If you want to confuse things with a traditional investment portfolio and bring more talented risk tolerance to your strategy, cryptocurrencies can help you play that role. The highly volatile speculative asset class provided investors with both incredible returns and catastrophic losses.
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Many cryptocurrencies regularly issue 50% or more losses within months, weeks, or even days, making billionaires out of some, destroying the savings of others. So, whether you are trying to build a diverse portfolio to help you achieve your short-term financial goals or long-term retirement plans, it is usually never a good idea to put all your nest eggs in one basket.
Even the most speculative investors wouldn’t recommend you put all your money in the crypto, but they might use it as a diversification tool for your entire portfolio. As far as investment advice goes, it is always advisable to follow these strategies slowly when it comes to volatility in the crypto market.
If you’re wondering how much is when it comes to investing in crypto, most financial advisors and experts in this field recommend crypto correlations between 1% and 5%, with few recommending 10% or more. Simply put, don’t invest more than 10% of your “dangerous” assets in cryptocurrencies. However, finding sweet spots can mean not investing more than 3%.
We want to limit cryptocurrency exposure to a small percentage of our overall portfolio. So, Crypto is committed to diversifying its entire portfolio, but it should not be an entire investment strategy. This helps to enable upward possibilities while limiting potential losses.
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The old proverb doesn’t really apply to investing in a mix of cryptocurrency with different market capitalizations, use cases and blockchain technology, not all eggs are put in one basket. Generally, diversification is a way to reduce portfolio risk by allocating assets to different investments. To achieve optimal diversification, these investments are correlated with one another poorly.
The idea is that if you have two different investments that show a positive rate of return but do not always trade at the lockstep, you will achieve the same long-term return, but have low volatility. For example, with Crypto, you can explore large cryptocurrencies like Bitcoin and Ethereum for stability, and explore promising Altcoins for growth potential.
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