The best investment rule of thumb and well-known is “do not put all the eggs in the same basket”. But we must take into account certain aspects when diversifying:
Diversify between asset classes like stocks, bonds and now new asset class is crypto currencies. When stocks rise, investment grade bonds tend to stagnate and when equity markets fall investment grade bonds rise. But crypto currencies prices are not depending on any of these assets, and it works on his demand and supply, and any regulatory departments do not control crypto currency market.
Do not overdo it in diversification. It may sound contradictory after reading the first paragraph, but it is not. Diversification can become a double-edged sword. On the one hand is a necessary element to take into account when building an investment portfolio and protect the portfolio at a time when markets are down, but on the other hand, an excess could limit the potential to rise from the portfolio. The advice is not about diversifying and investing in any available investment. We must select the ones we think have the greatest potential. For example, we choose the best coins where you believe that dev’s of those coins are serious in doing a business and whether those coins got any unique features which are solving any of the existing issues.
Do research and periodically review the portfolio because coins may be doing good in the past but today may not be right for some reason. On the other hand, the analyses we did in the past should be updated to adapt them to the new environment and market conditions.
Avoid checking your portfolio every day when you invest with a long-term perspective. We must avoid anything that causes us to behave emotionally. If we let the daily fluctuations affect us, we run the risk of abandoning the long-term approach and the strategies when you look at your investments every day. It is best to review the results of the investments on a monthly/quarterly basis.
Asset allocation has been shown to have much greater weight in portfolio performance than the selection of individual assets. It is, therefore, crucial to put together a good strategic allocation based on the risk and return profile of the investor, which in the end will affect more than choosing the right action to invest and try to follow this plan over time.
Adjust the portfolio for retirement. With the passing of the years, we are becoming more and more conservative. It makes sense since as we approach the retirement age, we have less time ahead to continue generating income, and the losses that we may suffer in the investment portfolio at that point are harder to recover. In line with this change, what we should do is adjust our portfolio as time goes by to make it more conservative. It can achieve by increasing the investments in fixed income which give us a predictable flow of income and reducing your investment in high-risk crypto currencies.
In conclusion, the objective of a long-term investment plan will be successful when you do a proper diversification and take action whenever necessary crypto currency prices are very dynamic, and you may make a loss if you don’t take corrective measures at the right time.