run is not over. Those profits can then be invested in something else that has not run yet and ride the next wave.
Having a small amount invested in one coin makes you wait for a bigger profit as taking profit at the first TP level may not be appealing to you. If you have $20 in total in one coin, you may have to sell half to take profit and remain with the other half for the rest of the bull run, which you may not like. You may be doing the same at the next level as why sell your assets early, when you know you can get a bigger profit by waiting a little bit longer, right? Maximizing your profit is always tempting and can force you to take extra risks.
Then one day all hell breaks lose and you go from watching your asset rallying to the moon to watching your asset go to zero. In the way down you may try to panic sell but we all know how is that like.
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What To Do?
Technical analysis can give you some great tools and help you anticipate some moves but it's all probability. Nothing is certain, even when your analysis seems correct, market makers can change everything in a split second. How many times we've seen a crash happen out of the blue. Look at the May crash for example.
Instead of investing $20 in 10 coins, you may want to invest $40 in 5 coins. This way you can take profits and use it to ride the next wave.
Timing the market is impossible. Looking for absolute tops and bottoms is foolish and very risky. Guessing which asset is going to run first is also quite impossible.
Look at ADA for example. It is consolidating since the beginning of September, while other coins have already done 2x or even 3x.
When you have a very small budget you can't afford to make mistakes as you can get rekt very easily. They say it happens to most of the traders, many of them have lost their entire portfolio two or three times, but it doesn't have to happen to you. Play safe and don't give your coins to others.
P.S. Not financial advice, just some thoughts as I've been in this position.
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Excellent strategy. I also usually take profits, you never know when the market is going to fall. thanks for sharing.
I'm glad to hear that. It's the only way of protecting yourself, otherwise you are gonna watch your profit go to the ground.
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When it comes to crypto, diversification is especially important, because a great number of solid blockchains & communities can exist. I would say diversify as much as possible, and then wait. When the entire market becomes frothy, carefully re-balance your portfolio. After you've been through a cycle or two, you'll develop an intuition for when an asset is overpriced.
Side note - given the amount of fiat printing going on at the moment, I'm of the opinion that this bull run (relative to fiat) will last longer than previous ones.
That is all true but when you only have $100 to invest in crypto, you have to think three times what strategy to pick. If you've been through more than one cycle, this case does not apply as you must have made enough profit to be able to diversify property.
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We just have to dream big!
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Yes, we like to dream big but we also have to be realistic as only dreaming won't get you far 🙂
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Even if you have little money available to invest, it is always best to diversify, as this can save you a large part of your capital in case a cryptocurrency drops too much in price.
That's exactly what I was saying in my post. Thank you for stopping by.
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