I do not claim to be an expert in crypto portfolio construction but I write on some tips that has helped me and other people out there.
MAKE A PLAN
Everything rest and falls on plans, it is easy to get overwhelmed and swerved in this every demanding space.
How much is my general net worth and what percent am i willing to invest, what sectors will I invest it, Entry and exits etc
KNOW YOUR RISK APPETITE
Many have gambled away their life savings in the pursuit of financial freedom through crypto. How much risk are you comfortable with taking. By risks, we mean the amount invested, the asset invested
By amount, one should not invest what they cannot stomach if they lose, many in the space suffer from chronic anxiety, depression all due to taking more risks than they should.
By asset invested, the older a network or token the network is the less risky it is both for volatility, scam and returns. Older or more established tokens may give less return on your money but they pose less risk like as with new tokens that make rug pull, may be hacked or very volatile.
DYOR(Do Your Own Research)
One common question that people ask on twitter, reddit and other social networks people gather is “What do you recommend I buy?”
It’s inevitable for us not to come across what people are buying or say they are buying, we should only take such as information to do further research upon.
That someone in the time past had made a correct call which turned out to be profitable does not mean their next call will be, learn to devote time to do your own research.
Doing your own research gives you conviction when you invest in a project.
Will you marry a woman because someone said she is okay or because your own research says she is okay?
If you will not take such a move with your life, you should not as well with your hard earned money
TAKE PROFITS
This is why a plan is essential from the beginning, with a plan you know when to take profits, when to take out your initial investment etc. Know this, you will never be able to perfectly time the top, so taking profits from time to time may be good for you.
Supposing you bought coin Y at $0.01,you can draft the following plan
Take out my initial investment + 10% profit @ $ 0.02 — $0.03
Take out 10% profit @ $0.05
Take another 10% profit @ $0.08
And so on and so forth.
Though you will not get to take all your profits at the perfect top, you will take some profit and minimize your risk of loss.
CUT YOUR LOSSES
HODL(hold on for dear life) is often thrown around in the crypto space, but it’s okay to sell some, sell all and move on.
Some things will rebound after a heavy crash, others will not. Knowing when to sell and cut your losses may be a lifesaver, since all crypto are not the same in tech, make and other metrics, the decision to sell some or all is dependent on each crypto.
If you look 2017–2018 and compare with today, many crypto did not come back after the crash, so imagine holding to your detriment.
AVOID FOMO
Know this, you will never catch all the opportunity in crypto, you will miss some and this is okay.
The opportunity cost of catching one winner is losing some others, crypto is big and ever expanding, they are new projects across L1 and L2 chains, you cannot keep sync with them all.
Do not buy a crypto without researching, some people buy immediately and go to research later(this approach is bad).
Another reason why you should avoid FOMO is that you may be catching a falling knife, maybe when you discovered the project, the price may be too overvalued and buying means you are buying an overvalued asset.
DON’T BLINDLY FOLLOW INFLUENCERS
Influencers may be witchhunted for giving information about crypto, some do such without disclosing whether they have been paid or not, one thing I notice with crypto is that some coins start pumping shortly(like in minutes or hours) after a crypto influencer(be it on Youtube, Twitter) spoke about it.
No one can grasp all that is happening in crypto at once, so if an influencer talks about a project, you should take such as an information to do more research on to see whether it’s something worth buying or not.
FOCUS AND SPECIALIZATION
Warren Buffet is often criticized for not investing in tech stocks but the man is highly regarded as a very successful investor, one of the reasons for this success is that he narrowed down his scope.
Crypto investing is broad, from L1 to L2 blockchains, Centralized and decentralized exchanges, DeFi, NFTs, DAOs, gaming, metaverse etc, the list is endless, so picking one or few sectors may be the best strategy. Also apart from focusing on a sector, one should also focus on an ecosystem, the Ethereum ecosystem consists of thousands of apps, so does Polygon, other L1 and L2 chains.
LESS IS MORE
How many coins should you hold in your portfolio, why no one answer may be entirely correct, it’s safe to say that owning less is better.
You can trade as many assets on exchanges but for long term investing, you should own less.
Owning 4–10 coins(as 90% of your portfolio) is better in my opinion
FOLLOW TRENDS
Some times most gains in crypto investing may come from anticipating a trend direction, knowing when to come in and when to go out. 2020 saw the DeFi boom,2021 was NFTs, play to earn games and metaverse, 2022 may be something else
UNDERSTAND TIME FRAMES
Many make the mistake of not knowing what crypto is short term,mid term or long term, so they buy when they should not and sell when they should not.
Some crypto will go ahead to become the FAANG(Facebook, Amazon, Apple, Netflix and Google) of crypto, others may be hear for a while and die while others will come and soon die with the hype, so it’s essential we invest accordingly.
TIME AND MONEY
Crypto is a 24 hr industry, while you are going to bed tonight, someone else is on the market, know how best to use your time as regards crypto. Many crypto people are often associated with depression, sleep disorders and other issues because many do not use their time well.
One should create systems that work for them
Another thing to note is that crypto is a multi- trillion dollar industry, whatever amount you are investing is nothing compared to the overall, so a wise investment of your money is the best decision you will ever make.
DRY POWDER
You should have cash set aside to buy more of some of your tokens(increase your bags) when need arise. Some people prefer dollar cost averaging, others prefer to buy the dip but nevertheless you should have some dry powder to take advantage of the opportunity.
BALANCE RISK WITH REWARDS
Every potential investment carries some elements of risks and also rewards,a healthy balance is okay, we will examine some of the tokens
Low Risk, Low Reward
These are often coins that have some form of established presence be it market capitalization, network usage, time in the market etc. They usually have a higher market cap but carries very low risk and volatility.
Some examples may include those in the top 10 like Bitcoin, Ethereum etc
. Medium Risk, Medium Reward
These include the likes of Smart contract blockchains like Ethereum, Avax etc, exchange tokens like Binance BNB, Crypto.com(CRO)
These exchange tokens support daily trading of coins as well have their tokens used as fees for paying for a blockchain transaction like BNB for Binance Smart Chain.
- Medium Risk, High Reward
These are those with 100+ million dollar market cap, have real world use cases and some adoption, lots of trading volume and good tokenomics
- High Risk, High Reward
These are those in the less than $100 million dollar market cap range, they can also be new ICOs
The how much question
Alice and Bob may be earning $10,000 monthly but they are not equal, one may have some form of debts to pay monthly(student debts, mortgage, auto loan etc), a family to support(wife, children, parents, siblings etc) and different financial goals.
How much you currently earn, how much of it goes to mandatory expenses goes a long way in determining how much you can invest.
Some tips
- Never invest any money that is not free money
Money set aside for rents or other mandatory expense is not yours and should never be invested in crypto. Many have made such mistakes and have regretted it, one may cite few examples of people who did and got profits but such are outliers, the probability of you losing your money is very high and besides the investment may not pay quickly as at when needed.
2. Do not borrow to invest in crypto
We have seen how bad debts are and also how we can leverage debts to earn more wealth, in the broad sense, crypto are very volatile, up 50% today, down 99% tomorrow.
3. Do not borrow money to invest in crypto.
Imagine taking a loan against your house to buy a coin and the coin crashed or was hacked etc and now you have lost most if not even all your investment, how do you get to pay back the loan. What manner of pain would you subject your family(wife and kids) to.
4. Do not invest more than you are willing to lose
There is a thin line between ambition and greed, we hear stories of people making 10–1000x returns on their crypto investment and we are eager to do same but we should never put in crypto anything that we are not willing to lose.
Take the case of Bob, a father and husband who earns $10,000 monthly, he has bills to pay, imagine him putting the whole $10,000 into crypto, any little crash puts him in panic(this will in turn affect his concentration levels) and what if the worst happens and he lost most if not all of it, how shall he be able to fend for his family.
So back to the how much question, one should invest amounts that do not impact largely their current lifestyle and amounts they are comfortable with if lost.
So now, you have some basic knowledge about how to go about making your own portfolio, the next thing may be how do you create and secure your wallets